Sunday, December 21, 2008
Is "W." one of the culprits of the Collapse? NY Times has series called "The Reckoning"
The New York Times has a long series called “The Reckoning”, which is well-indexed online at this URL. It sounds like the name of a horror movie, especially something you would see from Screen Gems (actually, I see on IMDB that there is one, from Paramount Classics, but Tinseltown could turn out more of them). The articles look like the scenes in such a screenplay,
We’re talking about the financial collapse, the implosion, of course. The latest in the series came out this morning (Dec. 21, the first day of Winter), where Jo Becker, Sheryl Gay Stolberg and Stephen Labaton write a long piece “White House Philosophy Stoked Mortgage Bonfire.” President Bush, in his zeal to bring about “The Ownership Society,” presided over the relaxing of lending standards, the shielding of banks from their own sense of moral hazard, and the silly assumption that housing values would always rise. The economic boom was funded by an artificial housing bubble. I’m reminded of how Joe Klein in Time recently called Bush “intellectually lazy” and unable to walk a fine line between freedom and regulation, as well as freedom and social equality. (The back page Time Magazine article is “Bush’s Last Days: The Lamest Duck”, link here, Nov. 26, 2008).
Actually, a lot of this goes back to the Democrats, all the way to the Carter years, when there was an effort to require banks to lower lending standards to allow minorities to have easier access to home ownership. I bought my first condo under Carter’s inflationary period, but there was plenty of talk then about breaks and low down payments. Home ownership was no longer related to raising families; it was a major life instrument for everyone. I remember that even in “conservative” Dallas tract homes were being built with double master bedrooms for “roommates.” Bill Clinton may share some of this legacy along with George W. Bush.
What President Bush missed (“intellectually yours”, thank you) was simply the mathematics of all this. He needed Charlie Epps from “Numbers”. (David Krumholtz plays a most appealing character – and the actor says he was never good at algebra, but obvious neither was “W.”) Well, he also overlooked a few other things, like the fact that all bubbles come down, just like real estate had in Texas in the late 1980s – it bit me – and being from Texas, W. should have known this. Or take the fact that many of the financial instruments hid the issuers from the risk (“moral hazard”), a problem in ethics that will eventually play out in the numbers. Or that the credit default swaps violated the whole concept of “insurable interest” and invite devious manipulation. Eventually, the geometric mathematics took over much like a viral epidemic, and most of the nation’s money available for credit froze, almost overnight, as in September. This was not so much a financial “implosion” as a financial “infectious disease” pandemic. The CDC is good a modeling such things, but I guess Wall Street doesn’t really understand the calculus “limit” concept.
We do have a new president coming in who likes intellectual challenges. And he has plenty of them now.