The current financial crisis has come to the greatest head to date. I say to date because it will certainly get much, much worse. There are a number of things that have been battling inside my mind the past few days related to this, yet they have remained elusive whenever I attempt to corral them into the hardened context of speech. These feelings and thoughts are like a malevolent maelstrom of color and light, fueled by ironic rage and righteous indignance. I imagine, perhaps vainly so, that I have reached into a deep well of ageless frustration that knows no spatial or temporal bounds. I drink heady draughts from the same wellspring of defiance as John Hancock, Edmond Dantes, and V, all of us bound by an immortal sense of defiance in the face of hopeless odds. Perhaps I romanticize my frustration with the current state of affairs in the world economy, but perhaps that's a good thing. Perhaps we should all be so incensed as to hope for nothing more lofty than to see ourselves being dragged screaming to the pillory for blasphemy against the establishment, confident that we will have the last laugh if only we survive the fall. This sense has instilled in me a Zen like acceptance of the endtimes, a wu-wei passivity that assures me the best will come from the worst possible ends, and along with it a blessed release from the Samsara of partisanship as I realize that both sides are so very very wrong on this issue. Here's a few reasons why:

1. The “Bailout”

The latest in a series of schemes by our loving god-protectors in Washington to erode our liberty and opportunity, the Bailout reeks of sour precedent. The mortgage-backed securities that have spread their toxin throughout the economic system were to be insured by default-credit-swaps, complex instruments of financial insurance that have been mentioned here before. These credit swaps have evaporated, pulling the rug out from under Wall Street, sending banks tumbling into an embarrassed heap like so many drunken adolescents playing naked Twister. The total value of assets that these credit swaps represent is nowhere near the few hundred billion that is being proposed. Nay, we are talking trillions here, somewhere between fifty and eighty trillion dollars of unfunded debts floating out in the financial ether, sucking in all that strays too close. I feel the need to type these numbers out so you can see just how paltry this sum is:

$50,000,000,000,000 – the securitized assets that now have questionable value
$600,000,000,000 – the bailout

We are several orders of magnitude too small, no? Whatever partisan political issues you wish to raise about the allocation of funds to Wall Street instead of Social Security, health care, or whatever, you can just chuck out the window. The issue is not the dollar amount, everyone involved knows it's just a band-aid. Buffet and Paulson and the lot are banking on making some money off the fall. Everyone can profit from a fall as long as they know where the collapses will happen. That's the bailout, a timed collapse that makes it easier for some to survive. Not so bad you say? Well...read on...

2. The Precedent

I said the bailout reeks of precedent – it does. The issue is that on top of the precedent we have already sadly set off bailing out and nationalizing organizations that are “too big to fail”, we are now looking squarely at the possibility of creating a financial superbeast in Washington with virtually limitless authority that will be only answerable to its own benevolent conscience. We all know that precedent is easy to establish in America and nearly impossible to overturn. Whether it's the bastardly concept of stare decisis et quieta non movere, or the impossibility of passing a law in Congress that actually rolls back existing law without caveats or loopholes, we should all acknowledge that what is done in Washington overnight usually takes generations to correct. We are not merely nearing a slippery slope. This is not an issue of “sadly necessary”. This is a conscious decision by lawmakers and the powers-that-be in the finance sector to throw the nation off a cliff. They'll hand out parachutes to their buddies, and then lay a big fat pillow called “centrally planned economics” at the bottom of the fissure to break our fall. Sure, some legs will get broken, but we'll all be OK in our brave new world, right?

3. Wrong.

The socialization of Wall Street will not be the worst of it, just the first movement in a symphony of destruction that will end, once and for all, the dream of America. Oh sure, you'll still be able to work hard and make some money, you can do that in China too, or Venezuela. What we will lose is our freedom. Government will grow faster than we could even imagine, and I fear McCain will be little better than Obama. Imagine the New New Deal we will receive:

