Shock and Awe, Baby. Shock and Awe.
It looks and feels a lot different when you're near the blast zone: your home, your job, your family.
I've been anticipating this moment since 1995, and yet now that it's here, I'm somewhat surprised by its timing and ferocity. It's not like we couldn't see it coming. We've been warned for years.
I cite 1995 as a point in time when we were staggering out of the financial wreckage of the Reagan years, and surveying the future. My expectation was not of an immediate and universal implosion, but a long, steady slide into third world status, aided and abetted by serial failures in leadership.
Approximately one year ago, I attended a presentation of the Fiscal Wake-up Tour, conducted by David Walker, then Comptroller General of the Government Accountability Office (GAO), and a complement of economic policy wonks from institutions as diverse as The Heritage Foundation and the Brookings Institution. They came to the University of Hartford to present a consensus view of our economic future if current policies and leadership did not change. They painted a bleak picture, but one that was still some time in the future, though its seeds were already firmly planted and germinating.
When asked in the Q&A if this was a hypothesis or a destiny, Mr. Walker replied that he was confident that we could avoid their conservative projections if we act promptly to make fundamental changes in policy, but that it would probably take a crisis to focus our attention and stiffen our resolve. A crisis,... like now? Except I see neither focus nor resolve emerging from the current stew of personalities and policies churning in the Congress and on the campaign trail. The pieces do not fit together.
The Odd Couple
First, there's the odd couple, Bernanke and Paulson. They came to Congress with the same warning, but I suspect from different perspectives. Bernanke was concerned, I believe, with broad economic damage. Paulson was concerned with strategic institutional damage.
Paulson's institutional position in the Administration apparently gave him the initiative to craft a strategy that favored institutional rescue for Wall Street, and not the broader and deeper response that might have come from Bernanke. I suspect that the Paulson Plan was a consensus of the two only in the need to act quickly and decisively, and not necessarily an agreement in strategy.
Fool me once, shame on you; fool me twice,...
But beyond the focus or the imperative is the issue of intent. Mr. Paulson' three page proposal has the fit and feel of the same planning that got us into Iraq. This is perhaps unfair to Mr. Paulson, painting him with guilt by association with his administration; but the parallels to other administrative initiatives and behaviors is disturbing, particularly in the context of the magnitude of this initiative and its likely future impact on our lives. The safe harbor from oversight bespeaks Guantanamo, no bid contracts and other stratagems of prior Bush administration quagmires. The lack of understanding of causes while rushing to band-aid effects bespeaks the faulty intelligence of Iraq. The capacity to benefit his corporate alma mater echoes the Cheney / Halliburton relationship. The good news is that there will be fewer civilian fatalities. The bad news is there will be many more casualties. This comment will strike many people at first glance as dismissive of the horrors endured by the walking wounded of Iraq in all spheres of that conflict. But they too will suffer from this in ways direct and indirect.
Treating the Symptoms in Ignorance of the Cause
What seemed to concern many members of Congress who voted against the Paulson Proposal in its Plan B form last Monday was the acknowledged lack of certainty of the precise cause of the credit problem, and therefore the efficacy of the proposed cure. It appears that sub-prime mortgages are the likely foundation, but by no means the only cause. Therefore, how reliable can the proposed solution be? If no one can speak to the value of the assets at risk, how can anyone presume that the taxpayers will not be burned in the end? If we do not know the cause, how do we know that the solution hit its target, and that the cause will not metastasize into another crisis that will then be beyond our means to cure.
Hunting An Elephant With A Pea Shooter
For their part, the Democrats were in classic form. One of the first screams that was heard was for a lid on executive compensation, as if that was the cause of it all. The current status of executive compensation among American public corporations is clearly an abomination, but only one of many deserving attention beyond the immediate scope of this crisis. It is not the priority. The priority is oversight of the distribution of the $700 billion before it too resonates with echoes of Iraq mismanagement. At a minimum, auditors from the Government Accountability Office (GAO) should be immediately embedded with Treasury and any ancillary agencies created to administer the rescue to assure on-site contemporaneous monitoring from the top down.
The matter of executive compensation should be taken up after the immediate crisis has been stabilized, and should be handled through stock holder, bank and insurance regulation, and pension fund regulation that requires these entities to more closely evaluate compensation of executives of companies in which they invest for the benefit of pensioners, depositors, and other stakeholders. Bringing broad external pressure to bear on the issue of executive compensation will be more effective in evolving a social consensus of executive value than any bureaucratic rubric crafted by Congress.
A Cure As Bad As The Illness
Plan C, the 456 page opus that passed last Friday takes outrage to a new level. Picture this analogy. A victim calls 911 in the course of a mugging. The cop arrives, looks at the perp, looks at the victim, and shoots the victim.
How else to describe a bill that presumes to address what many regard as an outrageous request to bail out the perps, and then adds to it yet more outrageous requests in order to sweeten the offering, not to the taxpayers who are footing the bill, but to their very representatives who stood watch as this mess evolved. Back in the good old days, it was lobbyists who bought congressmen. Now it's congressmen, eliminating the middleman, buying off each other with our money.
Not to be outdone by the Democrats' obsession with people making more money than they, the Republicans seized the moment to engineer yet another tax reduction in order to dig our economic grave yet a little deeper while 'solidifying the base'. Granted, tax reform is desperately needed, and alternative energy credits are desirable in my opinion, but these and all the other 'Christmas Tree ornaments' attached to this package only serve to reinforce our awareness of the twisted process that got us here.
This does not argue that there was no need to act. Rather, the manner in which action was ultimately taken was so typical of the pervasive rot that got us here as to place the final seal on a conclusion that we are doomed as long as the status quo continues. And the status quo, if nothing else, has indeed survived in the final rescue legislation. When Congress was called upon to act in its highest capability, it degenerated into business as usual. But at least it was bipartisan.
It's Not Just Wall Street
Much as Wall Street richly deserves to get slammed for this mess, there is much more blame that deserves to be spread far and wide. Wall Street was the prime facilitator and enabler, but all those toxic mortgages didn't get written on Wall Street by investment bankers. There was a legion of intermediaries across the country who perpetrated, aided and abetted this crisis. There were a number of regulators and relevant professions that stood by in knowing silence as our economic well-being systematically devolved.
The Victim Too is a Perp
The consumer constitutes two thirds of the national economy by most estimates. Over the years, it has been the consumer who has been deemed the key to sustaining and growing the economy, at all cost. The Corpocracy has steadily and aggressively cultivated the consumer to serve as economic cattle in the Corpocracy's aggregation and concentration of wealth. The Corpocracy clearly has the strategic and tactical advantage in this relationship. But the consumer also has responsibility; act like mindless cattle, and you can reasonably be assured of being led to the slaughterhouse.
The bailout is not the beginning of the end. It is the end of the beginning. As has been said often in the past two weeks by a multitude of "experts" and commentators, we are now in uncharted waters. I would add that we lack a compass, and the batteries for the GPS are dead. We cannot remain where we are. But before we rush forward, perhaps we should look inward for a sense of values as the first step to finding a sense of direction.
Onward.
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