The Fear Card - Part 3

The White House took a clue from Hollywood, that every movie blockbuster franchise needs to be a trilogy, and played out one of their own.

In the first installment, The Fear Card, the attacks of September 11th, 2001 plunged this country into chaos and fear. In an effort to stem the panic, the White House claimed that it needed super powers in order to keep America safe from terrorists hiding within our borders. Those super powers came in the form of The Patriot Act. Congress is urged to pass it immediately in order to protect the American people from imminent danger. In a rare showing of bipartisanship, it passes without debate.

Except for Jose Padilla, no terrorist cells are discovered, or, at least publicly disclosed. There are assertions that plots have been foiled yet details remain vague, sketchy at best.

The movie ends as the hunt begins for Osama bin Laden, the evil mastermind behind the attacks, in Afghanistan. We topple the oppressive government and chase Osama's henchmen into the mountains.

In the sequel, while the public is still loving the first installment, The Fear Card 2 - WMD in Iraq gets their blood boiling again. International asshole and chemical weapons user, Saddam Hussein, is accused of shopping for yellowcake, a processed ore containing uranium. Witnesses claim that he's sleeping with Osama. Putting two and two together, President Bush warns us in his State of the Union address that it won't be long before terrorists have biological, chemical and nuclear weapons with which to use against us. Congress has to act now to protect America from this threat! Caught up in this thriller, they resoundingly give the President the authority to take action.

This movie doesn't play too well with European audiences. They find the plot unconvincing somehow. It receives lackluster support despite American certitude.

The invasion goes forth anyway and is a military success. But no weapons of mass destruction are found. Links between Saddam and Osama are disproven. "Sectarian Violence" erupts as long suppressed animosity between Sunni, Shi'a and Kurds is released. A quagmire ensues. Audiences are left wondering, what ever happened to the hunt for Osama?

The third movie in the trilogy was supposed to take place in Iran, but focus groups found little interest in the plot. Iraq redux.

Desperate to save the franchise, the White House decides to change the setting. Wall Street is now under attack by the monster Credit Crunch. It threatens to destroy Wall Street, the economy, and homeowners, plunging this country into chaos as businesses, unable to get credit, fail, thus sending the whole world down to The Great Depression 2! The only way out is for Congress to immediately pass a $700 billion bailout package that grants the Treasury Secretary unfathomable powers. "Illiquid assets" are bought from struggling financial institutions whose wounds can only be salved with taxpayer dollars.



But there are problems with the script. Members of Congress from both parties point out that it smacks of socialism. It has no regulatory oversight. The CEO villains get to keep their golden parachutes. Welfare for the rich! There's no guarantee it'll work!

Desperate, the White House is now scrambling to re-write the script and Congress doesn't know if it should buy the Fear Card yet again. "What if Bernanke and Paulson are right? What if the sky is truly falling?" "But it's more money than we've spent on the entire Iraq war!"

In all seriousness, it's not like we didn't know that there was a problem. In fact, this administration enabled it. From Barry Ritholtz:

The current excess leverage now unwinding was the result of a purposeful SEC exemption given to five firms.

You read that right -- the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.

Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1.

Who were the five that received this special exemption? You won't be surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley.

Having that much money loaned out is insane! These guys had to know that the Fed would come to their rescue.

Even the supposedly independent ratings agencies, which are supposed to be neutral in all this were corrupted. These guys are supposed to act as a private sector check on securities to protect investors from investing without knowing the risk. Bloomberg (the company, not the mayor) shows they were complicit in falsifying ratings in order to keep the subprime mortgage-backed bond market moving. (TotH: BR)

As for the previous bailouts, they shouldn't come as a surprise. The problems with Fannie and Freddie were forecast by Ron Paul, everyone's favorite punching bag during the Republican debates, 5 years ago! And he immediately saw the Zero Downpayment Act of 2004 as a huge mistake.

For a timeline of what went wrong, go here. Watch the video too.

As for what to do, do we need to do anything? I understand the sense of urgency but are we playing into fear yet again? Buffet bought a big stake in Goldman Sachs. JP Morgan Chase bought out Bear Stearns (with gov't backing) and Washington Mutual. Is it not possible that the markets will work themselves out? The best action the government could take would be to force banks to allow people who can't afford their mortgages (the "illiquid assets") to restructure the loan: Lower the payments or put a lien on the house.

A dramatic slow down in the economy means a big drop in consumption, whether it's oil or material goods. Using less oil is good for the environment, bad for Petrol Dictators as lower demand drops the price per barrel, and good for the dollar. Forcing people to live within their means and abandon the rampant materialism that's a plague in this country seems like a good idea to me.

Is this an oversimplification? Yes, it is. People will get hurt. But government can put taxpayer money to better uses to assist them directly rather than bailing out Wall Street.

As of today, an impasse has been reached. Some members of Congress (mostly House Republicans from what I hear) just can't do a bailout. Others are willing (House Democrats and both parties in the Senate) but only if strict taxpayer protections are built into the plan. Either way, there's no deal happening today or this weekend. And that's a good thing, not only for us but for Congressmen who want to keep their jobs.

