Friday, September 26, 2008

This Moment in History - Watching the Financial Crisis

It's always odd to live through a moment in the news that you realize is becoming a moment in history. I've been around the block long enough to recognize them when they crop up, I think (and getting the history degree doesn't hurt, especially once you see how these things cook up when using primary source documents in research). And, Leaguers, this story is picking up enough steam to maybe be one of those events.

And while the events of the current financial collapse won't be recognized in the same manner as, say, Pearl Harbor, 9/11, etc... it could be recognized in much the same way as Black Thursday. And you know what the big difference is between those events (aside from loss of life and the road to war)? The mistakes made along the way are amazingly clear in hindsight.

I am unsure what to make of the bailout. We're getting a plea from a government that has made a lot of claims over the years insisting that the public rush to get behind them, but its a governments whose credibility has been tragically diminished thanks to requests for blind faith (and this isn't just opinion here. I'm going off well known polls, Sunday morning show consensus, etc...) and then finding their goodwill has been taken advantage of.

Add in the idea that the government hasn't ever really reacted this way before to financial crisis, and the American public surely isn't too excited about finding themselves holding the bag (taxwise) for what's seen as nothing less than an act of hubris by people who would as soon step on them as speak to them.

The American public seems to have a feeling in their gut that the bailout plan is the wrong way to go, and you can't blame them. After all, where's the bailout for the people losing their homes? Why are CEO's for failing companies regularly receiving "golden parachutes" after driving their companies into the ground and losing their jobs? Why were the financial policies of the past few years ever allowed if anyone was aware of the potential risk? And whys hould we be expected to pay for their risk? When so many people have already lost so much thanks to participating in their risky behaviors? And it seems hopelessly mired in the notion that the financial well being of the country should be based in propping up the wealthy (and wealthy institutions) to support the trickle down effect theory of economics.

That's not to say I believe that $700 Billion should be set aside for people who took loans they couldn't afford, but I don't see the value in putting your $700 billion in fewer baskets over spreading the wealth when the institutions seem to lack the discipline to handle the money they have/ had. (Either way seems to be a dud. I wonder how historians and economists of the future will see the economic stimulus checks we got this summer. FYI: Mine was spent in Costa Rica. Viva America!)

Economists will be studying the past six years for the next fifty. And, I assure you, we'll do it all over again in my lifetime when another generation is running things, doesn't know their history and believes the people in their same jobs of a few decades back were merely fools who couldn't handle things the way THEY can.

In a way, we sort of know what will happen if the bailout doesn't happen. We have a major financial crisis and have to hit the reset button. And while it will surely hurt many, many people, its something that may serve to force our economy into a natural equilibrium. Joe Average on the street has no faith in the companies who have failed in the first place, so why would we give them $700 Billion again (whether that's how the administration looks at it or not, it's our dough...)? In short, if we think we're about to bottom out, anyway, why go further into national debt throwing good money after bad?

Frankly, I'm a bit stunned that this plan came from the White House. But if I were an outgoing President, I wouldn't be too keen on letting the end result of eight years of my economic policy being financial collapse of the US, either, I guess. So I'd be looking for some stopgap to try to keep that from happening. Nobody wants to be remembered as going down in flames in the same manner as Hoover.

Whether right or wrong on this bailout request, unfortunately the current administration has burned through its goodwill and claims of wise leadership (I guess they call it political capital). Which is another lesson in government to you future leaders of America. Sooner or later you might actually need for people to get behind you on something, so you better not waste and/ or drop the ball on the first two or three requests.

Part of me wonders if Bush did more harm than good in going begging to the public for their support instead of leaving the idea of the bailout as more of an abstraction without a face.

Part of why I'm writing this post is that LoM might be your daily bit of goofiness, but it's also got a multi-year archive at this point. So it seems a shame to not mark some of this stuff for posterity for myself. Especially if I suspect that events as they unfold will be part of our national narrative. So I can see if I was right or wrong in my predictions, and see how what I was thinking about the news as it unfolded.

So, yes, perhaps a bit selfish, but I hope it'll have some value for me in the future.


Anonymous said...

I find it interesting that you consider the LoM as some sort of historical archive of your live since 2003 (?).

I imagine some archeologist in the year 3008 finding this blog and writing a long-winded dissertation on its value and how it reflected our society in 2000s.

The League said...

Well, that's sort of the magic of leaving a paper trail, I think. Sooner or later you've got this archive you've left behind for which you may or may not be held accountable.

I don't really see anyone using this in any way but me, but you never know when you're going to want to know what you had to say about, say, the first Fantastic Four movie. And I think it's interesting to stumble across old posts and see when kids were born, what was in the news, etc... that I thought I should comment on, and HOW I thought I'd comment on it.

In the future, researchers will have a tough time using the web as a research tool as many of the newssource hyperlinks that people use disappear. I don't know why they'd do that...

Steven said...

I think it's apropos the "Businessman CEO" who tanked his companies ( or the sinecures Daddy gave him ) has continued his streak.

