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Sunday, September 21, 2008

Why be a responsible person?

Why stick to a personal budget? Why pay your bills on time? Why manage your borrowing wisely? Why save for retirement? Why cut square corners on taxes?

It's become pretty obvious over the past few weeks that tens of millions of Americans who have acted responsibly their whole lives are now going to pay -- and pay dearly -- for the mistakes and deceptions of those who didn't. And it's not the less fortunate we're cleaning up for here -- many of them are laughing all the way to their vaults. Notice how the banks aren't going to go into bankruptcy before the government buys all their dud loans -- no, they're going to be allowed to dump the sludge onto the American taxpayers and stay in business, with the CEOs raking in the millions, same as ever.

Meanwhile, what about the real estate weasels who built junk towers like those in Portland's SoWhat district, with hundreds of unmarketable condo units in them? Once the federal government owns those loans, will greedy developers like Homer Williams be allowed to walk away from their debts, keep their eyesore buildings, and order another bottle of Dom Perignon at Bluehour? When it happens, remember that you read it here first.

The leaders of both parties are hoping nobody notices what's really going on. "Oh yes, we must act now! To prevent a crisis in the global financial markets. God forbid that Goldman Sachs [Henry Paulson's former firm] should go down."

How are we going to pay for this? For one thing, forget Social Security if you have a private pension -- it's now officially toast. Every dollar of pension you stored up is one less dollar you'll get back from all that Social Security "insurance" you were supposedly buying. You should have blown those 401(k) contributions on trips to Vegas -- you might have done better, and couldn't have done worse, than what you'll net from those investments now.

They may even tax the money you've put away before you get your hands on it. So as you look at the hole that Wall Street's ripped into your future this month, get ready for the government to make it bigger.

And for those starting out in their working lives now, either income taxes are going to have to go way up, or else the feds are going to have to print tons of money to pay off all the debt it's running up. The moment the Chinese government decides to cash in some of its $500 billion of U.S. Treasury bonds instead of lending us a billion more every month, there will be nowhere else to turn for more money -- except you or the printing press. At some point, either you won't be able to afford a $3 loaf of bread, or you'll have plenty of dollars but the loaf will cost $25.

I wonder how long the Chinese are going to toy with us before they take us down.

In the meantime, wait 'til we get a ways into the coming winter of $4 heating oil and equivalent natural gas prices. Something tells me that before too long, there's going to be some stuff going on in the streets about all this. See you out there.

Comments (27)

I’m not an economics guy. I understand about as much as John McCain. But let me review the things that have been bothering me. You mention a billion more a month from the Chinese. I don’t know where we’re borrowing it all from then, because every time the sun goes down we owe another billion – and that’s just the normal budget which no doubt includes a bunch of tricks separate from how budgets work in the real world.

Then we have the wars: As I understand it the costs of Iraq and Afghanistan are not included in the regular budget. So things are a lot worse there than they seem.

Next, we also have a world that we have bullied. Here’s where our policy of preemptive strikes hurts us because it’s a standing threat against every country and they feel that, just like if you had a gangster on your street telling you he could attack you anytime. You’d naturally want something really bad to happen to that gangster.

Finally, there’s a shortage in the world of oil and other resources and we use 25% of the entire pie – as I understand it. Given the situation, given that we need the world to lend us money, and we use more recourses than anyone else, you would think we’d at least be in sweet-talk mode. That we’d at least be nice. We don’t want to give the world too many reasons to bring us down.

So how does trash-talking everyone help us? My theory: We’re a country that is completely unaware of our true position. In short the nukes have made us feel like we are all powerful. We are not. This is false pride but the fall could be real.

Unless there’s some huge technological advance in energy systems. And I don’t mean windmills here. We need to start building something again in this country besides derivatives. That’s it from here. I’ve got to go get my backpack ready.

I agree 100%.

If Mr A scrimps and saves for retirement and Mr B pisses away every dime, who gets to pay more taxes at retirement? All of this is thanks to a lot of inept govt leadership propping up wizards who take on a ton of risk, because they know the govt will bail them out.

This is why I have mixed emotions on regulation. We need it, but the only skill set most politicians have is getting elected. So we get people like Sam Adams who went bankrupt watching over a $2.4B budget and spending most of it on bright shiny things to make up for a poor childhood like Vera did. Or we keep propping up Social Security by saying there is no problem and out of the other side of our mouth we say throw more good money after bad at it by raising taxes.

I honestly think our only hope is to educate individuals on how to watch out for themselves and not surrender control of their lives to govt or financiers.

This is an often used worry but why would the Chinese toy with and take us down?

Their economy depends upon our consuming their goods.

The global economy is far too intertwined and dependent to allow the kind of toying and takimg down you imagine.

