Idiots Fiddle While Rome Burns
The collection of ne'er do wells, clueless dolts, political hacks, and oh, let's just be blunt and call them what they are -- total Idiots -- expands into an ever larger circle.
While the Republic burns due to the unsavory combination of incompetence, ideological rigidity, and crony capitalism, the fools and assclowns seem ever more determined to avoid any personal responsibility for the damages they have wrought. Instead, they flail about blindly, blaming everything and everyone -- except their own horrific negligence.
This is financial incompetence writ on a scale far grander than anything seen for centuries.
As a nation, our institutions have failed us: Under Alan Greenspan, the Federal Reserve slept through the most reckless and irresponsible expansion of bank lending in history for reasons of ideological purity. His opposition to the Fed’s regulatory role reached the point of malfeasance long ago. History is unlikely to be kind to the Maestro.
There is a choice to be made: Either we regulate the Banks, or leave it to the vagaries of the free markets to punish those who trade with, or place their assets in the wrong institutions. But for God's sake, do not give us the worst of both worlds -- do not allow banks the freedom to make horrific but preventable mistakes (i.e., only lending money to those who can pay it back), but then expect the taxpayers to foot the trillion dollar bill.
That's not capitalism, its not socialism, its not regulation, and
its sure as hell isn't what free markets are. Our language is
insufficient to describe this hodge-podge system, other than to call it a random patchwork of quasi-capitalism, quadrennial-socialism, and politics as usual. Ideological idiocy is the only phrase I can muster that has any resonance with the daily insanity.
We have entered into a fit of Orwellian madness: The American Capitalists, long the globe's leading advocates for free markets, have become near Socialists. Halfway around the world, the Chinese Communists have picked up the baton, and are moving rapidly towards a form of Capitalism. Ironically, it is the once largest communist nations -- the Chinese and the Russians -- who holds much of Fannie and Freddie's paper.
Hey comrades, who's selling the rope to whom?
Perhaps the rescue of "Phony and Fraudy" are not so much a bail out of American homeowners as it is a desperate attempt to stay in the good graces of our friendly global bankers. We are the world's largest debtor nation, and as such, we depend upon the kindness of strangers -- be they Japanese or Europeans or Abu Dhabians -- or even former communists.
Back in the States, something beyond cognitive dissonance is occurring -- this is full blown case of dementia unfolding in the public sphere. When this era of excess and absurdity is treated by historians in the future, the question I expect to be asked most is not why many of these people weren't jailed for their financial felonies. Rather, I expect them to wonder why so many of these folk weren't placed in protective custody, and heavily medicated, for the only rational explanation for their statements and behaviors is that they have gone so far beyond the bend as to be completely and totally insane.
Massively over-leveraged companies? Blame short sellers.
Wildly under-capitalized financial firms? Blame rumors.
Heinously poor corporate management? Blame a Senator.
It is as if someone is running around Washington D.C. with a ball-peen hammer, smacking senior government officials on their skulls. If you find the standard finger pointing hard to fathom, perhaps blunt head trauma is a better explanations for the absurdities proferred.
Books will be written about this period of time, and our descendants will wonder in awe as to how this was allowed to happen. Tulips got nothing on us! Its not just the total dollar value of the losses that have exceeded all other global fits of financial madness combined, but rather, how so many warning signs were so blithely ignored by so many and for so long. What was wrong with these people, the authors and historians will wonder. Did the antibiotics in the food supply drive them mad? Did the High Fructose Corn Syrup compromise their ability to think? Some form of viral plague? Roid rage? What else could have created such a mass delusion amongst not just the populace, but their leadership and institutions?
Indy Mac goes belly up, having lost $900 million this year alone. Its shares fell 87% in 2007 and then its value dropped (on top of last year's collapse) another 95% this year-to-date. The stock fell to 28 cents yesterday. Some estimates of the total bad loans made by this somewhere in the neighborhood of $30 billion dollars -- and the Office of Thrift Supervision blames a senator who is investigating how much of the FDIC's $53 Billion this is going to eat up, with Wall Street estimates ranging from 15% to 30%. The towering incompetence of OTS is incomprehendable, but it is their colossal gall that is truly stupefying.
From beyond the grave, Adam Smith does not know whether to weep or retch.
