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Category: The Economy
Posted by: A Waco Farmer
The Problem with democracy? The People are sometimes ill-informed, short-sighted, and selfish.

In truth, the will of the people is not always the same as the public interest. This is why self government based on representation by courageous statesmen is far superior to the tyranny of the majority (see James Madison et al, 1787).

"Not with my money you don't" is demagoguery. Politicians who caved in to this populist claptrap should be ashamed.

The biggest problem: most Americans see this as happening to somebody else. Unfortunately, we all own this economic crisis.

The other major problem: we are a conspiracy-driven community. Wackos on one side think this is a Bush-Wall Street conspiracy (similar to the conspiracy to rush us into war with Iraq for various nefarious reasons). Wackos on our side see it is a socialist, big-government cabal to extinguish liberty and the market economy.

Up until now we have been a culture so wealthy and free that we could indulge ourselves with these sorts of paranoid fantasies. That era may be coming to an end.

My prediction: if the stock market tanks (and by that I mean a 2000+ drop) over the next few days, my guess is that this misguided empty populist rebellion will evaporate quickly.

BTW: I notice that a lot of congressional Democrats whom I recognize as part of the Black Caucus voted against this rescue. Any ideas what that means?
Category: The Economy
Posted by: A Waco Farmer
The deal is struck. Crisis averted temporarily.

Take the deal. Applaud the deal. It was the right thing to do. The calls on C-SPAN are running fifty to no one against "bailing out the fat cats." No matter, this is one of those instances in which sincere statesmen could not afford to indulge in populist poppycock.

What the misguided callers and disgruntled denizens of "Main Street" fail to realize is that we are all corrupted and connected. We are "fat cats" in our own right. In my small city, USA, every successful lawyer and doctor and small-business owner drives a forty-thousand-dollar-plus vehicle, university faculty live higher than pre-modern nobility, and even the community college teachers live in big houses and drive new cars.

We should suppress our understandable human desire to find malefactors in distant places. The "robber barons of Wall Street" make for colorful villains--but our rush to shift our own complicity clouds the real issue:

We have been living above our means for decades.

This plan avoids the looming cataclysmic crash--but it does not solve our problem.

Some of this I wrote about earlier this week.

This fix is not really a fix. It is only a stopgap. The deal is merely a STAY OF EXECUTION. We can overcome this current crisis, but it is a fire bell in the night. It is a warning, which, if unheeded, signals the beginning of the end for us.

Our only real solution? Repentance.

If we are actually to heal ourselves, we are going to need to change our lifestyles. We must conserve more of our resources. We must practice self denial more and indulge in instant gratification less.

Hopefully, we have avoided a Second Great Depression--but, if we are honest with ourselves, we will grasp this opportunity to recommit ourselves to a healthier and more sustainable culture of reality and sobriety.

This $700 Billion RESCUE was necessary--but it is not a "get out of jail free card." We have an opportunity to turn from our folly. We must seize it. Moving forward with a "business as usual" mindset would be suicidal.

Support the deal and commit yourself to a cultural makeover. A time is coming in which we can no longer have it all.

A Parting Thought: in that vein, perhaps a "spending freeze" is the most practical suggestion put forward by a candidate for national office in the new century.
Category: The Economy
Posted by: A Waco Farmer
"Do you think Wall Street owes the American people an apology?"

It was the soundbite of the day earlier this week. On Monday and Tuesday the world watched breathlessly and angrily as the Senate Committee on Banking grilled the Fed Chair, Ben Bernanke, and Secretary of Treasury, Henry Paulson.

Against the weight of the political extravaganza, Bernanke patiently attempted to explain American economic history and Business 101 to a gaggle of self-aggrandizing politicians amid the clicking, clucking, and buzzing of the political press. On a desperate mission to save the US economy from collapse, the indefatigable Fed Chair pressed on through congressional willful ignorance and gratuitous disdain.

"Do you think Wall Street owes the American people an apology?" asked a grandstanding freshman senator.

An Aside: my immediate reaction (with my face changing color and fire rising in my eyes): "with all due respect, Senator Brown, do you ever wonder if the Senate of the United States owes the American people an apology?"

It is good that I am merely an obscure history teacher and an anonymous blogger. Rejoinders of that nature are not productive.

Bernanke, the Southern-born, Harvard- and MIT-educated gentle intellectual giant, responded with grace, explaining finally that "Wall Street" was something of an "abstraction."

Otherwise intelligent people have been asserting all week that the fat cats are to blame. If you actually believe in capitalism, they say, you must agree that heads need to roll, markets need to work, and we need to let the chips fall where they may. Who's at fault? George Bush and his corrupt business cronies. Or, Bill Clinton, big-government liberalism, and political correctness. Or, greedy mortgage bundlers on Wall Street. Or, deceptive lenders who forced people with bad credit into loans they had no intention of paying back while living in houses that they could not afford.

Bailout? "Not with my money you don't."

Here's the problem:

Ask not for whom the bell tolls. It tolls for thee.

