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This Financial Mess Is All Ours

I'll start with a caveat:  I don't know anything about economics.  My understanding of the current mess in the financial markets is rudimentary at best.

Okay.  That said, I've been going back and forth all day with a Republican friend of mine about who's to blame for the failure of the bailout/rescue bill and what Obama should have done and what McCain should have done, and whether Pelosi or Boehner is being a bigger idiot right now (and that, my friends, is a difficult call).  But it occurs to me that we, the American people, are as much to blame for this mess as anyone.  Why?  Because we want it all.  We always want it all.  We want low interest rates, and we want money to be available for whatever we want to buy whenever we want to buy it, and we want low mortgages, and we want big houses, and we want new televisions and computers and all sorts of other toys, so we want lots and lots of credit and lots and lots of credit cards.  Bad debt lies at the root of this entire nightmare, and we are the kings and queens of bad debt.

When this crisis broke two weeks ago folks on the left (myself included) screamed bloody murder because we were going to bail out the wealthy Wall Street types "who caused this problem" and leave the middle class holding the bill, and folks on the right screamed bloody murder because the bailout was just one step short of "nationalization of the banks" and it was a fiscal nightmare.  Early polls indicated that nobody wanted the bill to pass and phone calls to Congressional offices were running 99-1 against.  And yeah, maybe both sides had and continue to have a point. 

But now the bill is dead and the markets have tanked and we're up to ears in financial shit and suddenly everyone's saying, "Oh my God, the bill is dead!  What the fuck are we going to do?"  And you know what people?  We're right where we deserve to be. 

This is a really serious time for the American economy.  John McCain and Barack Obama are both right when, in their saner, bipartisan moments, they say that we have to do something and do it quickly.  Sure, it would have been great if our leaders had ignored all those calls and polls and done what was right despite the fact that we were acting like spoiled brats, but frankly they're politicians and we should know better than to expect that much of them.  The bailout bill sucks.  It blows bulldogs.  It's hideous and awful and it establishes all sorts of awful precedents.  But you and I both know -- and people looking at the drop in the Dow and the failure of Washington Mutual and the nationalization of banks this past weekend in England and the Netherlands are finally starting to figure this out, too -- that doing nothing at all is going to be ten times worse.

So suck it up America.  Call your Congressperson and/or Senator and tell him/her that you were wrong to make those angry phone calls last week, and it really would be helpful if we could find a way to dig ourselves out of this shithole before the entire global economy falls off the same cliff that the markets fell off of today.  You want bipartisanship?  Here's bipartisanship:  Democrats and Republicans on the Hill are behaving like preschoolers.  So lets whip all of them into shape and tell them to fix this mess, before it's too late.

Comments

( 42 comments — Leave a comment )
mikandra
Sep. 30th, 2008 02:22 am (UTC)
IMO, those angry phone calls should have been made years ago. The whole trouble has been structural and building up for years.

Even my grandmother knew never to spend more than you earn.

Chickens have come home to roost. Big time.

Meh. I'm writing an SF novel set in a world where the US is no longer a major player. Up until last week, readers were telling me that it was a ludicrous concept.
davidbcoe
Sep. 30th, 2008 04:07 am (UTC)
I think you're absolutely right. This problem has been building for a long time and we've all ignored it. Now we have a crisis and every solution seems rushed and too big. It really is quite a freakin' mess.
elisel
Sep. 30th, 2008 03:03 am (UTC)
I think this may be the fairest assessment of the bailout plan (and its assorted can of worms) that I've read. Thank you! I have a conservative family and a lot of liberal friends (I fall out somewhere uncomfortably in the middle with apparently irreconcilable opinions that fall in both camps) and I've heard a lot of blame thrown around, and not much responsibility taken.

Bad debt lies at the root of this entire nightmare, and we are the kings and queens of bad debt.

We seem to have become a nation of debt. It's our habit to buy, buy, buy, beyond the means we have available to us: Not just on a personal level, but institutionally. The media and the government encourage us to do so, tacitly or openly. I think it's a terrible philosophy.

I don't like the idea of a bailout bill because I agree with the people who think that it seems we're rewarding big companies (for exploiting our foolishness or gullibility?) and cushioning CEO retirement plans. But I think a lot of the people who are dead-set against the bill fail to realize how much the economic crisis at the top is affecting ALL of us.

I don't have a good understanding of economics, either, but I think we need this bill. And the nature of compromise is that to get the things we want or need, sometimes we have to stomach things that aren't appealing to us.
davidbcoe
Sep. 30th, 2008 04:05 am (UTC)
Thank you, Elisel. It's hard for me to separate out the politics from all of this -- this was a difficult post to write -- because I feel so passionately about the upcoming election. But we seem to be on the brink of something truly cataclysmic here, and I for one would like to avoid it if we can.
jtglover
Sep. 30th, 2008 11:14 am (UTC)
I Am Also Not An Economist
...but I think the bailout is wrong. Yes, not passing it will lead to privation and difficulty for all. No, it won't be fun. Yes, we are headed for hard times, and the rich will be insulated either way.

