
U.S. Secretary of the Treasury Henry Paulson, Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Christopher Cox, and Director of the Federal Housing Finance Agency James Lockhart III testify on the federal economic bailout plan before the Senate Banking Committee.
John Simon, the famous literary, theater and film critic, and self-proclaimed elitist, had this to say about democracy:
“Democracy encourages the majority to decide things about which the majority is ignorant.”
Couldn’t have put it better myself. A few years back, when people conveniently started forgetting what the war on terror was all about, some conspiracy theories evolved about the war in Iraq being simply an oil-grab. Forget the fact that in 2007 we imported less than 5% of our oil from Iraq, and at the peak in 2001 less than 9%. But the urban legend is out there, and it’s amazing how many people believe it. Our sound-byte generation wouldn’t know what an in-depth unbiased news article was if it screamed like a banshee and sang “Zippity-Do-Dah” in Swahili. Forget research or even common sense, just believe in something stupid and that makes it real.
Now, it’s the financial crisis. It’s all Bush’s fault. Every time I hear anyone complain on TV nowadays, I just imagine in my mind that they’re prefacing every comment with “It’s George Bush’s fault that…” Here in Georgia we have a guy named Jim Martin that’s using every negative associative bullshit trick in the book to steal the Senate seat from Saxby Chambliss. For Republicans, it’s guilt-by-association and guys like Martin are wallowing in it. (And, uh, Martin really creeps me out for some reason…)
My friends, the current financial crisis is the result of everybody trying to grab their dream at someone else’s expense. And that includes you, sub-prime mortgage borrower. Without buyers, there never would have been a market for these stupid loans in the first place. And in a free-market economy, if your bank doesn’t offer the products people and businesses want, someone else will. So you have to participate or lose potential sales.
I understand that people nowadays are losing their jobs and as a result can’t make their mortgages, both conventional and unconventional. But that’s not how the whole mess got started in the first place—it started with people with marginal credit getting mortgages with no-money down, balloons, adjustable rates, interest-only, yadi, yadi, yada. People expected that housing prices were going to continue rising ad infinitum. But nobody thought about the downside. Responsible people did, and that’s why conventional mortgages exist in the first place.
The worst part of this whole crisis, if you believe the news media, is that the reason the bail-out was voted down had to do with all of the angry phone calls from constituents demanding it. The generalized rationale is “All we’re doin’ is payin’ off some fat-cat bankers what stole our money, an’ ahhm sick an’ tired of it.” (Direct quote.) I’ve worked for years in financial services, and my wife is an officer with a regional bank, so I know enough to know that I don’t know enough about what I know. But I do know some.
The hoi polloi doesn’t realize that banks are hoarding cash because of the massive debt they’re carrying. They don’t want to lend to anyone else. That makes it next to impossible to get new car loans, mortgages, credit accounts, etc. Banks won’t even loan each other money. Without credit, there’s no business expansion, no new jobs. Businesses cut back to save money and jobs go away. More people default on mortgages, and the cycle repeats itself. Add to that lemmings irrationally withdrawing funds from federally insured deposit accounts, and others hoarding cash, and we come to an utter, complete standstill.
This scenario happened back in 1929. Ring any bells?
Herbert Hoover was slow to act1, claiming the free market would balance itself out. When he did act, he instituted some band-aids that should have fixed the problem. In theory. But people and banks still hoarded cash and there was absolutely no inertia to jumpstart the economy. Add to that a major agricultural nightmare (the dust bowl)
FDR saw that the only way to get out of the mire and muck was to re-instill confidence in the financial services industry so that people and banks would start letting go of some of that cash. That’s essentially what the current bail-out is all about: buying the debt of these major institutions and allowing them to loosen their grip on funds and give the average Joe the confidence to start spending again.
Other countries have handled similar situations in different ways. Back in the 80’s Brazil financed their debt by simply printing new money. Of course, that devalued the currency and caused mind-boggling hyper-inflation. When I visited Brazil in 1990, the inflation rate was nearly a percentage point PER DAY. I took a taxi and there was a daily chart posted inside the cab that cross-referenced what the taxi meter said to the actual cost, because it was impossible to adjust the meters every day. The “black market” exchange rate was announced on the news every day right along side the “official” rate.
Now, the structure of the bail-out is definitely arguable. Henry Paulson, our esteemed Treasury Secretary, doesn’t want anyone being able to argue with him. Dems want judges to rewrite mortages (defeated, Thank God—don’t get me started on that one). GOPs want, uh, what DO they want? Except to be re-elected. Assholes.
But something needs to be done, and it needed to happen yesterday. Of course, Joe Six-Pack didn’t get to see any television news on NBC this past weekend, because it’s evidently more important to watch grown men tackle each other or hit little white balls with sticks than learn about how our economy is headed straight into the toilet. $700 billion is a lot of money. But the stock market lost 1 TRILLION DOLLARS in value yesterday alone. And that’s just the tip of the iceberg.
Update, 1 Oct 2008:
Apparently, in the last two days phone calls to legislators have gone from 90 to 1 against the bail-out to 90 to 1 in favor. This, after Buffy and Muffy Preppie watched their 401(k)’s value drop 10% overnight. Stupid, Greedy and Selfish.
- Joe Biden actually claimed that it was FDR that was President when the depression hit…guess he fell asleep during that particular Civics class. ↩








