Wednesday, November 26, 2008

Looking For The Silver Lining

It’s become clear that the Wall Street insiders (Paulson, Kashkari, etc.) who are working diligently to alleviate this crisis that was caused (primarily) by Wall Street insiders don’t know what they are doing and don’t have any actual coherent plan. What they do have is hundreds of billions of taxpayer dollars and the latitude to operate from a make it up as they go approach. It seems a little experimental. This is a $700 billion to $1 trillion experiment that may or may not work as intended, which again begs the question of whether we should be doing it at all. The only known in this experiment is that we will be roughly a trillion dollars more in debt when it’s over. Assuming it’s ever over.

There are two distinct perspectives through which to view this debacle and I vacillate between them depending on whatever mood I happen to be in at the moment. The optimistic outlook is that these guys are making the best decisions they can based on the information they have. I’m all for having a plan but there has to be flexibility sufficient to meet the demands of changing information. I prefer to give people the benefit of the doubt because in my experience it makes for a more amicable existence as a human being.

The other view is that this bailout is just one of the final steps in a satanic-zionist-illuminati-men-in-black scheme to enslave the American public by creating a massive peasant class. The wealth of Middle America is tied up in 401Ks and home equity and values there are plummeting faster than a chili cheese dog sliding down Rush Limbaugh’s gullet. There is a monumental transfer of wealth going on and at this point it is unclear as to who is benefiting although it’s safe to say that Joe Six Pack is screwed as ever at the moment.

A case could be made for either of these two perspectives. One of the weaknesses of the more sinister of the two is that it is not only the middle and lower classes that are having their savings evaporated. There are some obscenely wealthy individuals – old money aristocrats - who are also having their asses handed to them right now. But I guess it could be argued that the elite losers just aren’t in the inner circle or whatever.

Paulson’s more recent talk has revolved around consumer credit, the implication being that more credit needs to be made available to the American public so that we can borrow to buy cars, plasma tvs, breast implants, etc. I’m no economic expert, but this is crazy talk.
Granted, greed on Wall Street and the lack of some common sense regulation on these hocus pocus derivatives are the primary cause of our economic ills. But they aren’t the only cause. And it bears taking a good hard look at the environment which allowed this unbridled greed to flourish in such a destructive way.

America did not get into this mess because we couldn’t get our hands on enough credit. We got into this mess, in large part, because it was too easy to get too much credit. We evolved into a society that is addicted to credit. It was a seeming win-win situation but it shouldn’t have been that hard to see that it was a disaster waiting to happen. Is an economy that depends on excessive consumer credit really a sustainable economy?

The savings rate of Americans is something like -1%. I’d submit that an economy that requires the masses to spend more than they make is an illegitimate and unsustainable economy. In addition to the greed on Wall Street, some of the blame falls squarely on the American public and a culture of instant gratification and rampant, pathological consumerism.

Also, I’d posit that the economic fallout is just an outward symptom of a deeper problem that pervades our society. Whether that problem is a philosophical, spiritual, or psychological one is something the reader can decide based on their particular disposition but what is happening now should be a clear indicator that our value system as a society has finally gotten so out of whack that living in denial is no longer an option.

It could be possible that what we are seeing now is a forced rebalancing process where there is a shift away from crass materialism and conspicuous consumption and towards a more balanced and responsible way of living. Since it is obvious that society would not willingly make this change for the better (the forces working against such a positive change are formidable) it could very well be that the Universe, Fate, God, Karma, or whatever, is making the decision for us. It might be a little painful at first, but growing up always is.


Anonymous said...

Ben, nice job of summarizing the situation, especially the last portion where the end result is considered. It's gonna hurt but there is also opportunity to do it better this time.

Of course crass consumerism is f'ed up, but that is the engine that makes this whole thing run. I'll answer one of your questions:

"Is an economy that depends on excessive consumer credit really a sustainable economy?"

