Things Fall Apart*
Well.
Hmmm.
How do I say this...
Well, let's just say, in the aftermath of a 778-point drop in the Dow Industrials, a day where one Republican blamed Jewish high-holy days, and another blamed a mean floor speech by House Speaker Nancy Pelosi (D-Calif.), a day where John McCain claimed victory in getting the bailout passed, moments before the bill was voted down(!), the markets are indeed starting to fall apart.
Dow down 7percent. Australian exchange down 4% in the first 15 minutes of trading as I write this.
Let me get two things out of the way, really quick.
First I'm an Obama supporter (unabashedly so). Second, I am against my candidate and the greater political establishment when I say, "let the bastards fail" and let the bailout bill die a slow death. My personal opinion.
We're presented with a moment, similar to what Friedrich Hayek lived through in 1931 and '32 where the government increased the amount of the money in the economy and lowered interest rates to help ease the effects of the Great Depression. Sound like today, eh?
Mr. Hayek railed against such a solution, decrying government intervention in the dire state of the economy.
And like '32, there is the little-dissected but extremely large role that business played in this catastrophe; it wasn't just "free money" in the form of low-interest borrowing. Business was imprudent in creating both the exotic mortgage instruments underlying the problem, and in creating secondary investment vehicles so complex that not even they could fully understand them. Add to that, the fact that such complex instruments defy proper valuation (how can you assign value to something you don't inherently understand?), and you see the whole market for these CDOs, and MBSs was a shell game in practice. You have a recipe for disaster.
And we're in that disasterous mix, right now.
I don't believe we have a choice as to how to proceed any more. We simply can't wait for the private sector to get their collective ass in gear and get this situation worked out. We might agree to the cause, but that's hindsight.
The free market solution poses at least two huge problems intimately related to the successful - meaning least painful - decapitalization of these entities that engaged in overly-risky behavior. The most important is given the pervasive nature of these instruments throughout the balance sheets of businesses, how do you unwind these positions without killing off entire entities, and leaving jobless potentially millions of people nationwide as ancillary businesses scale back as well? Second, given that the market for these instruments have dried up, how does one value them at a price attractive enough for private sector businesses to even want to touch them? Answer to that one: you really can't.
I don't see a solution coming from the private sector - where it should come from - but I do see a Resolution Trust Corp.-style solution coming from the US Government. Socialism-lite, at least for the next couple of decades, while all this mess is done away with.
As much as I think Mr. Hayek is right in this case -- let the bastards fail -- I think we just have to suck this one up at this point, and do the damn bailout.
This is an instant where ideological purity will cause people (lots of them) to lose their jobs. Not just folks in the Financial District, real people with modest homes, not mansions, and children, who earn wages, not salaries, but simple wages.
But what are we doing right now? Arguing about offensive speeches and hurt feelings. Jewish holidays. And whether "Country First" means being in Washington and contributing nothing to the process. Our government is dysfunction, partisan, and pussified, playing the blame game, and succeeding in burying regular Americans more and more by the hour. What was Nero doing, when Rome burned? Fiddling, allegedly. Well, we witness it now: the government collectively fiddles, while Wall Street and the rest of the nation, burn.
"A banana republic with nukes" is what Paul Krugman of the New York Times called the United States.
A Banana Republic, indeed.
*Thanks to The Roots, as at no other time that I can remember, this CD title is more than apt.
Hmmm.
How do I say this...
Well, let's just say, in the aftermath of a 778-point drop in the Dow Industrials, a day where one Republican blamed Jewish high-holy days, and another blamed a mean floor speech by House Speaker Nancy Pelosi (D-Calif.), a day where John McCain claimed victory in getting the bailout passed, moments before the bill was voted down(!), the markets are indeed starting to fall apart.
Dow down 7percent. Australian exchange down 4% in the first 15 minutes of trading as I write this.
Let me get two things out of the way, really quick.
First I'm an Obama supporter (unabashedly so). Second, I am against my candidate and the greater political establishment when I say, "let the bastards fail" and let the bailout bill die a slow death. My personal opinion.
We're presented with a moment, similar to what Friedrich Hayek lived through in 1931 and '32 where the government increased the amount of the money in the economy and lowered interest rates to help ease the effects of the Great Depression. Sound like today, eh?
Mr. Hayek railed against such a solution, decrying government intervention in the dire state of the economy.
And like '32, there is the little-dissected but extremely large role that business played in this catastrophe; it wasn't just "free money" in the form of low-interest borrowing. Business was imprudent in creating both the exotic mortgage instruments underlying the problem, and in creating secondary investment vehicles so complex that not even they could fully understand them. Add to that, the fact that such complex instruments defy proper valuation (how can you assign value to something you don't inherently understand?), and you see the whole market for these CDOs, and MBSs was a shell game in practice. You have a recipe for disaster.
And we're in that disasterous mix, right now.
I don't believe we have a choice as to how to proceed any more. We simply can't wait for the private sector to get their collective ass in gear and get this situation worked out. We might agree to the cause, but that's hindsight.
The free market solution poses at least two huge problems intimately related to the successful - meaning least painful - decapitalization of these entities that engaged in overly-risky behavior. The most important is given the pervasive nature of these instruments throughout the balance sheets of businesses, how do you unwind these positions without killing off entire entities, and leaving jobless potentially millions of people nationwide as ancillary businesses scale back as well? Second, given that the market for these instruments have dried up, how does one value them at a price attractive enough for private sector businesses to even want to touch them? Answer to that one: you really can't.
I don't see a solution coming from the private sector - where it should come from - but I do see a Resolution Trust Corp.-style solution coming from the US Government. Socialism-lite, at least for the next couple of decades, while all this mess is done away with.
As much as I think Mr. Hayek is right in this case -- let the bastards fail -- I think we just have to suck this one up at this point, and do the damn bailout.
This is an instant where ideological purity will cause people (lots of them) to lose their jobs. Not just folks in the Financial District, real people with modest homes, not mansions, and children, who earn wages, not salaries, but simple wages.
But what are we doing right now? Arguing about offensive speeches and hurt feelings. Jewish holidays. And whether "Country First" means being in Washington and contributing nothing to the process. Our government is dysfunction, partisan, and pussified, playing the blame game, and succeeding in burying regular Americans more and more by the hour. What was Nero doing, when Rome burned? Fiddling, allegedly. Well, we witness it now: the government collectively fiddles, while Wall Street and the rest of the nation, burn.
"A banana republic with nukes" is what Paul Krugman of the New York Times called the United States.
A Banana Republic, indeed.
*Thanks to The Roots, as at no other time that I can remember, this CD title is more than apt.
0 TrackBacks
Listed below are links to blogs that reference this entry: Things Fall Apart*.
TrackBack URL for this entry: http://www.obsidianhustle.com/cgi-bin/mt/mt-tb.cgi/198
Leave a comment