I got drafted into a Robocall Town Hall last night. It was hosted by the Republican challenger in my Congressional District. For the 20 minutes I was able to listen in as people asked the candidate questions. Everyone said how much they hated the bailout idea (and Senator Dodd). It's looking like political suicide right now. The Republicans realize this and it gives them an opportunity to run against Bush without appearing disloyal to the party (or their constituents).

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House Authorizes Loan For Auto Makers

Lost in the Big Bailout debate was this little nugget. Unable to get credit from the financial industry, American automobile manufacturers have asked for a loan from Uncle Sam to the tune of $25 billion. The article stresses that it's a loan, which must be repaid.

It still needs to pass the Senate and the White House, which I'm confident it will this being an election year.

As for the Big Bailout, I've been watching a lot of the committee hearings and reading what I can find in the small space of time that I have. I intend to blog about it but things are moving so quickly (and I can't blog that fast) that I'm holding onto the bile for now.

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Bailout Nation

While I fathom what's been happening down on Wall Street this year, I lack the expertise to explain it succinctly. I recommend reading the following:

"Wipeout" by The Cunning Realist

"Layman's Explanation of AIG vs Bear vs Lehmann" by Barry Ritholtz over at The Big Picture

These guys, along with Hellasious over at Sudden Debt, have been tracking the problems in the financial industry for some time now and warning their readers of the significant structural integrity issues facing our financial industry. Unfortunately, those with the power to do anything to avoid this mess haven't been paying attention.

Comrade, how do you feel now that we, the taxpayers, have an 80% stake in AIG, the largest insurance company in the world? Here, have some Pepto-Bismol. I just bought a case of the stuff.

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32 People Want My Screen Door

We finally got our new front door, with sidelights, installed a couple of Friday's ago. The old one had drafty side lights and I had to shrink wrap them in plastic every winter to keep out the cold. Two years ago I replaced the flimsy old storm door with a brand new storm/screen door that brightened up the entranceway while helping to cut down on the drafts.

Each year, we've set about making improvements to our home to make it more energy efficient. The bigger projects are funded with our tax refunds. Part of this year's income tax refund went towards a new fiberglass door with an oak frame and double pane glass on the door and the sidelights. Once the installation was complete I went to re-install the two year old storm door and discovered that it was too big for the new frame by an inch.

I don't know how that happened. I thought that the installation company representative took that into account when he stopped by for measurements. Somehow the ratio between door, framing, and sidelights doesn't match what I had before. So I now had to buy a new storm door and figure out how to dispose of the two year old one.

I don't like throwing stuff away. In Connecticut, it either gets hauled to an out of state landfill (we're full!) to spend millions of years waiting to become raw material for whomever comes after us humans are gone or it gets tossed into an incinerator to generate electricity and ash. I recycle as much as I can. I buy a permit every year to gain access to the town's transfer station so that I can recycle phone books, oil, and scrap metal. At $30/year, it's a bargain.

But I didn't want to dismantle this 2 year old storm door. It's still in great shape. Even recycling it would be a waste. I decided to find someone else who could use it. Goodwill doesn't take house parts. Selling it on eBay would be impractical as shipping it would be a nightmare. The Pennysaver takes two weeks for an ad to start running and I didn't want to wait that long if I could help it. I opted for Freecycle.

A friend of mine told me about Freecycle a couple years ago. It's a mailing list for stuff, anything really, that people are giving away for free. And it has to be free. I've had luck with them in the past for unloading baby stuff that Goodwill won't take (just clothes and toys now). But would someone really be interested in a storm door? I decided to give it a shot.

I got 32 replies in 24 hours.

Some of the replies included information like, "our storm door is 15 years old", "20 years old", "it's warped", "my apartment is drafty", "I need to keep ol' man winter out of my house this year", "I'm trying to save money on my heating bill this winter", and so on.

Storm doors aren't that expensive. Our local Lowe's sells them for $88 to $300, yet there's a large enough percentage of the populace that can't (or won't) spend the money on one. What does this mean? Is the economy so bad here in Western CT that people are actively looking for stuff on the cheap? Does it mean that we, as a society, are turning a corner on our rampant materialism and "used" is as good as new? Does it mean that people are saving their money to pay for home heating oil so there's nothing left for home improvements? I don't have an answer.

I do know that hurricanes Gustav and Ike have caused refineries to shut down in order to shield themselves from storm damage. That's sending gas prices back up. The growth in the Indian and Chinese economies over this decade has driven up the price of metals so much that, not only do I no longer need to pay to recycle scrap metal, but people are stealing metal from all over the country. I've even heard a story about navigation buoys being hit for their bells.

In the end, I gave the door to the first person who replied. I couldn't think of a fair way to weigh who needed the door the most. They were a nice couple, probably in their early 50's, and they were very appreciative of this "gift." He's from the north coast of Spain and talked my ear off (in a good way) about energy politics with a European perspective and his fear of a new Cold War (perhaps a topic for another day).

Afterwards, I felt obligated to write back the other 31 respondents to thank them for their interest. It'll be cold here in about two months. I could only help out one family. I wonder how the others will fare.

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DED

Published!

My short story, "Tile", has been published in the September issue of The Harrow, an e-zine specializing in horror. It's free to read so go ahead and click the link already! ;)



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