>
Previously:
About Those Companies Brought Down by Rumors . . . (July 11, 2008)
http://bigpicture.typepad.com/comments/2008/07/about-those-com.html
5 Stages of Market Grief (January 2008)
http://bigpicture.typepad.com/comments/2008/01/5-stages-of-mar.html
Book Review: The Bush Boom (April 2008)
http://bigpicture.typepad.com/comments/2008/04/review-the-bush.html
Sources:
SEC Moves to Curb Short-Selling
KARA SCANNELL and JENNY STRASBURG
July 16, 2008; Page A1
http://online.wsj.com/article/SB121614248005255151.html
SEC Enhances Investor Protections Against Naked Short Selling
Release 2008-143
July 15, 2008
http://www.sec.gov/news/press/2008/2008-143.htm
SEC's new red herring
Spreading false info is against the law, but is chasing down rumors the best use of an already overwhelmed SEC?
Roddy Boyd
Fortune, JULY 14, 2008: 2:22 PM EDT
http://money.cnn.com/2008/07/14/news/boyd_sec.fortune/?postversion=2008071414
IndyMac Seized by U.S. Regulators; Schumer Blamed for Failure
Ari Levy and David Mildenberg
Bloomberg, July 12 2008
http://www.bloomberg.com/apps/news?pid=20601010&sid=aAYLeK3YAie4&
How Chuck Schumer Caused the Second Largest Bank Failure in US History
Jerry Bowyer
CNBC.com, 12 Jul 2008
http://www.cnbc.com/id/25654303
~~~
Wednesday, July 16, 2008 | 07:31 AM | Permalink
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Comments
It's the baby boomers fault.
Posted by: Vermont Trader | Jul 16, 2008 7:42:15 AM
Great post Baz. It's about time people started getting angry.
But you think you got it bad? You wanna see the bubble that's been blown here in Ireland. You want village idiots? We've got a parliament building full of them, falling over each other to come up with the most hare-brained scheme.
We are skirting the line between tragedy and farce. We may have both at the same time.
PS It's 'retch' not 'wretch' ;-)
Posted by: yoganmahew | Jul 16, 2008 7:45:45 AM
Amen from Germany!
Posted by: jmf | Jul 16, 2008 7:52:02 AM
He's puking......
Posted by: dougChampion | Jul 16, 2008 7:52:03 AM
Couldn't agree more. Greenspan, like President Coolidge, got out just in time. History will not judge Greenspan well.
This is gonna double the national debt.
Posted by: Tony Shifflett | Jul 16, 2008 7:52:37 AM
I call this system "managed democratic socialism," but pick any name you want. It's a foul, squalid dog's breakfast, and it ain't working.
"Books will be written about this period of time, and our descendants will wonder in awe as to how this was allowed to happen." -- Barry R.
The Onion had a spoof yesterday about looking for the next unsustainable Bubble. But in all seriousness, once the dollar was completely delinked from gold on 15 Aug 1971, serial Bubbles are the only game in town.
In the twilight years of Bretton Woods II, global reserves and the Fed's custody account (which is part of those reserves) are growing at near 20% rates to recycle the U.S. trade deficit, as it spews paper dollars across the globe. Naturally, this has set off developing world inflation, as well as spectacular stock market Bubbles and crashes (India, China, etc.).
Until Bretton Woods II finally flies apart, and the U.S. dollar is no longer a convertible currency, the only answer the authorities have is to create another Bubble. Think about it -- if we could flip a switch and have 10% annual inflation in salaries and house prices for the next three years, the housing crisis would go away. Without admitting to it, this is exactly what they will attempt.
Bottom line: until the prevailing fiat currency orthodoxy is repudiated (an extremely remote prospect), serial Bubbles will be the investment theme of the rest of our blighted Boomer lives. The definition of investment is identifying a Bubble, and speculating with extreme leverage till it pops. Then buy the next one. And watch your country sink into Third World status, as malinvestment systematically impoverishes it. You paid for it; you got it. Thank you, Alan Greenspan, toxic Pied Piper of 'financial innovation'!
Posted by: Jim Haygood | Jul 16, 2008 8:07:13 AM
Amen.
Leardership is top down. This is the problem in a nutshell. If it is ok for the government to behave in this fashion, well then it surely is acceptable for corporate america, and it's citizens. We reap what we sow.
Where did this concept of spending beyond our means come take hold? What did people think will happen over a period of time. Why do schools not teach the devastating effects of the paying of compound interest? We now have not 1 but 2 generations to deprogram. And no one steps up to be accountable and take the blame. It is someone else's fault, let's hold hearing or file suit!
Still the greatest nation on earth but, sad times indeed.
Posted by: nk | Jul 16, 2008 8:07:43 AM
Wow, you made my day!
Posted by: Gregor | Jul 16, 2008 8:11:19 AM
BR,
CNBC and Fox Business News are in desparate need of competition.
as Wallstrip, and others, shows, there's a Demand for Financial 'Video'/IPTV.
