Faith and Credit

The pitiable state of the economy is hardly something that needs to be pointed out to this readership. Rational thought has been appalled by the misuse of the aeons of credit that this country has built up, and that it is now destroyed is not a surprise.

The only parties still saying our fundamentals are sound are those who began their destructive progress convinced that a lie would be just as good as the truth, and that all they needed to do to steal from as sound an institution as the U.S. was the gullible consumer. That was the audience they could deduce - from getting enough support to stay in office after Nixon's crimes were exposed, the Iran/Contra treachery discovered, the war of aggression against Iraq discredited, and the massive fraud in the executive branch creating havoc throughout government, especially the former Justice Department. The gullible consumer for the most part is coping with prices on bare necessities that have tripled in the past year. Their incomes have not increased, and in all too many instances their incomes have disappeared. Watching the personnel at Lehmann taking their office accumulation away in boxes, I know almost all of us remembered similar circumstances of their own. Diligence, good performance, loyalty, high ability, is not proof against executives that gamble away those very qualities for the prospect of a bit more profit.

Of course, I've talked before about the gross abuse that has stripped value away from our economy, most recently by removing creditworthiness as the basis of real estate lending. During a long, long talk I had with Feral Liberal, Woody, and Olaf (who we eventually put to sleep) during the long drive among ghost towns in New Mexico, we were trying to put this economy back on its feet. I'd like to say we succeeded, and of course, by throwing out these crooked executive branch operatives we may as a part of the larger group of bright, capable, and politically active bloggers. An analysis FeralL had that particularly solidified some thoughts I've had and expressed, is that the consumer has had taken out of his hands the actual, tangible possession, replaced by a debt package. While the fact that businesses like GM were no longer profiting from sales of vehicles, but replaced that with their financing profits, I really had not reached the concept that a house was no longer a real, and precious, asset (with a little picket fence, ideally, in my dream of home). What the consumer has been treated to is sleight of hand. The castle is not just ephemeral, it has been replaced. Your turrets are the decoration on your Bill of Sale, which includes clauses of your entrapment all too often. Under the guise of expectation, most buyers in the past ten years have been sold a guaranteed profit, and as long as the first card didn't slip, that castle in the clouds kept on growing like Jack's beanstalk. The longer the first card held, the more hazardous the whole construction became. Even the principals who saw that hazard kept convincing themselves and their fellow carnival barkers that they could keep it up forever, that that card that held up the whole mess was going to stay as long as they convinced enough of our consumers that it was sound.

The fundamentals were never sound. They were always an illusion. 'Irrational exuberance' is an indictment - and stating muddied warnings was Alan Greenspan's way of shoring up his belief that ignoring laws was sound practice. To the illusionist, loss of confidence was the worst thing that could happen. With an invention like boundless ignorance on the part of the whole financial community, loss of confidence seemed impossible to the lawless.

It took longer to happen than seems possible, but eventually the end of that exuberance was reached - the bundles of valueless mortgages were called in like a debt. When the payment couldn't be made, the unsoundness of the whole invention was shown up. What is unrolling now is the collapse that followed the first card to slip and fall.

Most of the buyers who were the balanced cards knew that they were part of unprecedented growth but they did not take part in the hoax so much as be taken in by it. I actually have talked with a few people who refused the extension of infinite amounts of credit, grand palaces whether of actual property or of inflated terms that gave them more debt than they could reasonably assume. For the most part, though, consumers bought into bigger dreams, more extravagant possessions, than they were ever comfortable with.

When the cards fall, it is huge loss to so many, and so many were pushed beyond good sense by promises that seemed like 'sound fundamentals' because it was pushed by everything that was happening. That is why we need regulations. That is why insurance policies establish basic practices that do not pay off if the policy holder isn't sensible about his care for the possession. If you drop lighted matches on gasoline, say, the insurance doesn't pay to rebuild the garage. If you leave your car unlocked on a dark city street, good luck on getting a new car for the stolen one. Having a commitment and failing on it is cause for loss, and justifies your taking a fall.

But if you believed the salesman who told you that you didn't need any income to pay for the McMansion, and you just found out he lied and sold your loan to some one in, say, Outer Mongolia, now, shouldn't the commission that went to the salesman, to the brokerage that sent him/her out to inveigle you, the financial office that strewed those loans as far and wide as they could, the financial institution that bundled and sold them, and most especially the regulator who insisted that regulations were just a burden on all those who ought to be raking in the money - all of them ought to be losing at least as much as you are when you lose that home.

We and our families, and even the guilty who believed in this whole castle in the sky, will be paying for the irrational exuberance for a long time to come. We have to make it stick this time. When we vote in a responsible adult executive branch, we will have re-established the sound fundamentals. Until we succeed in removing the last and most minor crook for ownership of our laws, we will not be safe from their frauds.