Discounting, for the moment, Sandy's stunning lack of compassion or understanding. . .
She's training to take Baron Max's place as the resident curmudgeon. The difference is that Max was only pretending to be like that just to remind us that there are some very uncaring people in the world.
. . . the mortgage crisis means alot more than just some people not being able to keep their house. These sub-prime mortgages have been packaged into financial entities that are traded. When they default, we are all affected. Just like in 1929.
As a matter of fact, some analysts are predicting that if this goes the wrong way it will be the nation's biggest financial crisis since 1929. You don't have to be a compassionate person to worry about that. It will put a lot of people out of work who thought they were taking care of business.
What has been conspicuously absent so far is any sense of accountability for what may go down as history's greatest swindle. It's really impossible to imagine that a bunch of low-ranking worker bees in the banking hives spun out all these bundles of collateralized debt obligations, mortgage-backed securities, and similar trash on their own without the say-so of their bosses -- a group that includes the current Secretary of the Treasury, Mr. Paulson, formerly CEO of the Goldman Sachs organization.
Because of my current contract I get a lot of the internal spam from the Treasury Dept. It turns out that they were caught flat-footed. It's their job to keep watch over the banks and prevent drenn like this from going down. But governments are ponderous, slow-moving organisms (growing more ponderous and slow-moving with every expansion: 15,000,000 Americans are now sucking at the public teat in
civilian jobs) and they simply cannot keep up with the invention of new financial vehicles in real time. Subprime mortgages became a crisis before they even had the procedures in place to notice them, much less got a glacial-speed consensus on polices to regulate them. They have a huge backlog of problems like this. Another one is that retailers are screaming that they want the banks to do all credit card processing, because they have the best computer security and they would shut down the identity theft industry, but the frelling banks just don't want the expense of keeping track of people's purchases so they can process refunds. The Treasury Dept. is on the side of the retailers and consumers on this one but they just can't make things happen very quickly. If only because we all know how long it will take the banks to develop the new software even if they enthusiastically signed up for this tomorrow. Never forget that when you're talking about the finance industry you're talking about the earliest adopters of automated information systems so every change you want to make is a gigantic software revision project.
Leadership across the board has failed, in government, in business, in what used to be called the press, and in education. Leadership in every sector went along with the program, marveling stupidly at their society's ability to get something for nothing. The general public did not perform any more honorably -- due to whatever failure of civic norms they operate within -- and indeed the nation as a whole may deserve all the suffering it faces.
Welcome to the Paradigm Shift. The Industrial Era is rolling over into the Information Age and all of our old institutions are beginning to sputter and fail. The corporation itself, a mechanism for accumulating and managing huge concentrations of capital, is an artifact of the Industrial Era. Information-based enterprises don't need so much capital and in fact are quietly blossoming in backwaters like Estonia and countries once dismissed as the Third World like India. The citizenry is as clueless as their leaders. Our entire vocabulary has to change, which is a big duh! in a paradigm shift. We are no longer going to be lowly "consumers" and "human resources."
We haven't begun to see where all this will lead yet.
Some of the futurists are actually getting their crystal balls pretty nicely Windexed. Toffler just came out with a new book in the school of
Future Shock and
The Third Wave and he's still in good form. His abomination is our educational system, and I couldn't agree more. Americans are being trained to be morons; the average university graduate reads at what in my generation was the sixth-grade level.
Since what is happening is basically the evaporation of trillions of dollars in supposed wealth.
Another way of saying that the huge surplus created by the economies of scale and division of labor of the Industrial Era is being rapidly dissipated by the obsolescence of its medium of storage. We've seen this happen before right here at home. The South had a huge store of capital in the form of human slaves. Industrialization reduced their value precipitously to a level at which it was not profitable to keep them. (German immigrants in Texas proved that freemen produce more cotton per dollar than slaves.) The rest of the hemisphere simply allowed the slaveowners to respond to economic pressure and free their slaves by attrition over the next thirty years. Lincoln decided to do it at gunpoint a generation earlier and it's not clear that was the wisest move in the long run. A rift still exists between Northerners and Southerners and between black Americans and White Americans, while the rest of the people in the Americas come in a spectrum of brown.