W$W w/ Louis Rukeyser is no longer with us, and Gens X&Y need more than YouTube for their N90s, and their well-being..
Posted by: Mark E Hoffer | Jul 16, 2008 8:15:28 AM
The moral: Its a lot more cost-effective to regulate than it is to rescue.
This situation is truly ridiculous. If an institution can be in practice "too big to fail," then there needs to be regulation preventing it from crossing the threshold whereby the harsh consequences of failing in a free market are avoided through taxpayer largess simply because they are so bad. The government should protect a corporation's ability to fail miserably, rather than protecting the market from its failure.
In the absence of regulation and enforcement, and with our strong preference for economic and political stability we get, as Barry said, the worst of both ideologies: socialization of losses and an incentive for reckless capitalism. This is completely unsustainable.
I don't see how its possible for us to be any dumber.
Posted by: Patrick | Jul 16, 2008 8:17:33 AM
Best explanation i have ever read.
Gratulations from Germany too.
Posted by: MK | Jul 16, 2008 8:17:36 AM
Hell of an inspired post, BR.
Posted by: rodeo | Jul 16, 2008 8:19:57 AM
And by the way, according to Bloomberg, the consensus estimate for core CPI in today's report is ... wait for it ... +0.2%. SAME AS IT ALWAYS WAS.
Zombie statistics for zombie citizens.
Posted by: Jim Haygood | Jul 16, 2008 8:21:06 AM
I'm sure my next door neighbor would disagree - you see this was a wonderful time for him. He lived in the land of Oz (Southern California) and bought a small three bedroom home in the late 90's for $300k. But then, in '06, he sold this small home for $1.3 million and moved to Texas. He is now a millionaire - thanks to Alan, Ben and all his friends.
Makes me sick - he isn't a very good neighbor at that.
Posted by: austincompany | Jul 16, 2008 8:28:41 AM
Brilliant commentary Barry.
Did you really write that piece?
I have a feeling that your commentary will be picked up by the MSM. The truth is finally out.
The rose colored glasses have finally been removed and it just ain't rosy anymore.
Posted by: blin | Jul 16, 2008 8:30:19 AM
When you consider the vast amounts of profit made by the politically connected over the last 25 years, of which KBR and Halliburton are only the most obvious and recent examples, the old but still applicable term of crony capitalism comes to mind. Which in turn brings to mind one of my two favorite Presidents, Teddy Roosevelt, who dealt with the negative consequences of crony capitalism a century ago:
"When they call the roll in the Senate, the Senators do not know whether to answer "Present" or "Not guilty."
"A man who has never gone to school may steal from a freight car; but if he has a university education, he may steal the whole railroad. "
"The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living, and the get-rich-quick theory of life."
Posted by: bluestatedon | Jul 16, 2008 8:33:38 AM
Arrogance and greed, just old fashioned arrogance and greed.
Posted by: John, Tuxedo Park, USA | Jul 16, 2008 8:33:49 AM
"Bubble, bubble; toil and trouble." A perfect witch's brew. Go Barry!!
Posted by: zell | Jul 16, 2008 8:33:57 AM
Looks like more government checks on the way. Hyper inflate until the dollar crashes even further? Is this all that can be done at this point, save dwindling assets?
I guess what I'm saying is, why don't we get any media on the dump Freddie, Fannie and asset values to save the dollar and restore regulation? Oh yeah, rich people run things. . . .
Posted by: John Thompson | Jul 16, 2008 8:33:58 AM
Fuckin' A Right!
Posted by: Maldoror | Jul 16, 2008 8:36:12 AM
So far only 200 low level people arrested in cunjuntion for this mess. Where is Mozilo, not one bad company but two. I think a couple of town square hangings would send a message also.
Posted by: jim | Jul 16, 2008 8:38:11 AM
Well put. Thank you, Barry.
Posted by: EDF | Jul 16, 2008 8:38:54 AM
Wow, what a post.
In the But do you think there's any way of protecting the stupid without bailing out the greedy?
Posted by: Dervin | Jul 16, 2008 8:39:30 AM
Hopefully you'll get lucky and the future historians will miss this post. Unless maybe you can think of a better way out of this mess. Until then... continue the "I told you so banter." Government has morons? Check. People who ignore warning signs of market bubbles are morons? Check. I don't think anyone would argue with such insight. We get it. So now what? Unless I missed it, what's your plan again? Should I start rounding up some historians?
Posted by: slognarth | Jul 16, 2008 8:41:43 AM
Great post! Hopefully our descendants will find this blog and realize that we weren't all blind to what was happening.
Posted by: Renting in Mass | Jul 16, 2008 8:45:22 AM
