२१ सप्टेंबर, २००८
Democrazy.
A typo I just made while trying to IM the line "this shows we don't really have a democracy." The topic was how impossible it is for almost anyone to understand the current financial crisis, how disembodied it is from the presidential candidates we've been so focused on, and how we are forced by the complexity of the system to rely on experts whose reliability we cannot judge.
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I love topics that Ann has to reserve judgment on.
The solution I like is taking equity positions in any bank that wants it, enough to they are obviously adequately capitalized. That stops the cycle.
Then dispose of the loans at leisure, paying out the cost at whatever the loans are worth at leisure prices rather than at panic prices.
It's an "Idiocracy," the best movie nobody saw.
"Get yo' monkey ass down."
Congress disses the President during his State of the Union Address, so he takes out his M16 and says "I understand everyone's shit's emotional right now..."
I think you're on to something with that "Democrazy" typo, Ann.
I think it's disconcerting that Ann seems unduly influenced (even if subconsciously and despite herself) by this blog's resident anarchist. For example, compare this post to what John K. wrote last night on the Chuck Shumer thread at 3 a.m. after returning from a successful night of poker:
Damn this shit is complicated.
I don't pretend to have near the familiarity with the financial mumbo jumbo others on this thread are fluent in, but it is pretty scary when you realize how our economic security rests upon paper money that politicians and bankers are constantly dickering with and inflating. They can't be up to any good. House of cards indeed.
There's been talk upthread about how home ownership is not a right, and how government policies promoting it have been misguided. Well, yeah, nobody has a right to have somebody else build a house for him. He's got to pay for that. But here's a radical truth -- every person born into this world has an equal right to the underlying earth, even if other people got there first and fenced it all off. You may say I'm a dreamer, but I'm not the only one. Read Thomas Paine's essay on Agrarian Justice, spelled out in terms that even the experts can understand. Simple as pie. Maybe more people could afford their mortgages if this self-evident truth was recognized.
Recognize this truth, conform tax "policy" to it, and let the invisible hand take care of the rest. Get rid of the Fed. Totally deregulate banking. Let people use whatever currencies they want. Let the cards fall where they may. Buyer beware. The government has been no good for the economy since the days when kings skimmed the gold off coins passing through their treasury while chopping the heads off of private citizens who dared to do the same damn thing.
Do I know what I'm talking about? Maybe not. But I see know reason to trust our fates to bankers and financial experts just because they speak an unintelligible language. Even people knowledgeable in the field admit the whole damn thing is a giant ponzi-scheme. Seems about right to me.
we are forced by the complexity of the system to rely on experts whose reliability we cannot judge.
Yes, but aren't there a number of issues or problems that government takes action on that we can't fully comprehend?
The most obvious is global warming, for example. I have neither the capability nor the time to wade through the volumes of complex scientific studies of this matter to determine whether we are indeed causing the planet to warm or whether it's a natural cycle. Or something in between.
Who really knows? We must, in the end, rely on experts to settle the matter.
A matter that, financially, makes this latest bailout insignificant in costs and change in our lives.
We can add another dozen or so issues (many more) whose complexity escapes most of our understanding.
I'm with Lippmann (Walter) on this matter. Participatory democracy is impossible.
Truly there are problems that are so complex they cannot be boiled down into a partisan sound bite.
How delicious!
It means this: the election actually comes down to who has the McCain correct on the surge. Obama wrong.
How will it play out on the economy? Start here:
McCain's New Discretionary Spending Proposals: $68 billion
Obama's New Discretionary Spending Proposals: $343 Billion
Who are you going to trust to pick the right people?
The above sentences should read:
the election actually comes down to who has the character to make the right judgment. First example: McCain: Petraeus. McCain correct on the surge. Obama wrong.
I stand by the rest of my reporting (that's what all the Media Papers say, anyway)
For those who want a solid exposition of the foundational matters in the current crisis--which, contrary to much of the reporting are neither unique nor particularly unpredictable--I highly recommend International Financial Markets, 3rd Edition. Credit crises, the demonization of derivatives, monetary policy, the relationship between the financial market and other markets... it, and more, is all there.
Sometimes in an emergency you have to trust someone to make the right choices. I watched Henry Paulson on every Sunday talk show today and he did make some sense. He got members from both parties and the financial elites to mostly agree his plan seems the best at this junction.