Who's in trouble? We are. Who's needs bailing out? We do. Who's to blame? We are. Who's going to save our asses in this moment of crisis? We are--if we can muster the good sense and stifle the self-righteous indignation.

First Step: stop pointing fingers. Our overall mess is seven decades in the making. We are a spoiled rotten bunch and a society too often unconnected to reality. "Wall Street" has done our bidding. Every mug on "Main Street" NOW can tell you how idiotic the mortgage derivatives were. Where were all these geniuses a few years ago when we were all slurping up our low-interest, no-questions-asked home loans? We could have used some of that 20-20 hindsight in real time.

An Aside: what often goes unsaid is that there were many more innovative financial mechanisms that worked as advertised. Innovation means taking chances. When things work everyone is happy. When they don't: get a rope.

More importantly, we need to face this reality: we did this to ourselves. Face up to our own complicity. We wanted it all (and still do).

Number Two:
come together, stop whining and blaming, and do the right thing. We can beat this crisis together. Right now we still have enough collective punch and stamina as a super power to overcome this mighty financial blow of our own making. Let's do it. Stop talking. Stop the CYA. Make the right deal.

Number Three:
Repent. This fix is not really a fix. It is only a stopgap. We can overcome this current crisis, but it is a fire bell in the night. It is a warning, which, if unheeded, signals the beginning of the end for us.

If we are actually to heal ourselves, we are going to need to change our ways. More conservation of resources. More self denial and less instant gratification. Fewer vacations. Older cars. More walking. Less gardeners, maids, and nannies. More reading. More church. More saving. Less fast food. More vegetables. Less TV. Fewer designer labels. Less NFL. More playing in the yard. More studying. Less drinking beer. More gardens. More respect. Less snark. More grace.
Category: The Economy
Posted by: Martian Mariner
I have been thinking about writing a bit on the financial crisis, but fortunately for you I found some analysis from people who actually know what they're talking about. A particularly relevant bit from the Freakonomics blog:

[Frequently Asked Question #] 4) I do not work at Lehman or A.I.G. and do not own much stock; why should I care?
The concern for the man on Main Street is not the bankruptcy of Lehman, per se. Rather, it is the collective inability of major financial institutions to find funding.
As their own funding dries up, the remaining financial firms will be much more cautious in extending credit to normal firms and individuals. So even for people whose own circumstances have not much changed, the cost of the credit is going to rise. For an individual or business that falls behind on payments or needs an increase in short-term credit because of the slowing economy, credit will be much harder to obtain than in recent years.
This is going to slow growth. We have not seen this much stress in the financial system since the Great Depression, so we do not have any recent history to rely upon in quantifying the magnitude of the slowdown. A recent educated guess by Jan Hatzius of Goldman Sachs suggests that G.D.P. growth will be just about 2 percentage points lower in 2008 and 2009. But as he explains, extrapolations of this sort are highly uncertain.

The full article is greatly worth reading for a straight-forward (well, they still use the insider terms, but to be fair, it's almost impossible not to) explanation of what exactly's been going on.

Also try looking here for a brief take on the crisis in the media, but mostly for a good selection of links.

I'll let gardener and Farmer tackle the normative side of the whole situation. I have a feeling they have something to say on the credit situation that got us here...
Category: The Economy
Posted by: Tocqueville
Former federal reserve chairman Alan Greenspan pointedly announced today that the United States is mired in a "once-in-a-century" financial crisis. If you really want to understand what the hell is happening to our economy, look no further than this recent post by Patrick Deneen. Among the more provocative and unconventional arguments that Deneen advances is that Jimmy Carter's now-famous "malaise speech," with its emphasis on the need for limits, was "the one conservative speech that may have been given in the past 30 years." I think Deneen has a really good point.

An excerpt (from Deneen):

Tonight, as I scan channels and read explanations online, numberless narratives look for someone to blame. George W. Bush. Predatory lenders. A craven government that refused to regulate. Big corporations. Big government. Someone. Anyone.

We refuse to consider our own complicity. We started "paying" for things using credit cards. We demanded everyday low prices, and assented to the American military to secure a firesale on the goods of the earth. We began misusing language, like calling fantasy equity sources our "homes." Lemming-like we threw our children into the maw of a meritocratic meat-grinder, desperately seeking to ensure their successful corporate future by enrolling them in the best pre-schools - convinced that only an entry-level job at Lehman Brothers insured a successful life.

The symptoms were countless. The source was a loss of self-government, lodged most deeply in the fantasy that something could be gotten for nothing. If the fantasy continues to unravel - as every indication now suggests - we may re-enter a reality-based world. We will be poorer, but perhaps not in spirit. We may begin to value well and aright. While the world quakes tonight in the fear of plunging values, in that impending fall I see the inklings of a phoenix in the ashes that may arise and illuminate a fundamental truth: things of actual value - whether crafted by human hand or born of human relationships - are the products of work, memory, care, and fidelity. Dazzled by fantasy, we have been blinded to this truth, but a dimming of New York's neon glare may yet make this reality newly visible and even beautiful to behold.

Painful words. Candid words. Brilliant words.