Juggling Rocks

A thick tension enshrouds the suburbs. The other night, an otherwise congenial friend of mine attacked my character. Another friend expressed her concern for a mutual friend, who she accidentally caught in tears. I hung up the phone a moment ago, wondering if somehow I had done it again. Somehow, completely by accident, someone felt slighted. Surely, it was nothing, but as I stand in this great cathedral, I see my friendships before me as a stained glass window.

I juggle rocks.

As you can imagine, this feeling led me into a state of introspection. I have been walking through life fairly pleasantly for more than thirty years. I am a reasonably sensitive person. I have been accused of excellent social diplomacy skills. Friends have truly humbled me in the past by their willingness to open up to me, and I can promise you that the smallest shreds of those private conversations will never appear here. Never. Even if you guess right, I promise I cannot tell you. (Anyway, I have a horrible memory.)

What happened?

Although I am well known in my circles as a pop culture idiot, I do my best to stay abreast of the more serious events of our time. I heard the other day that Citibank is laying of 50,000 employees on top of other layoffs. Yes, I heard about the credit crunch, the death spiral of retail sales, the automotive bailout debates, and “Hank and the banks.”

I received the e-mail from President Hockfield of MIT, explaining just how MIT will weather the financial storms. She sent me (and thousands of other alumni) an e-mail telling me things will get worse before they get better. I sigh, and I’m so glad that those employment figures are just figures. Those metrics sit sadly on the desks of economists, in some office, somewhere in a big city.

I am glad that I don’t know anyone losing their job.

Oh, except for Mr. Smith, of course, who was laid off recently. And then there is Mr. Jones, whose company will likely go under. Mr. Davis is in real estate, which I’m sure is doing just fine, right? Then there is the Wallaces who own a small business selling things that people can put off until later. And, since the manufacturing and banking sectors are unlikely to be laying off, those friends are pretty secure too, right? Right?

Right.

And I wonder why people are just a little edgy when the only thing everyone can agree on is the fact that things are going to get worse.

But, Mr. Smith, you may not know this, but Mr. Davis is pretty edgy too. And, his wife is upset because she isn’t able to figure out how Johnny is going to get that train set if she has to pay the copays this month and then your insurance is gone in January. She just heard that Santa’s elves are walking out if the pay cuts go through. Mrs. Wallace, please be patient with Mrs. Jones, she didn’t mean to offend you, but she just got off the phone with her husband who had some more bad news. She used up all her reserves telling him that she’d figure it all out and everything would be fine, even though she doesn’t really believe it herself.

And me? I probably look just a little bit comfortable carrying that fancy coffee into preschool with a big smile. I’m smiling because I found a coffee shop gift card in my winter coat from last year. I should have told you. Its that bad memory thing I guess. I have enough for one more. Do you want to split it?

I am not juggling rocks. I am another windowpane refracting the sunshine, even if its merely the reflection off the new fallen snow.

Looking out my window, I see snow glistening, as if to spite those gray winter skies. Pull up a cup of your cheapest joe, my friends, it may be a long winter, but it will be warmer in the company of friends.


And, my dear friends, I promise my next post will be cheerful, maybe even funny in its own Emama sort of way.

A thoughtful response from my Democratic alter-ego

Hi EnthalpyMama,

EntropyDaddy here, trying to organize the chaos and get my guest blog written (and I only have one kid). You posted a few days ago about the financial crisis and asked me for my thoughts. Here they are with a disclaimer - I certainly can't match your eloquence, so if your revenues tank because I drag down your blog ratings - well, maybe we can just go to the government for a bailout! :-)

The economy is one item that you brought up in your recent "challenge" post. The collapse of the sub-prime market certainly seems to be the driving factor beyond the problems (I'm not an economist, so I'll have to rely on the information I've read). You point out your belief that Fannie Mae and Freddie Mac (FM/FM) are the problem. Certainly they're at the core of the problem. I think there's plenty of blame to go around (from the homeowners who took risks by not understanding the loans they were getting into, to lenders who put these people into loans that they knew would reset into much higher interest rates in a few years, to FM/FM, to banks and Wall Street firms who would buy these mortgages without understanding the risk, to the U.S. government for not fully understanding the markets and the crisis and taking action earlier).

I don't think the Democrats are heroes of the economy. I think it's more likely people think the Democrats will do a better job at fixing the problem than Republicans. I don't blame the problem on one party, but I will blame it on one issue - lack of proper regulation.

But one point very quickly, and then back to regulation. You asked why the Democrats didn't step in and fix the problem once they got control of Congress in 2007? Certainly would have been nice. But, by this metric, why didn't the Republicans step in between 1995 - 2007, when they controlled both houses (except for a brief time in 2001-2003 when the Democrats had a slim one-vote margin in the Senate). Both houses of Congress were Republican-controlled for the majority of a Republican administration (2001-2007), so I can't see blaming the Democrats for not doing something in the last 18 months as the reason for the crisis.

But let's get back to what is the major problem - poor regulation. Fannie Mae and Freddie Mac are regulated by HUD (Housing and Urban Development) - which is in the executive branch of government. Certainly Congress makes laws which can dictate what this organization does, but it's the executive branch that is responsible for running it and making sure there aren't any problems. Now, President Clinton did agree to allow FM/FM to cover more mortgages for more low-income families back in 1995, so maybe he did start this, or maybe not (Why didn't the Republican-controlled Congress from 1995-2001 stop this if it was bad policy?) One might argue that because of Clinton's policies, it was a ticking time bomb waiting to happen. Then why didn't Bush and the Congress come in and fix the problem in 2001? To the contrary, President Bush actually set a goal to increase affordable housing from 50% to 56%. Another metric, in 2000 Freddie bought $19 billion in subprime loans. In 2005, FM/FM bought $170 billion in subprime loans. Are FM/FM to blame, certainly, and so are the people who were supposed to regulate them.