Plus when you have Congress declare a recess, someone has to fill the vacuum.
I think an article explaining what happened and why could certainly be written, but the times are too partisan for it. Who is to write it - Paul Krugman? Economists are human beings, after all, and they know the stakes. It's an election year, so everyone has an agenda, so no one's analysis can be trusted. Even if Krugman privately believed the whole mess was the result of actions taken by the Clinton administration and the Greenspan-era fed, he isn't going to say so - he will find a way to blame it on the Bush administration because he wants Obama elected and presumably like most liberals thinks that the McSame meme works (it doesn't, but that's beside the point).
In the end, we have to revert (as Brent's comment indicates) back to generalized assessments based on what we knew ex ante. I believed before the "crisis" that Obama's platform would ruin the economy; why would the assessment that assessment be changed if events transpire that the road to ruin down which he has to drag it is shorter? From that perspective, the crisis is irrelevant. Rational ignorance will ensure that this is the prism we look at the matter through unless or until it's shown that this crisis is worth the commitment costs to learn why it shouldn't be.
Im'ing requires brevity. "we are fucked" would suffice.
Well then, here you go.
The current problem has its origin in legislation passed by a congress associated with an administration en tiempos muy muy remotos, viente años por exactamente. It was a well meaning effort intended to make affordable housing available to the underclasses. Ew, I hate that word. It was legislation that coerced banks into making loans to all economic portions of the areas they served. The results were to be rated and that rating would affect the lending institution's ability to do wonderful things like acquisitions and mergers. The legislation was supported by the traditional Left and resisted by the Right, and by Left I mean Left and Left of the Left along with the Left of the Right. Like all all good intentions it was a ... a ... let's just say it ran counter to objective reality. However, it's a big country, sufficiently large to absorb such well-meant errors. It worked. Most of those loans made in that period are close to being paid off, if not already entirely paid.
But along the way, another congress under another administration looked at this legislation and like novice gardeners reading instructions on a jar of fertilizer, concluded if one capful works well then two capfuls would undoubtedly work really really well so they doubled the dosage. They strengthened the original legislation. They broadened the legislation. Lending institutions knew this to be unsound. They resisted. So did the Right of the Right but not the Left of the Right so they they lacked filibuster-proof numbers to resist the Left of the Left and the plain ol' Left who were united with the Left of the Right (and we know who you are) and so the legislation buttressing passed.
The good side of this is a lot of ordinary people were able to attain loans who otherwise were presently shut out of home ownership. The bad part of this is banks were forced by law to make loans they knew to be unsound. They are bankers, after all. Bankers are by nature conservative, in temperament if not in political affiliation. Forfeited, at least to a degree, was the will and the jaw-setting determination that arises when ordinary citizens set their minds to changing their lot -- scrimping to save for a down payment, that sort of thing. Why should they, when ) ) ) schwing ( ( ( day id iz ?
Later, under another congress, some of the same characters but a differently numbered congress, and associated with yet another administration, the Federally-backed questionable loan making continued apace. Those agencies, all got up in government, grew unimaginably large. Home buyers signed onto loans genuinely wondering how it all worked out mathematically. It seemed like magic. But they were happy the bank cooperated so completely with their loan packages. They were happy for years until one day, suddenly and quite by surprise, the interest on their loans ballooned to hundreds of dollars beyond what they were prepared to pay, thousands, in many cases. They couldn't handle it. They experienced emotional break downs. They didn't know what to do. Perplexed. Bewildered. Confused. Addled. Shocked. They left their homes for the bank to worry about and took an apartment and hid. They refused to take calls. They did this in large numbers. Bankers everywhere pissed themselves. Because now they owned thousands, tens of thousands of homes that weren't bringing in money. In fact, there were too many to sell, too many to care for, the homes fell to disrepair, they couldn't keep the lawns mowed, their value dropped.
Meanwhile, those dubious loans in aggregate were used as collateral for much larger deals between financial institutions, in acquisitions, in mergers, and many many other creative financial instruments. Banks began to fail. Assets including the dubious loans in aggregate were shuffled, discounted, repackaged, re-sold, and re-shuffled and sold yet again. Traders, knowledgeable on profiting on losses smelled blood and entered these shaken financial markets. Clever bastards. They're not to be despised. They usually serve a sound purpose in that they tend to even out market fluctuations, but these loans are federally backed and that makes a huge difference. Especially since these loan-making outreach programs had been so broadly expanded. It was the force of law. Congress makes the law. Not the president, and not the president's friends.