Sure it is, as long as there is the means to engage in it endlessly. We are at the point, however, where the American people, the best damn consumer units the world has seen, are no longer able to keep it rolling. China was set to be the next "engine", but those fools were actually SAVING money rather than spending it. Their rug is being pulled out from under them as well, as thousands of factories close and folks head back to the countryside. India maybe?

The big part of this whole mess that I see very little mention of is the fact that all of these huge "losses" we are seeing never existed in the first place. Check this out;

The money wizards found that through fractional lending and easing of reserve requirements, they could create huge sums of money backed by.........debt. Somehow, debt was now to be considered an asset. Take a small pile of money, fraction it out a bunch of times and presto - more "money"! Money that sits on balance sheets and is used to puff up the appearance of wealth.

Now, since the debt has begun to find its real "worth", there is much wailing and gnashing of teeth at all that "money" (debt) vanishing (its true state - invisible) and being shown for what it is, and it appears that the solution is to make every penny of it "real" by printing up bills and demanding the taxpayers labor (for decades to come) to give it life. Nice.

I used to work as a furniture delivery guy and would daily walk into these huge, shiny "McMansions" to drop off Chinese-made furnishings that looked great but were designed in a way that would guarantee they would fall apart withing a short span. The houses themselves had the appearance of being things of beauty, but if you looked at the quality of the woodwork, the sheetrocking, and the actual structure, you would see it was all crap. I used to walk out of these places shaking my head and would often ask my partner "where are these people getting all this money, and why do they think this POS is worth bragging about much less paying for?"

I now see the answer. It was all an illusion. It looked good as long as the gaze was from a distance. Walk up and sit down and you might actually be hurt when the thing broke and cast you to the floor. All an illusion, my friend.

The American people will be FORCED to re-evaluate what is important and worth toiling for. That is what it has come down to. GW Bush once said that "the American way of life is non-negotiable". Well, I think he was right about that. Negotiations have ceased, and all options are still on the table. We could have done it the easier way, but chose the hard way instead. Be well, and take care of each other.


Rights of Man said...

Z - You stole my thunder (and said it much more eloquently than I ever could have).

Ben - very nice article. The FED is the source of all of these problems. We the People have absolutely been complicit, as have the profligate spenders we have elected to 'lead' us... all part of the plan (break out the tinfoil), my friend. All part of the plan!

Ben There said...

Z -

I thoroughly enjoyed that comment. My wife and I sometimes like to drive around and look at houses. Years ago we were going through one of those neighborhoods of McMansions and she asked me how so many people could afford such expensive house. I said, "They can't." It's called credit. It's fake, an illusion as you say.

Now we (the national and global economy) are getting pulled back down to reality. Damn you gravity.

Rights Of Man -

About half the time I have on my tin foil hat. I'm only partially commited on that front. I see things that contradict the grand plan/conspiracy ideas. There is plenty of evidence regarding the existence or lack of existence of our various tin foil theories. Alot of it is interpretation. Once the human mind is set we are incredibly gifted at finding evidence everywhere that confirms whatever conclusions we have formed. So I kind of go back and forth on the various conspiracies. That's one of the reasons I'm not more vocal over at Smoking Mirrors sometimes.

nina said...

Obviously, it is not possible for western civilization to impose their economic system on the rest of the world.

Ben There said...

Hey Nina -

We may not be able to foist our economic system on the rest of the world but unfortunately we can damn sure pull the rest of the world down with us as our system teeters on the brink of collapse. We shall see.

Hope you and yours have a wonderful Thanksgiving.

Anonymous said...

"It could be possible that what we are seeing now is a forced rebalancing process where there is a shift away from crass materialism and conspicuous consumption and towards a more balanced and responsible way of living."

Back in the mid 70's when my dad told me I needed to "establish credit" I respectfully told him he was wrong.

I've patiently waited for this inevitable "crash" for decades. I've been called a loser etc. . for not playing along. Whatever?