I think the reason people see the Democrats as the potential good guys here is that a main tenet of Republicanism is laissez-faire, hands-off government - while the Democrats are more willing to use the "hand" of government to manage the economy. And I think people are much more willing to believe that the Democrats will yield better regulatory control.

One interesting thing, I don't disagree with the goal of this Republican philosophy - I actually want as little government intervention in my private life as possible. However, I think that over the last century (reference the crash of 1929) we've seen that capitalism is not a system that is fully self-regulating, and we need some government regulation in it. Not over-regulation, but proper regulation.

If you have time, one good article to read about HUD is in the Washington Post (http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html)

Sorry for the long post, but there's a lot there. I think we'll be sorting this thing out for years to come.

My Two Cents on the Economy

When I visited San Francisco a few weeks ago, I spoke with a friend who insisted on his desire to convert me to an Obama Democrat. Having great respect for both his tenacity and intellect, I have found it difficult to shy away from such a challenge.

Okay, I’ll be honest, he practically challenged me to a duel.

He even sent me reading material.

I felt fortunate to make it out of San Francisco without someone (not him, of course) poisoning my coffee.

Okay, Mark, you got my attention. The gloves are coming off. I’m ready. It is going to take me several days, but I’ll try to make it through one issue at a time.

Sigh. I barely have time to answer all the questions from my children.

Oh, and excuse me if I take things down an intellectual notch. I am sure you already understand all of these details, perhaps even better than I do, but this will give us a chance to understand if we have a different view of the issue itself.

Okay, enough stalling, here goes . . .

THE ECONOMY

I believe that Mark and I agree that the economy is in a tailspin. We probably even agree that it is due primarily to the mortgage/credit crisis that has caused uncertainty in values in the market. The question here is how do we solve it, and perhaps to a lesser degree, how did we get to this point.

The bailout is absolutely necessary. To keep things in terms my first grader can understand, the government will be buying mortgages. This is necessary because with so many people not paying their mortgages, homes are going into foreclosure. If a bank is left with a home, normally they could sell the asset. But, since they can’t sell the assets and aren’t sure what they are worth, no one knows what these mortgages are worth anymore in the market. So, if the government buys them, then they are worth whatever the government pays.

Since the government is buying something American, we can assume that the government will later be able to sell these assets back to the American people. This is a loan from the government that should be repaid to some degree (not sure how much, of course) after this is all over.

This makes sense to me.

Yes, it also annoys me that my family has NOT gone outside our budget and our tax money is going towards this bailout. This should have been fixed.

What confuses me is why the Democrats are now being touted as the heroes of the economy. Somehow, the Democrats are going to save us from all of this?

I understand that the problem is essentially with Fanny Mae and Freddy Mac. These organizations, which are government supported, were “told” (or at least encouraged by the market and the government) to create mortgages, even (especially?) very risky mortgages. The government, well, the Democrats particularly, encouraged it because it supported their pledge of widely available low cost housing. The market encouraged it because mortgage type securities sold well on Wall Street because people believed the housing market would continue to be strong. Fanny Mae and Freddy Mac didn’t stop, because they are government supported. They could create these securities and sell them at a profit without worrying about the downside risk, because they knew (and they were right) that the government would bail them out.

While I am not suggesting that we should change the system entirely, it does seem curious to me that Fanny Mae and Freddy Mac were able to run wild not because of capitalism gone wild, but because they knew they were not completely at the mercy of market forces. This tells me that more regulation is not necessarily better, it’s the right balance of regulations that is important: tricky stuff.

I also find it curious that the very Democratic Congress that has been in office for the past two years were unable to pass any legislation that was recommended (some as I understand by Sen. McCain) to put the breaks on Fanny Mae and Freddy Mac. Apparently, some people argued that it made no sense to fix something that wasn’t broken. I mean, who wants to deny people the ability to buy homes? That certainly isn’t going to make you very popular. It is really hard to do the right thing when no one is complaining, especially if the American people do not understand the details.

(I am having a very big problem right now with politicians assuming that the general public does not understand issues very well. It is the public’s responsibility to require politicians to talk about the issues, and to vote based on them rather than giving the politicians further incentive to throw mud. Sorry, I digress.)

If the Democrats wanted to fix this problem, they could have done it. Congress knew about it. President Bush didn’t get a bill on his desk and veto it. It is much easier to do nothing and blame it on President Bush, as if he generates legislation. (Go back and watch Schoolhouse Rock again. I’m only a bill, on capital hill . . .hee hee).

Both Senators McCain and Obama received campaign money from Fanny Mae and Freddy Mac. Of course, Sen Obama received six times more money, or at least that is what our media has reported. Wasn’t the work Sen Obama did in Chicago a grass roots effort to help people buy their own homes? Not to say that people owning homes is all bad, but it does seem that Sen Obama should have understood the issue well enough to be pushing for some restraint on Fanny Mae and Freddy Mac. I don’t think he did, but I could be mistaken on that point.

So, based on Sen McCain’s interest in applying restraints on Fanny Mae and Freddy Mac prior to the meltdown, the Democratic Congress’ inability to prevent a meltdown, and the apparent need for high leverage regulation rather than lots of regulation, I do believe the Republicans are more equipped to handle the economic crisis.

Considering that I could go on for a few more pages with as many questions as I have answers, I am now thinking that my friend Mark may need to actually post on my blog to be given a proper response.

What do you think, Mark? Or, perhaps I should go back to writing sweet things about my kids? (I would get more sleep that way).

The only person scarier than someone who doesn’t speak the truth is someone who is not willing to listen for it.

I’m listening. Lay it on me.