Even as the last aftershocks are still rippling through the global economy, America will be picking itself up and dusting itself off. Tattered and tired, we'll look at our once brave nation and see a broken husk. Oil will continue to skyrocket on the open market, foreign nations will turn their noses up at a Treasury stocked with toxic assets and saddled with trillions in corporate debt, and the dollar will plummet. We will cry out in our hour of need, the plaintive plea of desperation last heard almost a century ago the last time a meddling government freebased a giant hit off the ass of the people. Big government will step in with their plan to get America back on track – you've already heard it, but now they'll have their reason. Corporate equity owned by the government will be used as collateral for the Treasury to issue a new round of blank checks to subsidize health care. After a hundred trillion dollars in taxpayer burden, what's a few more hundred billion? We'll have the health care we all so dearly need, but what of our jobs? So many of us are now broke, saddled with higher taxes and a worthless currency, that we can't afford to feed ourselves. So in comes phase two – energy independence for all by creating a new arm of the Department of Energy that will institute public building of nuclear/wind/tidal/solar/etc energy sources at an unprecedented pace. Funded by more skin of the back of the taxpayer, the lower socioeconomic third of our country will be indentured slaves to the government, happily erecting monuments to our failure to earn a living wage on Uncle Sam's dole in the hopes that oil is the real problem and if we build enough windmills it will all go away. But it won't go away, people will grow restless, commodity prices will keep rising as transport costs increase and the labor base of the country finds that it no longer is worthy of being extended credit by private enterprise. So the government, now the most potent regulatory financial organ in the world, will give out credit to those who need it most (remember this old line, how quickly we forget), getting them back into their homes and driving consumption back up....Crash...

It doesn't have to be that bad. And maybe it won't be. Maybe our benevolent oppressors-cum-protectors will really be wise enough to steer the economy back onto a sound footing and then gently release the reins with a stern look down their noses and the admonishment not to let it get this bad again or they'll take away our toys for good. I just peed myself. You should have too – because any sane individual reading this knows that they will not give back the power, and the concept of a Washington that is responsible and wise was even rejected by the framers of our Constitution, so there's no reason to think politicians will become the “good guys” now.

What I do hope though, and this should be your hope too, is that we can have the vision to let it all fall apart. Capitalism, real capitalism, can work reasonably well, but only with strict private self-regulation and an absolute minimum of government interference. We'll still get booms and busts, and people will still do stupid things that break the system from time to time, but those have a way of sorting themselves out. Warren Buffet knows it, T. Boone Pickens knows it (though he missed the boat this last time around, it seems), and we should know it. The big question I've asked myself through all of this mess is, “Why should the average taxpayer really care if banks start going under?” Before the governent started bailing people out, the answer was that, aside from the sliver of the population that is in immediate need of liquidating their long-term investments, they shouldn't. This mess could have rippled on and on for years, burning itself out on its own, and we'd end up better for it. Sure, the American quality of life would be lower as a result of a damaged dollar (temporarily) and tighter credit standards (which we need anyway), but that's the correction that needs to happen, right? If we really believed in capitalism, we'd laugh as the losers went down, and those savvy enough to do so would maneuver themselves into position to profit from the loss. Consolidation, short-selling, all these things are good – people get richer when it happens. Sure, others get laid-off, but hey, dem's-da-breaks. I truly believe like the cleansing fires of the Phoenix's nest, a sudden crash will give rise to a wiser, stronger, better America, and by proxy a better world economy overall. And with the alternative being as grim as it seems to be, what have we to lose, really, by just closing our eyes and letting the tides take us where they may?


Ben Wheat said...

One of the greatest failings of our government is its inability to treat its citizens like adults. Of course, the behavior of some sectors of our citizenry little warrant such treatment, but our ethic as a nation demands that they be regarded as such, particularly in insisting upon their acceptance of the consequences of their actions.

It is this syndrome on the part of our federal institutions that leads them to immediately discount the option of telling us "You'll just have to ride this one out. We won't act because we shouldn't, and we have no rightful authority to. It's going to hurt, so grab on to something. But take succor in the knowledge that we did things by the book, the way they should have been done, to preserve your freedom in the long run." I think Hariolor has hit this one out of the park. I know that some will be arguing ardently for the "bailout" in the days to come and I have no doubt that it will become law by close of business tomorrow (in some form or another), but our national conscience rightly gags when faced with this economic power-grab.

As Hariolor deftly points out, the investment of these broad economic powers in our federal government is not something that we will be able to roll back, any more than we can roll back social security, Roe v. Wade, affirmative action, etc. I argue that we will be stuck in this new system forever, rather than the few generations that Hariolor suggests. It will become the new "third rail" of politics that cannot be touched, for fear of frightening and alienating the blue-collar and senior citizen demographic. This simple truth is unshakable and justifies my rage and fear.

I would much rather see our economy in a prolonged recession that wisens and hardens a generation than to have our nation clatter along on the path to idiocracy, carrying our cramped, cow-eyed, doughy citizenry in the holds of its boxcars as it goes.

Hariolor said...

Amen - the "greatest generation" was born from the depths of the "great depression" - this is not coincidence. How weak we have become, how spoiled. We will get exactly what we deserve, and it's too bad, because there are plenty out there who know better, but more still who don't.