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MY FRIENDS WE’VE GOT TROUBLE

Wow, what a week.

The financial crisis that appears to be upon us is being described as the worst since the great depression and that if we don’t do something - "something" being pass a bill in congress to bail out the system, our economy could grind to a halt, credit would dry up and thousands of jobs will be lost. And all of this must be true because the people telling us this are experts in this sort of thing and know that a + b will most assuredly lead to C. It was ever thus and always will be. It’s the way of the gossamer world of economics.

I have to admit to being confused, not being schooled in economics -perhaps because it isn’t being explained to us mere mortals in language that we can understand. We are being told that this isn’t a bailout of Wall Street. It’s a problem of "Main Street." And the nature of that problem is that the credit markets have "frozen up" -as though some strange ice filled cloud has descended upon the land - and without the warmth that a 700 billion dollar congressional bill can provide, we will most assuredly all freeze to death. To which I respond - in the style of Pete Seeger - Where Has All The Money Gone? I am of course familiar with the scene in It’s A Wonderful Life when Jimmy Stewart is trying to avoid a panic run on the old Bedford Falls Saving and Loan and addressing a distraught savings account holder

No, but you...you... you're thinking of this place all wrong. As if I had the money back in a safe. The, the money's not here. Well, your money's in Joe's house... that's right next to yours. And in the Kennedy House, and Mrs. Macklin's house, and, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?

But of course the economic system of the United States is a little larger than a small town, fictional savings and loan, so I have to repeat my question. Has all the money in all the banks been poured into the sub-prime market and not being re-paid? Of course that doesn’t make sense because those crazy quilt mortgages weren’t created and serviced the way it used to be with mortgages - like the one I took out a thousand years ago to buy my house. It was at a local bank to which I sent payments every month and from which I received the paid in full documents after 30 years of making those payments. Today, mortgages are traded - bought and sold like shares in the over the counter market. So if all the lending institutions don’t have all or a huge portion of their depositors’ money tied up in these mortgages - where’s the credit crunch? It wasn’t there a few weeks ago, before some of these financial companies began to collapse like a house of cards - and even as they collapsed, giant companies swallowed them up like whales feasting on minnows. J.P. Morgan Chase swallowed Wamu. Bank of America devoured Merrill Lynch while still savoring the taste of Countrywide. Either Citigroup or Wells Fargo will be dining on Wachovia - and you have to wonder how bad things are when giants are falling over each other competing to grab these shaky financial institutions.

I don’t have any inside information but I’m reasonably sure that the money supply that we are told isn’t being loaned out is still in all of those financial institutions that are being affected by this strange freeze that has come upon us and not stuffed under people’s mattresses from coast to coast. When Warren Buffet pumped five billion into Goldman Sachs a few days ago and followed that up with a three billion investment in GE, I have to believe that he wrote checks or some such action calling on his banks to send the money where he wanted it sent. And from what I’ve been reading, other billionaires around the world are doing similar things - pumping billions into buying up pieces of major companies at bargain prices. There’s money floating around all over the place and as I watch all of this going on I keep asking myself why there’s a credit crunch- and where is it?

We keep hearing that as long as this crunch continues, people won’t be able to get mortgages or buy cars on credit - though no specifics are cited. On the radio station I mostly listen to, I hear ads from a mortgage company several times a day. They’re writing 30 year mortgages at a highly competitive rate. On television yesterday Lend America wasn’t just offering home mortgages but offering to help people in trouble with their current mortgages. No shortage of credit there. And unless the sky falls tonight, I expect to see my weekend papers filled with ads from automobile dealers complete with descriptions of the credit deals available. So where and why is there a credit crunch? The answer I suppose is that the reason there’s a credit crunch in some areas of our economy is that the banks that have the money are reluctant to loan it out - even to each other. It’s not that they don’t have enough cash on hand to make loans - it’s that they’re fearful to make them - so it seems we’re back to perception as reality that has either created the crisis the experts tell us threatens to destroy our economy - or is making it worse than it is. If everyone believes that we’re in trouble - then we are in trouble.

Leading congressional proponents of this bailout or rescue plan, pork laden as it exited the Senate yesterday and affirmed by the House today, tell us that because such knowledgeable people as Henry Paulson and Ben Bernanke agree that some version of what they have proposed is the only way out of the mess that they say we are in , we need to trust their judgment and do what they ask of us - and do it now. Well they passed a much altered version of what the experts said was needed, but from what I can see, it still leaves the hen house unguarded - or maybe worse, guarded by the fox that has been causing Farmer USA all the trouble. I can tell you that it doesn’t fill me with confidence about the near term economic future. Remember the people who brought us this rescue plan are closely related to the little old man with the green visor working at his roll top desk in the bowels of the New York Stock Exchange, churning out a daily explanation of why the stock market went up, down or sideways - an explanation faithfully repeated as an item of news by trusting members of the print and broadcast media.

I’m just not convinced that we’re not being sold a bunch of band instruments and fancy uniforms as the solution to all the troubles that we have right here in River City.

Oh - and there was a debate last night. Governor Palin was appropriately perky - though inappropriately overly folksy. But she did a good job of remembering her talking points and one liners and she was helped by Gwen Ifill who didn’t pose a single question that couldn’t have been anticipated and prepared for. Even so, Ms Palin decided not to answer some of them and talk about whatever she had been prepped to talk about. It of course changed nothing. People who are supporting the Republican ticket I am sure were very pleased with her performance. People supporting the Obama /Biden ticket are still supporting the ticket. The post debate polls seemed to indicate that most viewers though Biden had "won" the debate and perhaps that might indicate that some who have been sitting on the fence have moved over to the Obama/Biden column.

Between now and the election, I don’t think we’ll see much of Governor Palin except at rallies where she is able to bring out enthusiastic crowds. I can’t imagine that she will do any more interviews. The problem with interviews is that the questions that interviewers ask can’t always be anticipated and prepared for with memorized talking points. So it gets a little tough when an interviewer asks what newspapers and magazines she reads and what Supreme Court decisions she disagrees with. - like that decision about that oil spill up in Alaska. I mean those are really hard questions that can’t be answered by saying that your fondest wish is for world peace. So don’t look for Sarah on Meet The Press or This Week or Face the Nation. Something to be grateful for in these troubled times.
posted by Jeff Smith at 10/03/2008 01:38:00 PM