Unknown said...

My personal letter to Hutchison, Cornyn, and Doggett:

Regarding the current bailout plan: do what needs to be done, but don’t insult your constituents in the process. For an administration that prides itself on exhorting the value of personal responsibility, do not enter into an agreement without extracting equity from participating banks while requiring all to write down their losses. I have no sympathy for the “prospect of emergency weekend work on Capitol Hill.” Do not use fear as a tactic. Do not tell me of the “grave risk” we are facing. Do not force me to accept responsibility for a decision I chose not to make. I will not own another individual’s arrogant, risky behavior. In the last year, my family faced the very real prospect of selling everything we own, including real estate and a small S corporation to deliver over half a million dollars to AIG for a bone marrow transplant. You know what, somehow we found a way. You should too.

Nicole Landes

Anonymous said...

Any proposed legislation should be to be to eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

I swear this country has to turned into a bunch of hand wringing panzies. Freddie and Fannie deserve to fail. It was a tax payer funded excuse for a bunch of self serving, short sighted politicians to appoint all their buddies to sit on boards and be presidents and VPs of banks while having little to no real world business sense with the mindset that "if we give out bad loans, the government will bail us out".

Government should have little to nothing to do with lending money to citizens. Regulate, oversee, but don't let government get into anything that private business can, and has always, done better. Let the banks that got caught up with the lending frenzy go under. They deserve to.

I can't believe so many people think this is going to spark some kind of Great Depression Part 2. Lending will tighten up, a bunch of shareholders in these banks will lose everything, everyone's portfolio (including mine) will suck for a couple of years, and lessons will be learned. Better than using taxpayer money so that the shareholders of these banks don't lose their millions.

When did everyone in this country see it as some sort of God given right to make money in the stock market ? Every investment has risk attached to it, there are no guarantees, and you can't assume your house will always go up in value, and your portfolio will double every 5 years.

Patience, steadfastness, hard work will see you through, no matter who you are, or how much you have to lose. (Granted, it sucks a little more if you were planning on retiring tomorrow, but like I said, there is risk in everything. Live with it, and be happy you have got as wealthy as you have up til now.)

Rant over. And yes, I am obviously very anti-bailout. Unless the government wants to invlude small partner owned lawfirms in their taxpayer funded money handouts.


The League said...

I find it interesting that this isn't really breaking down partisan lines, exactly. Our local Rep., Lloyd Doggett voted against, for which I take off my hat.

I don't think the general public is for the bailout. I think this is something that lawmakers are stuck looking at as a moment in history where they don't want to be seen as voting against helping the economy, but there are so many issues at play...

Anyway, I guess we'll see how all this shakes out.

What I would point out is: This is pretty much why I was so against putting Social Security money into the stock market when that was an issue about five years ago.

Anonymous said...

Ryan, putting social security money in the stock market (or better put allowing the individual to decide if they want to put it in the stockmarket) is not a bad idea. Pointing to today's current issues to make that your exhibit #1would be like UTEP going up by 3 points over U.T., 3 to nothing in the first 5 minutes of the game, and saying "See, I knew UTEP was a better team".

Historically, anyone who puts money in the stockmarket over long periods of time makes incredible gains.

The criticism of opening that option up, is that Idiot Joe American will not put his money in the market, but use it to buy lottery tickets. Which I say is his right to do so anyway. Why does Government have to our mother. If idiot Joe wants to risk living on the streets in his golden years, I'll be sure to drop a few quarters in his hat when I drive by his corner.

Personal responsibility. Personal responsibility. Personal responsibility. Consequences to our actions. Consequences to our actions. Consequences to our actions.

They were good enough to teach us as children, why as adults do they no longer apply.

Arrgh. peabo

The League said...

Well, anyone who is planning to live off social security is kind of crazy. It's not an option, and anyone in our generation planning on the government footing the bill for retirement... not so wise.

And the stock market long-term... maybe. IF your stock of choice goes up and you didn't have everything in, say AIG. And you don't have a crash the year you're planning to retire. That's why I say: diversify, people.

I agree people need to be personally responsible. And I don't think anything we've seen regarding the responsibility of our financial institutions and how the stock market responds tells me that either is a surefire way in which to retire.

The concern is that many people will work toward pension plans their whole lives, and their company will suddenly go belly-up and their retirement is gone (that's kind of where social security came from).

Those people didn't do anything wrong, and perhaps didn't have enough money to play the markets. Or you have the situation United Airlines got into a few years ago where employees had been putting into a mandatory pension, and the company cannibalized it. Meanwhile, the guy they fired as CEO walks away with a hundred million in his severance package.

Sometimes, bad things happen to good people. And, yeah, I see the value in some ways in letting people roll the bones with their government sponsored retirement. The two events (companies shutting down and the stock market going to hell) can be so closely tied, if we're going to have a program at all, I'd prefer it be insulated (which was the idea all along).