commentary on the passing parade

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SKY FALL DELAYED FOR WHICH WE SHOULD THANK THE JEWS

I suppose if I want to be true to the stated theme and purpose of this blog - commenting on the passing parade - I should comment on the U.S. economy rescue plan or bailout or whatever it finishes up being called - which of course is not yet a fait accompli. I personally think that it’s a good thing that legislation has yet to be devised that will garner enough votes to pass the House. And maybe it won’t happen at all. But for sure the idea of rushing to put something together before markets opened in Asia on Sunday and in the US yesterday was flawed from the beginning because of the talk of doom if we don’t do it advanced from everyone from the President on down.

At a moment that called for something akin to Roosevelt’s we have nothing to fear but fear itself, we got Bush just about emulating his dire warnings about the danger posed by Iraq and its horrible weapons of mass destruction aimed at the U.S. and ready to be fired in our direction on 45 minutes notice. Jon Stewart and The Daily Show put it into perspective that even a child could understand by juxtaposing the president’s economic "The Sky is Falling" speech of September 24, 2008 with his "The Iraqi Bad Guys" speech of March 17, 2003. It was the same speech other than the subject matter. He had set the stage for a stock market debacle if no deal was in place by Monday morning as did McCain using the same terminology about a deal being necessary "before the markets opened Monday morning" And here are two guys who shudder at the mention of "deadlines." Well, we’ve seen the result of the fear mongering. The market plunged. It didn’t have to happen. Without the dire predictions, there wouldn’t have been the mass selling that took place.

Some people are looking for who to blame for the financial mess that all the experts are saying is solely the result of defaulting sub-prime mortgages. I’m getting e-mails from Republicans trying to blame Clinton for encouraging greater access to home ownership to the less credit worthy among us - but of course Bush encouraged it too. Some blame all of the problems on the very existence of the Community Reinvestment Act and changes made in 1995. But nothing in the original act or changes to it encouraged what happened - people on the ground making a fast buck by peddling the equivalent of Brooklyn Bridge shares and the higher ups gladly paying the foot soldiers their commissions for what was found money when worthless mortgages were bundled with the less than worthless and sold like miracle seeds guaranteed to grow into forests in only two sunny seasons.

There was nothing in the act or in presidential support of more people becoming homeowners - the "ownership society" - that encouraged lenders to engage in acts of stupidity. The sub-prime mortgages carried an interest rate premium over rates available to more credit worthy borrowers. The so called logic behind that was that greater risk called for a greater rate of interest. The illogic of that of course is that the borrower who couldn’t qualify for a standard mortgage - whose lack of creditworthiness placed doubt on his or her ability to make the mortgage payments - would have an even harder time paying off a mortgage at a higher interest rate.

You can be sure that the sub-prime madness would never have reached the proportions that now appear to be threatening the industrial world’s economy if there hadn’t been money to be made along the way. Banks and other institutions may be going under because they’re too heavily invested in these and other "will o the wisp" products, but a lot of people pocketed a lot of cash while the house of cards was being built - all the way up to the last brick on the chimney that provided enough weight to precipitate the implosion.

The stock market rallied big time today, which is no surprise. There wasn’t any real reason for it to have plunged yesterday There was no logic to the selling. But you can be sure that while this morning’s headlines and last night’s news painted a bleak picture of more than a trillion dollars of people’s life savings and 401 K’s disappearing in the blink of an eye - money was being made on the decline - and is being made again as it climbs back up. No matter what happens in any trading markets - someone is always making money.

I have no idea what a final bailout package will look like or if it will work. or even if it’s necessary. Paulson, Bernanke et al can’t offer any guarantees and there are people with as much "expertise" as those two who say that a government rescue plan isn’t needed - and I think therein lies a good part of our problem.

Years ago I operated a one man business - the one man of course being me. I knew what I was doing - I had expertise in the work I performed. And I knew how much money came in and what my expenses were - so if anyone asked me how much I was making I could subtract one sum of money from another and provide an instant answer. But I also had an accountant and he would write all of this down in a set of books - page after page with different headings that were gobbledygook to me and that would or could present a totally different picture from what I knew to be the state of my business. That was his expertise and at times it scared the bejeezus out of me. And that’s about the way I feel as I watch the stock market go through its gyrations and listen to the experts tell us what we must do to keep the sky from falling.

It’s a Jewish holiday today - the Jewish New Year - and so there will be no voting on any deal in Congress today or tomorrow. Time perhaps for things to cool a little - if we can keep Mr. Bush from coming on the airwaves and repeating his tale of impending disaster - as he did this morning. Of course there are some people who automatically blame Jews for anything that goes wrong anywhere in the world and they’ll say it’s terrible that we can’t arrive at any conclusion about what to do before Thursday. But I say let’s be grateful to the Jews and Jewish holidays. Maybe, when the smoke clears, they will have saved us from doing something that we didn’t need to do in the first place or that would have make things worse.

So Happy New Year to one and all. It's 5769!!
posted by Jeff Smith at 9/30/2008 03:57:00 PM