At the same time, I think that a bailout will not fundamentally solve the problem. In theory it might provide breathing time to do so, but I think it would actually only delay the inevitable crash and revamping of the economy. We have borrowed too much, individually and as a nation.

What you say above about our greed and desire will be no less true in a few weeks if we do get the bailout going. People will put it behind them just like they did 9/11 and more or less get back to their same old lives. A bailout won't change our basic approach to matters economic, and that's the problem.

I don't have an answer (not being an economist), but I don't think throwing money at the problem is going to make it go away. The people who bought palaces on a townhouse budget--have to lose their houses. The businesses that operate largely on borrowed capital and continually extend themselves in order to attempt to conquer competitors--need to fail.

Now, that's speaking on a good-for-the-body-politic basis. I'm terrified of going to the store next month and finding milk for $10/gallon.
davidbcoe
Sep. 30th, 2008 03:12 pm (UTC)
Re: I Am Also Not An Economist
You make valid points, JT, and since neither of us has the training I'm certainly not going to argue that you're wrong and I'm right. I really don't know. The thing is, though, this bailout, as I understand it, is necessary to free up credit so that businesses can simply function -- buy materials, make payroll, stay open. It's not that I think that the bailout will change behavior; it's that I think a failure to pass it will lead to massive unemployment and a deep, deep recession, which helps no one.
sleigh
Sep. 30th, 2008 11:26 am (UTC)
Or... perhaps doing nothing and allowing the chips to fall is the right thing to do. The economists themselves are badly split on this one -- there doesn't appear to be a consensus opinion.

In my experience, doing something quickly just for the sake of looking like you're doing something doesn't usually result in the problem getting fixed. It results in fouling things up even more. Sometimes you just need to take your time, examine all the options, talk to experts on the subject, then choose the best solution: not quickly, but calmly.

I, for one, wasn't unhappy to see the bailout bill go down. Yes, I think Congress needs to act, but this bill was a stinker.

And you're right, figuring whether Pelosi or Boehner is the biggest ass is a tough call. Pelosi's speech managed to be exactly the wrong thing to say, and Boehner's manufactured outrage is just as idiotic.
scbutler
Sep. 30th, 2008 12:48 pm (UTC)
The bill wasn't that bad. It could have been better, but like all bills it had to be a compromise. It was a lot better than Paulson's original bill, and it would never have come close to costing $700BN (even if the assets weren't sold at higher prices over the next two or three years, there was a provision to start recouping any losses from the banks).

Pelosi's speech was idiotic, but it ain't the reason this went down. I found it interesting that the Republican caucus was ready to start the finger wagging first, and had their press conference less than an hour after the vote was over.
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davidbcoe
Sep. 30th, 2008 03:16 pm (UTC)
Thanks for the comment, Sam. I'm going to maintain a silence on the politics of this thing for the purposes of this thread.
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scbutler
Sep. 30th, 2008 12:52 pm (UTC)
You're right, Jim. It's everyone's fault. Borrowing against your house for current spending? A nation with a negative savings rate? This has been building for a generation.

But the other shoe is unrestrained deregulation. Capitalism needs deregulation like a dog needs a leash - they both go under the first bus that comes along without it. Reagan started it, but the real king of deregulation was Phil Gramm, who personally made sure that CDSs weren't subject to any control at all. And who wants to make Gramm his treasury secretary? John McCain.
sleigh
Sep. 30th, 2008 01:46 pm (UTC)
Amen to that. Deregulation is the 30 ton gorilla in the room.
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crazywritergirl
Sep. 30th, 2008 01:17 pm (UTC)
"Blows bulldogs." Love that line. Not happy about the bailout bill because of everything you've said. On the flip side, given the sincere lack of leadership in DC and the ripple effect this will have in the world markets, I fear we'll have to hold our noses and eat this one.

30 years ago my husband and I joined the "back to land" movement, convinced the economic markets would melt down. We moved into a tiny unheated farm house, raised our own food, cut wood for fuel, etc. The markets did a bit of tanking, but recovered. A false recovery, some say. We moved back to the big city.

Now, as things are swirling around the drain, we find it ironic we may once again have to resort to our backwoods skills to enjoy a decent retirement. Somewhere in the hereafter Helen & Scott Nearing are shaking their heads and muttering, "We warned you!"

So if you see any land in TN for sale, let us know, David. This time, however, the house will having running water.

http://en.wikipedia.org/wiki/Back_to_the_land_movement
sizztheseed
Sep. 30th, 2008 02:38 pm (UTC)
I'll have to agree with you on that one. I'm also not an economist, but I've been following the economics of the situation for a long time now, and have recently felt the need to recapitulate and review basic premises of how we go about our daily lives. A great deal of this problem we're facing seems to me to be a ghost problem, a ghost economy divorced from the work it rides upon, and a bubble of speculative trading that has little or no bearing on actual assets and impacts.