The Chinese won't pull their money from our Treasury to spite us. Instead, some other country will offer 4% return on very secure investments. They will simply invest elsewhere. You cannot find a 4% Treasury investment anymore. The extremely low rates won't change anytime soon with our economy in the dumps.

Their economy depends upon our consuming their goods.

In case you haven't noticed, the Chinese are Communist ideologues. Economic prosperity is nice for them, but it's not their top priority. They may well decide that their people can handle a few tough years in the name of advancing their creed. They'll bounce back. We won't.

"Economic prosperity is nice for them, but it's not their top priority."

Finally, someone who understands the Chinese. Theor focus is long-term and not making money today. I am reading Adams' blog and they have already brainwashed him that they are working hard on cutting pollution and blight.

Senator Packwood used to tell a story about negotiating with the Chinese years ago. When someone said Hong Kong wouldn't be going back for 50 years, they got excited.
To us, it was a way of saying it would never happen. To them, that was like next week.

Did you all see George Will on ABC?
It's up on the web now. To paraphrase; he says that McCain was not acting presidential and that the response of the McCain campaign was scaring people.
It is an interesting and informative 15 minute round table discussion.
The Chinese have been around for 5000 years or so with a highly developed culture. Our poor little republic is just the blink of an eye to them.

This all makes me think of Naomi Wolf and her theory that our own government has a list of things to get done when our attention is drawn to a crisis (like, for example, the Patriot Act after 9/11). As Jack has noted in his blog post, the bailout presents a huge opportunity to pick our pockets. We need to pay careful attention.

If you feel like reading 1400 pages of esoteric history, I'd recommend Prof. Carrol Quigley's (Harvard, Princeton, Georgetown, CFR, mentor of Bill Clinton) "Tragedy & Hope." World history is basically a history of competing ruling elites. To say that China may well decide that their people can handle a few tough years in the name of advancing their creed. makes it sound like America's ruling class would not. Yet this blog post basically explains that America's ruling duopoloy is quite content to condemn America to such hardship, so long as Vilfred Pareto's "cycle of elites" is arrested and they remain in power. Essentially, the same thing happened with the Great Depression, as documented by Quigley. Global currency imbalances that resulted from WWI were attempted to be artificially restored to pre-war levels (remember, the gold standard rules and the young USA is emerging extremely powerful). The Great Depression was an attempt at reengineering the banking system, but it failed, and people were able to reign in bankers and robber barons with legislative action. Already, Paulson and Bernanke and friends are warning against "over reacting" with regulation and attempting to limit Congressional oversight of their new bad-debt entity.

Must agree with your point, however, which is that the implicit message of how this crisis is being handled (along with SoWhat locally) is that personal responsibility and abidance to rule of law and conduct is pointless. The system protects the rich and the rich have no interest in real free markets and competition. The best business proposition out there in terms of risk-reward is a parasitic relationship with government. The surest way for politicians to bloat themselves on the taxpaying host is to feed on that parasitism.

Speaking as someone who is 29 and admittedly has no skills when it comes to personal finance, this week's news is both mind-boggling and completely terrifying. This was supposed to be the year I finally started a 401K but every indication seems to suggest that I'd be better off stuffing my $ under my mattress or blowing it all on the purchase of a pet dolphin. Oh well, I guess I can always count on social secur...doh.

Thanks, corporate greed! Thanks, Bush administration! Thanks, my own ignorance! I look forward to coming economic apocalypse.

Bush tried to clean up Freddie and Fannie three years ago with new legislation that would have prevented much of this mess. Rangel and the Democrats stopped him.

So, tough as this is...consider the alternatives.

Bush is the devil. Cheney is worse. These 2 have taken this country down. Some say..."its not all Bush's fault"....well you know what? He sold us down the Tigris river with a war that should of never happened...He told his FEMA Guy "Your DOIN a great job Brownie"...when New Orleans was sinking....He spend all our of funds and zillions more. NOW we will see massive job loss & a whole new wave of bank owned repo homes. We will see the GOVT become the sole lenders for home sales. You will apply to the Feds to get a loan. IF WE WANT TO GET EVEN STEVEN WITH THE DEBT EACH AND EVERY AMERICAN WILL NEED TO PAY THE GOVT $100,000. That is just incredible. Smoke while ya got em and God help us all. Imagine the old man taking over with his religious fanatic VP? They will create WW3 to get the country working on war machines. Obama wants to fix roads-bridges in THIS country. The FDR model is a good one and makes sense.
(I'm a registered Republican and will change the day after the election) We Fucked up bigtime.

Fortunately for Clinton he had a budget surplus due to job creation and capital gains from the internet bubble and Y2K changeover. Mickey Mouse would have been a great president in that environment. Both busted and we were heading into a recession when Bush took over. Then 9-11. If not for the tax cuts we would be even worse off than we are.

