In his comment here, Mike Warot encourages me — and the rest of us — to watch this video by Karl Denninger, whose blog is here.
I did. It’s good. But I’m not sure Denninger is right. Or all-right, let’s say. Just somewhat.
Here’s the problem as I currently see it. (And I’m no economist. This is just me, one citizen trying to make sense of something that I’ve hardly paid attention to in the past. So take this with an acre of salt if you like.)
Yes, the system is rigged and corrupt. Yes, the Fed and Treasury have been messing up for decades. (As Kevin Phillips will tell you.) Yes, federal power has gone over the top here. Whoever heard of the Office of Thrift Supervision before it swooped in and sold WaMu to JP Morgan Chase? At least there’s some common sense involved with banking, and “trift” (a term that now feels euphemistic in a statist way, like “corrections”). Banking got sucked into runaway shell games, in which empty vessels multiplied and divided, as whole institutions with MBA-packed buildings grew to manage and manipulate them. Solidity and liquidity were both replaced by gasseosity — but in sectors of Xtreme Arcana that nobody outside fully understood. Thus we’ve had inflation for years, and have put off facing it, because it was hidden and the System seemed to be working.
Meanwhile the whole country became infected with the sickness of making money only for its own sake, backed by little resembling work or manufacture — a trend we’ve been seeing since the Carter administration.
The “free market” in finance has always been rigged by its Alpha beasts, its lobbied legislators and its regulators, to favor growth. But lost in this long round has been elementary horse sense about what’s actually valuable, what actually produces goods and services, what’s free and what’s not. Growth in this long round has had many costs, and we’re not even close to visiting all of them.
Perhaps it’s in our nature, with economic evidence going back to tulip bulbs. But I think it goes deeper than that. Our species pestilential and rapacious on a scale the planet has never seen before. It can rationalize chewing irreplaceable valuables out of the ground and seas, using them up and spreading its wastes everywhere. This cost-blind nature — is made manifest in a financial system that best rewards games built on games that are almost nothing but rationalizations — worse, of a sort that only its rationalizers can understand. The financial sector has become a casino in which the highest rollers have bought the house and rigged every game to pay off by splitting winnings to bet on other rigged games, while the rest of us say “Great!”, because we’re in there playing too: betting on worthless stocks, buying overpriced houses on easy credit with negative equities, running up credit card bills while thinking nothing of paying monthly interest rates north of 20%.
This “free market” was a free-for-all in which even its hands-off regulators participated. All while the country went from being the world’s leading manufacturer and creditor to the world’s leading out-sourcer and debtor — with the load now running into the dozens of trillions of dollars. Remember that we voted for the people who presided over that.
It’s tempting to blame and punish, but that isn’t what we need now. What we need is for credit to keep moving while the financial sector gradually shrinks to sane dimensions, with value that rises from 1/1 relationships between reality and perception — or at least a fair chance that good ideas will turn into good business. (I don’t want to throw smart investor babies out with the dumb investor bathwater.)
I don’t know if this $.7 trillion bill will do that. I do have a strong hunch about what will happen if it doesn’t. Or if we do nothing and let nature take its course. The entire financial sector will collapse, and the government won’t be able to print enough money to pay off its own and everybody else’s creditors, starting with China. Businesses of all kinds will close, and all but a few public utilities will cease to run smoothly. With weak manufacturing, absent small farming and other graces of traditional functioning societies, we’ll fall into a depression as bad or worse than the Great one. Cities will fail and crime will go rampant. And we’ll bore our grandchildren with stories of what it was like to hike ten miles through the snow to work at the only shit jobs that were left.
I believe this is what Warren Buffett also sees when he compares the current crisis to Pearl Harbor. I believe Buffett because he got wealthy by being sensible and prudent, and very much not of a type with those that have made a mess of the financial system.
Or so it seems to me on a Sunday morning just short of the precipice.
Oh, and I don’t hear either candidate talking about what’s really going on here. Nor do I expect them to.