Selling short. Here's the thing: when a person buys stock in the ordinary way, they attempt to buy cheap and sell dear. That is, I buy stock, patiently wait for the company to grow in the ordinary way, the result of good management, the stock price rises, then at some point I sell the stock at a profit and go out and buy the Bang and Olfufsen I had hoped someone would give me. That's called selling long. The process in reverse is selling short. That is, either betting or certain the market will tank, I sell stock that I don't actually own, then buy it when the price is lower, thus profiting the difference (minus the cost of the transactions, of course). Clever, in'nit? But how can I sell something I don't actually own? That, my dears, is the magic of financial instruments. I get someone to loan them to me for the duration of the transaction. Bwaaahaahaaahaaa.
So you see, there is blame to go around, if blame you must, but it absolutely does not devolve to the current president, however loathsome a creature you may already find him. In fact, he would be the hero of this sad story because he tried so hard and failed to put a stop to this, at least to check it, but was himself stopped by the congress he had to work with, and then had to step in and use his mad xekative powrz and shoulder the mess made by his opponents. History will explain it all to you, later, when you've calmed yourselves. The culprits are the congress persons who foisted the legislation on the financial institutions against their protestations in the first place and then later expanded it. Individuals can be picked out for excoriation and scorn, they're on the Left and on the Right. Be kind, they meant well. The result of this is, our culture of individual responsibility has been incrementally eroded irreparably. We are now all one giant step deeper into a socialistic society. Irreversibly. Take a bow. In the end, you're the ones who've tolerated these well-intended congress people, allowed them to take hold and to thrive. But then, what were you to do, short of shoot them? They're always elected by citizens of another state where you personally don't get a vote. See? You personally didn't have control.
One last note. Housing is a significant portion of the nation's economy. The financial sector is another large portion. Housing and finance are obviously related. But they're not the entire economy. For these gigantic portions to become socialized is nothing to go off and hang yourselves over. But it is alright to be angry. Simply put, your country, our country, can never be as it was before this incident. Such is the insidious nature of socialism.
This concludes the Cliff Notes™ version of the present financial crisis and its permanent affect.
* grabs jacket, leaves *
So what did the person text back?
Chip Ahoy's summary is, in my opinion, excellent.
I just got off the phone with my parents, the retired teacher/principal couple in Indiana. Given that they're retired, I asked Dad about his portfolio. It's fine--their investments aren't in the financial sector and are spread out over stocks, bonds, annuities, mutual funds etc. They paid off the mortgage on the house some years back. Their investments are actually up a bit over last week.
None of us are thrilled about the U.S. Treasury taking on $700B of bad debt, to be sure. But the alternatives all seem worse--even to me, free market fundamentalist registered Libertarian nut job that I admittedly am. There's an object lesson in there, IMHO, about how poor our valuation mechanisms for the various derivative instruments that constitute modern finance are, and as a software developer I see some opportunities there, but I don't want that object lesson to result in an even more wide-spread financial panic than we're already seeing, even though the consequences include setting a staggeringly poor precedent politically and a genuinely mind-boggling establishment of moral hazard, at least in the short term.
"So what did the person text back?"
Not texting, IM-ing. Typing on a keyboard in the normal way.
The response was: "Yeah!!!"
I blame the 17th amendment to the US Constitution.
Seriously.
Joe, as much as I share your dislike for the 17th Amendment, could you explain how you see it connecting to this problem?
If McCain would sit in a wheelchair, put Toto in his lap, encase himself in a lap blanket, and let Sarah push him around, the election, it would be his.
Repeal the 17th amendment?
Exactly, because we need to give our unaccountable elitist senators even less accountability and even less contact with the actual voter. Here's my idea, why not just turn the Senate into a unelected House of Lords.
After all, if it wasn't for all us regular Joe's wanting risky CDO's, high Wall Street Profits, and Demanding passage of Graham-Leach-Bliley Act none of this would have happened. A classic case of mob rule.
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