People are lazy for the most part.
A century of being rewarded materially for leeching off the productivity of those who produce is comin' around NOW.

I have more respect for a so called "illegal immigrant" who picks my salad, than for any of the fat ass officials you mentioned. I don't care if they don't like me for my opinion because they're delusional anyway. All that crap that goes on on wall street is a phony house of cards rip off long since overdue to be recycled. Anyone who doesn't see this and tries to rationalize further investments in that crap is also delusional.

nina said...

Anonymous 10:33 PM, I am not convinced everyone is delusional as much as coerced. There came a time people stopped using cash. There are entire industries who charge extra fees for checks and money orders. Online, you can't buy anything without a card. You can't walk into stores without credit applications promising large teaser discounts being shoved at you by the sales clerks. Compare it to something like cell phones which were not socially mandatory until everybody had them and you felt forced to own one. That's not actually delusional as much as being unable to accomplish what you want to do without bureaucratic and expensive complications. You seen any phone booths around lately? The tool of coin for the most part has been removed from the markets. Of course, unwinding aquired habits means going off the grid. People are indeed lazy because living outside the grid isn't for sissys. You are prescient to have resisted a lifetime of usury.

Thanks Ben, hope you and your wife are having a cozy holiday. We're kicking back with fire in fireplace checking out the Mombai blitz.

Ben There said...

Anonymous -

If you've managed to go through life without credit, that is an admirable and noble thing. Unheard of for people of my generation.

We're all delusional to some extent. I wouldn't say that everyone who uses a credit card or invests in the stock market is doing so out of delusion. There can be practical and sensible reasons for doing so. What is delusional is the belief that one is entitled to get what they want, when they want, regardless of whether or not they can afford it. That's one of the fundamental delusions that is causing alot of grief at the moment. There are of course much larger delusions at work also but my 15 second time slot is running out here. :)

Nina - Sitting by the fire sounds nice. We've been doing some of the same. Trying not to concern myself too much with the Mumbai situation at the moment (which may be wrong, I know).

Anonymous said...

Off and on in my adult life, I've been loosely organizing co-ops in the neighbors I've had as I moved around.

Baking together, shopping together...sharing big-ticket items...bartering...passing around clothes...

It saves everyone a bundle.

My mom and her neighbors were doing it when we lived on bases (back in the 50s and 60s, especially in Japan, where American stuff wasn't so available.)

In my early adult life, I was married to an alcoholic. When I left him, I was only able to care for my kids if I stayed on welfare...which I did for 18 months.

Working with other moms in my neighborhood we combined our commodities (surplus food the government would give us before foodstamps were invented).

We would cook as a group, and then split the finished product...sometimes we'd just all eat together.

My mom was gardening in pots long before Sunset Magazine made it the fashion. So I started doing that too...tomatoes, beans, radishes, peppers, and carrots. Radishes in a pot come out beautiful. Not single flaw...and if you grow them with a pepper, they will be hot...same with carrots.

Sometimes being "poor" can give you a more fulfilling day than being middle-classed.

I'm rambling. oops.

Ben There said...

catnapping -

It could be argued that poor people have more fulfilling lives than rich. There's certainly a case to be made that poorer countries generally report higher levels of happiness than the U.S., excluding countries where war and violence are a part of daily life. When the main theme of one's life is acquisition you have to wonder how fulfilling that can be.

Thanks for the rambling.

notamobster said...

Ben - I don't hold any view as sacred or unchangeable, aside from my love and devotion to my wife and children - and my belief in the 'rights of man' (individual liberty/self-determination).

Unfortunately, the current economic mess is one subject which is easily proven as part of the aforementioned plan. There are reams and reams of documentation from the very mouths of the conspirators. The 'secret cabal' really exists, and they openly admit it. I joke about my being crazy - but is it truly crazy for a man to believe the titans of industry when they speak of their own objectives?

Be easy...