Saturday, February 07, 2009

Small Men

I spent much of yesterday watching the Senate in action on CSPAN 2. It wasn’t pretty. They were trying to pass a massive stimulus Bill -- around $800 billion dollars -- to (hopefully) save the economy.

Once again, I’m thankful for my experience in the democracy of a union. If you’ve ever participated in the democratic process of writing a law, regulation, policy or rule you quickly realize it is a much tougher job than the history books depict. It is a long and agonizing process. It is boring to watch (most of the time.) There are pitfalls galore.

Having said all that, I was still disappointed by yesterday’s performance. Deeply disappointed. I heard the word “leader” a hundred times yesterday but I saw very little leadership. What I saw was mostly small men trying to manage a crisis that was overwhelming them. A crisis -- that in large part -- they helped create.

Senator Chris Dodd (D -CT), along with Senator Martinez (R-FL), appeared surer of themselves and better prepared than most. That was comforting in that they’re on the Banking Committee. Well, at least until you figured out what they were talking about. It was some kind of amendment to deal with the private mortgage servers (as compared to Fannie Mae and Freddie Mac) so that they could start renegotiating the terms of mortgage rates with homeowners trying to avoid defaulting on their loans. That makes sense. What didn’t make sense was the statistic I heard in the debate. The private mortgage servers only have 15% of the market. Yet they have 50% of the mortgage defaults.

You might want to keep that statistic in mind when anyone is trying to place the blame for this mess. “The Market” made a lot of money pushing sub-prime mortgages. They knew the mortgages were risky (hence the term sub-prime) but they were making money off of the process of selling loans (instead of the loans themselves) and didn’t care. Greed never goes out of style. For anyone. Senators, Bankers or Citizens.

If you’re like me and you hate math, the numbers in this Bill are truly astounding. I was trying to find a way to make all this comprehensible. The only way I can do it is to get rid of some of the zeros. A trillion dollars (by the time you add up the interest that is what we’re talking about here) is a “1” followed by twelve zeros.


A million dollars is a “1” followed by six zeros.


If you take away 6 zeros from each, you can start to understand the relationship.

If trillion becomes a million, a million becomes 1 dollar. Imagine buying a million dollar home and arguing about a dollar. That’s still too rich for my blood. Take away two more zeros and the relationship becomes $10,000 dollars to a penny.

I know it’s mind-boggling. But it puts some of the arguments in perspective. Arguing about $200 million dollars to sod The Mall in Washington in a trillion dollar Bill is like paying for a $100 dinner and arguing over 2 cents. It is stupid. Don’t get upset about the sod. Get upset that we’ve got ourselves in a situation where $200,000,000 has become almost meaningless. Be upset that some Senator just has to get his “two cents” in when dealing with a crisis of this magnitude.

Speaking of magnitude, I really wonder if our fellow citizens understand it. Perhaps this will help. As I said a few days ago, I try to keep tabs on what Joseph Stiglitz is saying. I realize he isn’t a household name so let me take his bio straight from the latest article.

”Joseph Stiglitz was awarded the Nobel Prize in economics in 2001. Under US President Bill Clinton he served as chairman of the Council of Economic Advisers from 1995- 1997. He was chief economist of the World Bank from 1997-2000 and was a lead author of the 1995 Report of the Intergovernmental Panel on Climate Change, which shared the 2007 Nobel Peace Prize. He is currently a professor at Columbia University in New York. “

If this quote doesn’t get your attention, I don’t know what will.

”The fact of the matter is, the banks are in very bad shape. The U.S. government has poured in hundreds of billions of dollars to very little effect. It is very clear that the banks have failed. American citizens have become majority owners in a very large number of the major banks. But they have no control. Any system where there is a separation of ownership and control is a recipe for disaster.

Nationalization is the only answer. These banks are effectively bankrupt. “

One of the world’s top economist says the U.S. banks are bankrupt and the government should take them over. We’d better pray that stimulus Bill works. Time and options are running out.

Don Brown
February 7, 2009

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