Sunday, September 21, 2008

The Ghost of Elections Past

The other night I had a rather disturbing dream. In my dream I was lying in bed reading a magazine, when a voice came from the other side of the room. I could not understand what it was saying. Afraid to move, I called out, "What do you want?!" The voice whispered again, "It's the economy, stupid." I turned to the voice and there, sitting in the corner of my bedroom, was James Carville, in a rocking chair, laughing.

"James, what do you mean?!? Is all this asinine talk about bulldogs and lipstick over?"

"Almost," he said while smiling and fading in the distance.

When I woke up, Wall Street had gone to hell. You thought you had had a rough week. Let me see if I can get everything right.

1. The Government took over Freddie Mac and Fanny Mae.
2. Lehmann Brothers went bankrupt.
3. Bank of America bought Merrill Lynch.
4. The Government bailed out AIG.
5. Wachovia is in talks to buy Morgan Stanley.

For better or worse, these events are now shaping the Election of 2008. In my opinion, neither side is really handling it very well.

First, I think Obama is being a bit too smug. We know that the failed Repub policies are partly to blame for this, but finger pointing and the blame game is not going to win the election. Present us with a plan. If you really want to elevate yourself above politics as usual, then now is the time to do it.

Second . . . oh John, I think all of this is worse for you. After over 20 years of supporting deregulation, you are now witnessing the fruits of your labor. What struck me the most this week, was how McCain lambasted "greedy Wall Street types." Dude, when you give a kid the key to the candy store, he is going to gorge himself. In the free market, people go for the fast dollar and tend to think short term instead of long term. In what way are their actions surprising? It turns out that the free market does not always allocate goods efficiently, which is why regulations and oversight are important.

But then the shear gaul of the man . . . after supporting deregulation I am supposed to believe that he has suddenly seen the light? This is the same person and party who wanted to privatize social security and deregulate the insurance industry. Yeah, that would work out oh so well.

More and more, the German and I are convinced that the next president of the U.S., whom ever that may be, is screwed. Like Jimmy Carter screwed. There is no easy way out of this mess. With the economy struggling and people needing their government to help them, the country is also stuck in a protracted "war." The government is trillions (TRILLIONS!) of dollars in debt. That debt jumped this week after the bailouts.

Sadly this all could have been avoided. Take away the war in Iraq and go back 8 years and add regulations, and things may have turned out differently. But what is it they say about hind sight . . .

The sad thing is that we are all a bit to blame for the situation. There is a deep rooted credit culture in the U.S. "Buy now, pay later." It sounds great until the later comes and you have no money. I know. I was in the same boat. When I met the German I had $40,000 in college loans, $5000 in credit card debt, and about $5000 left to pay off my car. I was a 24-year-old grad student and $50,000 in debt. For me it seemed natural. Everyone I knew was in the same boat as me. But that ship was sinking.

Flashback to Christmas 2005. My dad and mom-squared had just built a really nice new house. We walked through their new neighborhood and marvelled at the building boom. As we then drove from Detroit to South Carolina, we saw more and more of the same. During our drive, a conversation went something like this:

Claire: Boy, I wonder if these people have fixed rate or variable mortgages.

German: I have read that most are variable mortgages. Almost anyone can buy a house in the U.S. Do you think we should?

Claire: I don't know. Interest rates are going up. Did you notice the balance on my student loans? It's going up!

German: Yeah, but your wages are not going up. And things seem to have gotten more expensive here.

Claire: Yeah, right! Dude, what happened to the price of milk??

[A Long Pause]

Claire: Are these people going to be able to pay their mortgages in a few years?

German: [long sigh] Probably not . . . You know what we should invest in? Gold. It is always a wise investment in hard economic times.

We are still kicking ourselves for not investing in gold. In case you think this is only a crisis that impacts Americans, several banks in Germany are on shaky footing. A few weeks ago Dresdner Bank was bought out. Turns out that they had also invested in shaky American mortgages. The German government has given over 300 Million Euro to Lehmann Brothers and the European Central Bank has given money to the FDIC.

The Chancellor of Germany, Angela Merkel, commented this week that it was disturbing how rich a few people got off the hard work of others. Where are those rich investment bankers now? Why aren't they helping out with the bailout and my German tax dollars are?

As I watch all of this spin seemingly out of control, I must admit that I am a bit happy that I live in Germany. I am also left wondering, where is it all going to end?


ian in hamburg said...

Don't kick yourself for not investing in gold, Claire. How do you think Gordon Brown feels? While British Finance Minister (OK, exchequer...) a few years ago he SOLD a massive chunk of the British gold reserves for near rock-bottom - like around 280 US an ounce. Not that it matters - he's now PM!

Nobody can predict when the next bubble will occur and time its top, getting out before the market turns. You always here a story or two after the dust settles about one or two smart guys who did - but statistically speaking, they have to exist.

Property? Never take on more debt than you can afford. Problem is, a lot of people weren't told they couldn't afford it, and they didn't bother to ask the right questions.

ian in hamburg said...


edzillion said...

Gold has a long way to go.
Nobody has missed anything.

Rabble Rouser said...

And here I though I was the only one having dreams about James Carville ;-)

I second the Jimmy Carter level of being screwed. It's going to take a Congressional revolution. What we have now is one big, epic fail. It's all thoroughly depressing.