And it's not just the economics, but also the approach to food and housing and what a "quality of life" really is. I've been drawn to the local food movement and other practices that allow the growth of alternate distribution and market networks than the ones that rule either Wall Street or Main Street. It seems there is a lot of potential for sustainable culture that just needs practice to build into permanence. Could the hard times everyone seems to see around the corners give it an impetus? It would only seem fair. You should get something in return for your pain. The Paulson plan wasn't going to do that. It seems more an injection of soporific to the mind than an injection of vitality into the economy.

So, yes, your movement seems to be one of the few real answers. The more we get into this, the more I see a move towards "Back to the Land". I certainly advocate a more human-oriented and public good approach to the economy. Perhaps allowing the world-eating portion economy to collapse is the radical surgery that is needed, but I fear for what it means for people who don't have the luxury to prepare for it.

But so far there's been no real pain as in bread lines and wiped out life savings. The reality has not caught up with the figures. Some sort of "New New Deal" may be needed if it does collapse, but if it isn't this time, it will be the next or the one after that makes people realize that removing reality from the markets is a very bad idea. The earth can only take so much. It has already begun to fight back.

Wow that was really rambling. Apologies.
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crazywritergirl
Sep. 30th, 2008 02:59 pm (UTC)
"A great deal of this problem we're facing seems to me to be a ghost problem, a ghost economy divorced from the work it rides upon, and a bubble of speculative trading that has little or no bearing on actual assets and impacts."

Precisely. The illusion of being well off while the economy "cash flows" as fast as it can to keep the system on the move. Once the cash flow is cut off in any way, it melts down. Much like our gas shortage here in Atlanta. It's been intriguing to watch folks try to cope with this as our mass transit is very rudimentary, at best.

As the Wiki article corrects points out, the Back to Land thing is cyclical. The downside of moving out onto the land is that you need a nest egg of sorts or it gets very rough very quickly. We learned that lesson over the course of twelve years, some of which was literally hand to mouth. Part of the problem is that any place where you can actually afford land, the wages are severely depressed, so your chances of earning a living are greatly reduced.

Most of our current population, except for the elderly, have lived during boom times, with a few busts thrown in just to liven up the soup. To take a step away from the McMansions, the two fancy cars, etc. is really going to hurt. We're so technologically oriented now, so dependent on the "system" to supply our needs, it's going to take a major shift in our "we're entitled" attitude to make any difference. Unfortunately, it appears that shift is going to be force fed to us, rather than it being voluntary.

A friend of mine recommended a book just yesterday: Alan Bacevich's The Limits of Power: The End of American Exceptionalism. He was interviewed recently by Bill Moyers. Apolitical, Bacevich examines what led us to this moment and why, in his mind, it doesn't matter who gets into power in Washington unless there's a fundamental change in our collective psyche.

And a thanks to David for what is consistently a stimulating blog. Well done, sir!

davidbcoe
Sep. 30th, 2008 03:24 pm (UTC)
Thanks, Jana. I'm enjoying this thread immensely and learning a great deal. Thanks to all who have contributed.
(no subject) - sizztheseed - Sep. 30th, 2008 05:36 pm (UTC) - Expand
crazywritergirl
Sep. 30th, 2008 03:28 pm (UTC)
I'm enjoying it as well. It breaks up the monotony of proofing the galley, which as you know is boring work. Only 160 more pages to go!

Oh, and if that land can be somewhere near a small college town, so much the better. It's my goal to go back to school in a few years. I'd love to take a course in Constitutional Law (waggles eyebrows).
davidbcoe
Sep. 30th, 2008 04:23 pm (UTC)
Well, in that case there are lots of possibilities right here where I live.
markwise
Sep. 30th, 2008 07:06 pm (UTC)
This my friend is something that we both can agree upon. We as a society have gotten addicted to credit. "What? You mean I actually have to buy a car with cash?" "Do you mean that I don't need the Gucci handbag and the Prada shoes?" It is time we return to the cashbased society that we had pre-1955 and we would not have to worry about this kind of problem affecting our lives.

On NBC this morning, they mentioned that employers "can not pay their payroll" without getting credit. If your company has to take out a loan to pay your payroll, the you do not need to be in business.

Anyways, another good post, David.
scbutler
Sep. 30th, 2008 08:22 pm (UTC)
Any company with a seasonal product cycle has always had to borrow to meet its payroll in the down end of the cycle. Even before 1955. (Think about retailers making all their money in the Christmas season).
(no subject) - davidbcoe - Sep. 30th, 2008 08:39 pm (UTC) - Expand
beatrizwench
Oct. 2nd, 2008 01:23 am (UTC)
Any time you'd like to talk economics (or at least this part of it), I'll buy the booze. ;-)

Your post and the comments have been very interesting..
davidbcoe
Oct. 2nd, 2008 01:55 am (UTC)
Sounds good to me.
( 42 comments — Leave a comment )

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