Shit Sandwich

Every great cause begins as a movement

becomes a business, and eventually

degenerates into a racket.

—Pat Buchanan

As a fairly reliable rule, there are two segments of society whose invocation by politicians and power brokers signals impendent bamboozlement: The first is “our children,” and the second is “the taxpayers.” Corollary indicators include references to “our way of life,” and “our economy” and, of course, the indispensable, “national security.”

Accordingly, it is not especially difficult to construe the response to the recent economic turmoil as a cynical, typical, self-serving ploy on the part of the usual suspects from Wall Street, Washington and the mainstream media, none of which have done much to engender credibility in recent years, and most of whom are the most acutely vulnerable to the consequences of the “incompetence, negligence, outright fraud, and [other] liberties some have taken in abusing our capital markets” as referenced in the Scott “the Motley Fool” Schedler’s recent entreaty to the hoi polloi.

“Some,” indeed.

Consider the rogues gallery of characters advocating for this proposal du jour. With the notable exception of Ben Bernake, they typically embody conflicts of interest; incompetence in crisis management and a marked proclivity toward the nefarious. The Secretary of the Treasury is essentially on sabbatical from Goldman-Sachs.

Indeed, the entire financial community is similarly compromised because a) they bear considerable responsibility for the mess and, b) the best remedy may well involve significant personal injury to these masters and patrons of the afflicted capital markets. As their personal and professional bottom lines are manifestly in play, these persons can only be expected to craft their professional advice accordingly.

Congressional membership is utterly reliant on big money that is spent, for the most part, on electronic media. So the cable news outlets are doubly inclined to milk this disaster like an abducted child in a terrorist hurricane, and Congress is even more constrained than usual in resolving this crisis.

The Administration has proven preternaturally inept at any useful activity other than electioneering and obstructing justice, and their DNA is riddled with direct connections to flagrantly bad actors like Enron, Halliburton, Kellogg, Brown & Root, et al. So, they lack the competence, the conscience and the inclination to truly do the right thing. And the candidates to succeed George, Dick & Co. are bound for the nonce by a manifest system of priorities that places winning the election above all other considerations.

So, where does this leave the (cue music) hard-working American taxpayers, whose children and way of life and national security and retirement accounts are being subjected to a possible reenactment of The Great Depression?

Clearly, a massive infusion of cash in the capital markets would occasion a salutary effect somewhere in the food chain—but where? And, how? Evidence suggests that control over a significant portion of this cash and credit will accrue to key players in the aforementioned capital markets—presumably, because their good judgment qualifies them above everyone else to make the necessary decisions to right our economic ship.

These are the people who instituted, acceded to or failed to observe the policies that have brought these markets to their knees. They are also the folks who can actually make money off this crisis, so long as their gambling stake comes out of public funds. This sounds like reloading a busted gambler on the basis of collateral amounting to a newly-hatched/can't-miss plan to break the bank at blackjack.

A bailout plan using public monies is a bad idea. The notion was laughed out of the room in its initial incarnation, and is on its third makeover in a week. Talk about lipstick on a pig. Before any money goes anywhere, some fundamental changes in the culture of the capital markets need to be implemented.

It seems clear that the current mess would never have occurred, but for some ill-conceived and overripe federal policies like those embodied by Fannie Mae and Freddie Mac (aka the Madam and the Pimp of the American Dream), whose wink & nod relationship with the federal government e're bespoke an implicit understanding that the latter would cover the debts of the former—no matter what.

Predictably, this arrangement quickly turned Fannie and Freddie into a pair of degenerate gamblers, who went extra crazy during the tech boom of the nineties, when busboys and receptionists became overnight (albeit, short-lived) millionaires, and then again in the Golden Age of Terrorism, at the beginning of this century, when stimulating the economy was a sine qua non in the burgeoning War Against Evil. Freddie and Fannie had found a new drug: the subprime mortgage—an arrangement in which lenders were encouraged to cultivate long-term relationships with folks who, traditionally, couldn’t qualify for a $500 Capital One credit card.

With the Washingtonian Wink & Nod duly renewed, and seemingly everyone involved duly indemnified, a housing bubble was born with the promise of everlasting life. Alas, to everything there is a time and purpose, and about six years into the Bush Administration, the bubble went pop and the government said, Wink? Whaddaya mean, wink? And, Nod? What nod?

All the burn victims on Wall Street can attest to this. The government was the enabler and the bankers should have known better. So more governmental activity, conducted privately by the banking community, hardly makes sense at this stage of the game—especially with these two outfits using taxpayer dollars to fix their own, private wagons.

The correct solution, as any economics professor or recently unhoused homeowner can tell you, is for the afflicted lenders to declare bankruptcy. Sure, this means that the shareholders take it in the shorts. But, like the old saying goes: Ya pays you’re your money and ya takes your chances. Somebody should’ve thought of this when Joe Lunchbucket and Suzy Twopencil were being put out into the street. This was the mercy of their experience.

But, in an even colder vein, bankruptcy—much like a home foreclosure—doesn’t mean the company or the house disappears; It just means that they’re occupied by somebody else—presumably somebody who has a better handle on how to run the business or keep up with the mortgage payments.

Bailing out these businesses with Joe & Suzy’s tax dollars isn’t just a moral hazard—it’s an affront to the intelligence and trust and decency of those hard working American taxpayers and their beautiful children and their treasured way of life. In other words: it’s freaking bullshit. Just because some folks have always been wealthy doesn’t mean they get to stay that way forever, no matter what. Shit happens. Here we are.

And yes, the bankruptcy option is likely to hurt all over. But remember, we are a government of, by and for the people. As such, we’re all complicit in this mess—some more than others. But, still: it’s medicine time—time for America to reclaim its national character. And as for “the children”: we’ve already piled enough shit on their plates. This is a here-and-now, grown-up problem.

Besides, the current credit crunch is probably a function of smart bankers keeping their powder dry in anticipation of a bailout. Why sell at 20% what the government will buy for 60? It’s a new racket waiting to be exploited.

Furthermore, back when the tech bubble burst, none other than Warren Buffett himself wryly quipped that the wealth that accrued to the aforementioned busboys and receptionists had been essentially returned to where it belonged. Since then, a pretty small slice of society has held onto a pretty big slice of the pie. Perhaps it’s time to start spreading that money around again.

In the meantime, all this economic WMD-who-cried-wolf talk is just what it was on the way to Baghdad—a deliberate lie, used in the service of bamboozling the little guy into trusting the big shot by threatening his family and scaring him half to death.

This is a nation of entrepreneurs. We’re Capitalists, remember? Over the last thirty years or so, we’ve lost sight of that fact. We’ve become a nation of black marketeers and serfs, of the well-to-do and the ain’t-never-gonna.

If the banking industry can’t figure out the right way to handle money, somebody else will. They always do. These so-called toxic assets are not all lethal. There’s money to be made in sorting out this mess. It’s just going to take some actual work.

Sure, in the bailout, the taxpayers stand to recoup a significant portion of the $700 billion—but the object of investment is never just getting your money back. Paying the guys who lost our money to recover it is ridiculous. Spotting them the money to do so is just plain ludicrous.

There are kids with asthma and no insurance right here, right now. Keyenes reminds us that, "in the long run, we'll all be dead." So, for the nonce, what say we all dabble in decency, and let the craven grovel for once.

The reward for the bailout should go directly to the bailor, and the bailee should pay a premium and a penalty and a late fee and a surcharge and a fine and they should not be permitted to pass one nickel of this penance on to the consumer.

They need to eat this shit sandwich.