At the very least we're likely to see an impoverished nation very soon short of money to buy necessities. Historically this is known as a ruinous deflation. The last time America went through such an experience was the Great Depression of the 1930s. Like this situation, it came at the end of an extraordinary expansion of credit -- loans largely made in that day for the purchase of stock "on margin."
But there was no paradigm shift going on at the same time. The Industrial Era was in full swing and in fact the rebuilding of the war-ravaged countries as industrial powers after WWII was the engine of great prosperity, particularly for our former enemies Japan and Germany. America ironically invented computer technology, but it does not seem poised to take leadership of the so-called Information Infrastructure. Our contribution to that infrastructure is Windows, which on any sensible planet would be outlawed.
Some other differences this time around: in the background is . . . the systematic disassembly of an industrial manufacturing infrastructure. In the 1930s, many people could return to family farms and get by, even with little money. Today there are far fewer family farms.
Today people are going to have to become workers in the information processing sector, which is picking up the slack from the demise and/or automation of factory work. Unfortunately information processing lends itself to telecommuting and people in Uruguay and Bangladesh can now compete for those jobs, not to mention the better educated and equipped Chinese and Moldovans. I predict that the real payback for the next few generations of Americans is going to be for our cavalier treatment of the world's poor, who are now leapfrogging past the Industrial Revolution and setting themselves up with cellphones and PCs and hiring themselves out for $500 a month.
The nation is acting just now like a crowd of bystanders watching a car wreck that has nothing to do with them -- as though they were just occupying the Nascar grandstand on a particularly bad day. They'll discover soon that it's their own society that's hit the wall out there on the track. It raises the question, under the circumstances, as to whether the next presidential election will have any legitimacy.
Yes, the isolationism that came naturally in a gigantic country with two seacoasts will not prepare us for the "global village." The bright spot among the candidates is Ron Paul, who promises to halt the War on Islam. This will free much of the world's resources (including our own) for education, job training and infrastructure, as well as allowing us to lose our pariah status and rejoin the world community. He will also rein in the well-meaning but stultifying government nannies, who really don't have a clue about what they're doing and even when they do it takes them ten years to put it into action. Commerce in the Information Age moves far too fast to accommodate the processing speed of a government with twelve layers of bureaucrats who do nothing but "administer" each other..
The clowns in charge of things understandably feel that they have to do something -- or pretend to -- in the face of what is shaping up to be not just a credit "crunch," but a potentially lethal illness in the credit system per se -- that is, in the very process of trading in paper that claims to represent faith in the future creation of wealth. That process underlies all of modern finance. Investments, currencies, economies, and nations hang in the balance.
Information is the commodity that defines the new economy, and information can be duplicated and distributed almost for free, compared to the costs of industrial products. This Paradigm Shift we're undergoing has not even begun to shake down the structure of the economy. The very concept of money is going to have to change in ways that we still can't quite imagine.
President Bush, seeming very much the clown-in-chief, led the way last week by proposing a mortgage crisis bail-out that would appear to have no chance whatsoever of working as advertised. He called it, arrestingly, the Hope Now Alliance. It blithely assumed that those "servicing" mortgages -- that is, collecting the monthly payments -- have the ability to suspend scheduled upward re-sets of adjustable mortgages for five years for certain select homeowner payees -- so that theoretically said homeowners could avoid foreclosure.
This will only work if the government--i.e. you and me through our taxes assuming you and I don't have subprime ARMS--pumps cash into the market. The worst possible way for the subprime crisis to play out is for trillions of dollars worth of real estate to be foreclosed--that will result in destitute workers and gigantic writeoffs for banks. But forcing banks to carry the mortagages and write down the interest rates into the negative-profit zone is hardly any better. The writeoffs are still there and it will cause an implosion in the financial markets. The government has to subsidize the mortages and add another zero to the national debt. That's not a good long-term solution, but one of the inescapable realities of planning--financial or otherwise--is that the short term ALWAYS comes first.
