Friday, March 20, 2009

Losing a Brace of Kensmen

Via The Anchoress you can go watch a brand new video from the House Republicans. I'm not embedding it here for reasons I hope to make clear below. It is described thus: As Republicans fought to protect taxpayers from $350 billion in additional Wall Street bailouts, Democrats assured the American people President Obama would control how taxpayers' dollars would be spent.
The inference, of course, is that while the loyal opposition fights to save taxpayer dollars the party in power is busily pissing it all away. No need to go on. We've seen this movie before. I think we watch remakes of the same tired old theme every time an administration changes in Washington.

Mostly for my own future reference, here is the comment I left at the post.

It is significant that the background music in the video is "Montagues and Capulets" from Prokofiev's Romeo and Juliet. We are now witnessing a ballet of sorts between two parties which promises to end with a tragic echo of the play, with the prince's sad regret, "And I, for winking at your discords too, have lost a brace of kinsmen -- all are punished."

We are not watching a play that started in January. It didn't even start last year or during the last administration. Or the one preceding that one. We are seeing instead the end of an era that began twenty or twenty-five years ago with all players acting in good faith. And I do not use the word acting carelessly.

Too many people wanted to believe that they (we?) could have our cake and eat it, too... even if we couldn't afford it. In the same way that eating to excess has a price, so too does borrowing and speculating to excess.

I refer you to the latest Roubini commentary in Forbes.

A country that has--for over 25 years--spent more than income and thus run an endless string of current account deficit--and has thus become the largest net foreign debtor in the world (with net foreign liabilities that are likely to be over $3 trillion by the end of this year)--is also a Ponzi country that may eventually default on its foreign debt if it does not, over time, tighten its belt and start running smaller current account deficits and actual trade surpluses.

...U.S. households whose debt relative to income went from 65% 15 years ago, to 100% in 2000, to 135% today were playing a Ponzi game.

...The bursting of the housing bubble, the equity bubble, the hedge funds bubble and the private equity bubble showed that most of the "wealth" that supported the massive leverage and overspending of agents in the economy was a fake bubble-driven wealth. Now that these bubble have burst, it is clear that the emperor had no clothes, and that we are the naked emperor. A rising bubble tide was hiding the fact that most Americans and their banks were swimming naked; and the bursting of the bubble is the low tide that shows who was naked.

Madoff may now spend the rest of his life in prison. U.S. households, financial and non-financial firms, and government may spend the next generation in debtor's prison having to tighten their belts to pay for the losses inflicted by a decade or more of reckless leverage, over-consumption and risk-taking.

Americans, let us look at ourselves in the mirror: Madoff is us and Mr. Ponzi is us!

I'm not as shocked as everyone seems to be about the selfishness and guile of people who pass the buck. We are all capable of being victim to the Greater Fool Theory. (I'll go ahead and buy this stock. If I decide to sell it there will always be a greater fool than I who will want to buy it.)

When Glass-Stegall was repealed during the Clinton administration most of a Republican dominated Congress took part. Phil Gramm was (and is, incidentally) one of the most intelligent people ever to be in Washington and as one of the chief architects of that legislation he was well thought of by his contemporaries on "both sides of the aisle" as they say.

At that time the beginnings of hedge funds, credit-default swaps and other complicated financial instruments were very small potatoes. It was a very small part of the economy. Something like a malignant melanoma that starts as a small spot, very easy to miss.

All the carping and finger-pointing is way, way out of line and uncalled for. It is also counterproductive. Like the new president I want to be waging peace rather than conflict, but I'm getting weary of trying to point to a big picture when there is so much focus on foolishness. [I wanted so much to work in that great reference to Stuck on Stupid but I was on a roll and didn't stop. After watching it again, I decided that what General Honore said at that time is once again timely advice. See below. ]

It's offensive, outrageous and (fill in your favorite expression of righteous indignation here) that executives are getting millions of un-earned money and those who are supposed to not let that happen seem asleep at the switch.

My take on that is somewhat bent because in the overall scheme of things the issue is more symbolic than real. Trillions is now the new Billions and Millions is dust on the table, lost in a blizzard of zeroes.

I feel like I'm once again in the dining room of my cafeteria and someone is raising hell over a hair in the food. In those cases I learned never to argue. (The hair was always there... even if it fell off someone in the party.) All that the boss can do under the circumstances is apologize, apologize and apologize some more. If all else fails, the only way to get them out the door is to comp the meal and be sure they won't be able to tell anyone the story without admitting they didn't pay for it. That's what's going on now in Washington and across the country.

I will be SO GLAD to see the end of this act of the play. Unlike Romeo and Juliet I don't think (all the gloomy predictions notwithstanding) that this is the last act. But I do believe that what comes next ain't gonna be what the audience wants.

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