If you want Democrats and think they're gonna fix this - well, they do take care of themselves. Just read about their fat pay raises in Salem at the private sectors expense in today's Oregonian.

If not for tax cuts?

How is the Bush credit spree a tax cut when it all has to be payed back with interest? Bush has been cutting your taxes like buying groceries with a credit card cuts your food costs. If it weren't for tax cuts our taxes would be about 30% lower.

Trash Man-
Relatively speaking, the internet bubble (in gains or losses) was microscopic compared to the amassed losses we're seeing in real estate and finance. It was new, it was exciting, but the bluster (read: speculation) didn't match any actual value.

You can try to spin away the Clinton surplus any way you want, but that doesn't mean it didn't exist. He worked to that end, Bush has had no intention of ever following suit. Neither did his father or Reagan for that matter.

Manufacturing crises and using them to justify the #1 wingnut ideological cause--slashing all the bits of government that do not involve high explosives--has been the Republican approach since Reagan. What, nobody here ever heard of Grover Norquist?

Not to worry about the chinese
or ruskies , history shows that the guys with the most guns win
[as long as they show that they will use them.] After the ReThuglicans steal this election
, ol [crazy] man mc[ins]ain will be more than willin to bomb the
furiners back into the stone age.

"with new legislation that would have prevented much of this mess"
Except that fannie and freddie did not sell crap mortgages that were securitized, sliced and diced, and sold to the chinese. The people who did this were "free market" executives who ran our largest banks and brokerages. And greenspan, rubin and bush were their cheerleaders. Socialize the losses and privatise the profits indeed!

"I don’t know where we’re borrowing it all from then, because every time the sun goes down we owe another billion ..."
Google Breton Woods II.

My in-laws are paying over $200 a month for oil heat - and they're on the equal monthly payment plan. Their house isn't much bigger than ours. They'd love to switch to natural gas, but: add up the costs of new furnace, decommissioning the underground tank...you're talking around fifteen grand, assuming there's no remediation required. Yikes!

Robert Reich's solution seem pragmatic to me:

1. The government (i.e. taxpayers) gets an equity stake in every Wall Street financial company proportional to the amount of bad debt that company shoves onto the public. So when and if Wall Street shares rise, taxpayers are rewarded for accepting so much risk.

2. Wall Street executives and directors of Wall Street firms relinquish their current stock options and this year's other forms of compensation, and agree to future compensation linked to a rolling five-year average of firm profitability. Why should taxpayers feather their already amply-feathered nests?

3. All Wall Street executives immediately cease making campaign contributions to any candidate for public office in this election cycle or next, all Wall Street PACs be closed, and Wall Street lobbyists curtail their activities unless specifically asked for information by policymakers. Why should taxpayers finance Wall Street's outsized political power - especially when that power is being exercised to get favorable terms from taxpayers?

4. Wall Street firms agree to comply with new regulations over disclosure, capital requirements, conflicts of interest, and market manipulation. The regulations will emerge in ninety days from a bi-partisan working group, to be convened immediately. After all, inadequate regulation and lack of oversight got us into this mess.

5. Wall Street agrees to give bankruptcy judges the authority to modify the terms of primary mortgages, so homeowners have a fighting chance to keep their homes. Why should distressed homeowners lose their homes when Wall Streeters receive taxpayer money that helps them keep their fancy ones?

It all makes sense. Which is why most of it is a nonstarter.

accepting so much risk.

This makes it sound as if there's a chance that the debt that the taxpayers are buying will be good. Let's face it, a lot of it is wholly or partially worthless, and there is no realistic chance of it ever regaining value.

"This makes it sound as if there's a chance that the debt that the taxpayers are buying will be good."

That depends, is this going ot be Chrysler which paid off several times over or Resolution Trust. RIght now, the paper isn't tradable otherwise, which doesn't mean it's worthless.

Pssssst: I'm gonna let you in on little secret (but don't tell anyone)...

The Chinese aren't Communists anymore.

They're more Capitalist than we are, thanks to Chairman Bernanke and Secretariat Hank.

"The Chinese aren't Communists anymore."

They are a totalitarian regime unless I missed their last election.

In addition, who cares? Their political guys are a heck of a lot sharper than our team.

"Their political guys are a heck of a lot sharper than our team."

And its not just their politicians...

"... a lot of it is wholly or partially worthless, and there is no realistic chance of it ever regaining value."

On the contrary, LIARS Larson has been promising everyone receiving broadcast programming, and promised again today -- on LIARS "Scout's honor" -- that ALL of it is backed by Republican values and worth, that private parties are going to buy back all the shares, quickly, and socialized public ownership and regulatory oversight "could be over in only two weeks."

Sheesh, Jack, haven't you been listening and buying from LIARS sponsors? Everything is under authoritarian control; everyone just go back to shopping like normal.

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