I am sitting in the study of my home in Rancho Mirage. My glorious dogs, Brigid and Cleo, are sitting on the couch staring at me. Words cannot describe the love I feel for them. No. Not if I were Shakespeare. Not if I were Samuel Johnson. Nothing can describe the love I feel for these hounds. Loyal. Beautiful. Intelligent. Modest. Perfect. I love them. On the other hand, I am doing a rapid burn about the state of the economy. Maybe by the time this appears, we will be in better shape. But for right now, here’s what I see.
It is true enough that the Bush administration did a poor job on the economy. They cut supervision of the markets to a bare minimum, if that. (This started long before Mr. Bush, by the way.) They allowed a true historic incompetent, Henry Paulson, to be secretary of the treasury and to staff it with other boobs. They did not woodshed Ben Bernanke when he turned out to be too slow to respond adequately to the growing crisis.
They allowed simply criminal self-dealing in the form of executive compensation—and just plain stealing—from Wall Street to Main Street. They did not stop the pools of manipulators and looters on Wall Street and in Greenwich from running wild. Essentially, they took the community swimming pool that had been the playground of people planning retirement—the stock market—and allowed sharks to swim in it.
The pitiful destruction of Americans’ hopes for retirement is the result. The demolition of American hopes for a brighter tomorrow is the result. It did not happen by accident. It happened because criminals and fast talkers were running the system that “served” American savers and robbing it blind. (See the new book Enough, by John Bogle, which lays this out in brilliant detail.) This was all a grievous set of faults by Mr. Bush, and grievously hath he answered for it.
But now we have Mr. Obama as president. He promised “change you can believe in.” He said he had a plan. He said he knew what to do. Now, somehow, some of us were dubious. Here was a guy with zero serious training in economics, with no academic accomplishments in this field that anyone knows about. But supposedly he was surrounded by geniuses and they would show him the way to prosperity. (And, let’s be fair, Sen. McCain was not surrounded by economics rocket scientists…perhaps that’s the clue: maybe there are no rocket scientists.) And, of course, he was partly black and in some way, that might have made people feel there was some “black approach” to economics that might work. After all, the “white” ways had been tried and found seriously wanting. So, people took him on faith and he was elected.
Now, what do we get? A stimulus package that has many meritorious parts—especially the ones that have the taxpayers in Kansas in 2030 bailing out California in 2009. In fact, we in California love that. I am not sure how fair it is to the people in Kansas; however, we in Los Angeles love it. But it also has pork, pork, pork for the teachers, the service workers’ international union, the communications workers. And it’s not even the right kind of measure. Our problem is a financial-monetary problem. It requires a fix of the banks, not a fix for the teachers’ union.
I wonder if Mr. Obama even knows that. Somehow, his choice of Mr. Geithner to run Treasury scares me to death. Mr. Geithner, I am sure, is a fine fellow. But his background has been in creating the credit crisis—not in solving the crisis. He was head of the New York Federal Reserve Bank when the shenanigans were going on in a huge way. He argued for more deregulation. He argued against saving Lehman Brothers, which was probably the biggest financial mistake of all time. Now, somehow, the man with the dynamite is responsible for rebuilding the building. I don’t get it. If there were just deserts, he would be fired, not made head of Treasury.
Mr. Obama is just floundering around here. He could take decisive action. The banking crisis is really largely about “marking to market” securities owned by banks and other lenders. If speculators sell short those instruments and drive down their price, the banks have to write down the value on their books of those same securities. That requires them to raise more capital to plug that hole. That, in turn, makes them appear to be insolvent when in fact many of those securities are “cash flowing positive” and still making most, if not all, of their payments. Why not cut out the “mark to market” rule? The only people it’s helping right now are speculators. When the ship is righted, we can consider when to apply it in the future. For now, we don’t need it at all. Then there’s another matter. The government is spending money wildly, creating immense deficits. To be fair, this continues a trend begun with Mr. Bush, whose party (my party) had the strange idea that “deficits don’t matter.” Mr. Bush spent money like it was water and allowed the deficits to balloon.
Now, Mr. Obama is following that same sad path. The deficits could be paid for by the Fed “printing money”—actually just expanding its balance sheet; it does not even need to use a printing press. This would eventually be inflationary, but we live in such deflationary times that the likelihood of much inflation soon is small. If the Fed just bought the debt with its imaginary/real money, we would flood the country with new money—which is exactly what we need right now. Plus, we would not be adding hugely to the government debt. Interest on debt owned by the Fed is mostly returned to the Treasury.
This is important indeed. If too much interest is owed by the government on our national debt, we could wind up with a ratings downgrade on the sovereign debt of the U.S. That would mean higher interest charges, probably a fall in the dollar, and general instability.
So, why isn’t the Fed buying the debt? Who knows?
I keep going back to a line from Machiavelli, also adapted by Douglas MacArthur: “Councils of war breed timidity and irresolution.” Possibly what’s happening at the White House and at 15th and Penn (Treasury) is a fear that if they take truly heroic measures, they will get yelled at. That’s just my guess.
What I do know is that Professor Milton Friedman and top-grade economist Anna Jacobson Schwartz showed in A Monetary History of the United States that the Depression was created by allowing banks to fail (see Lehman Brothers), among other things, and was prolonged by (among other things) repeatedly taking “half measures” when full measures were needed. As the saying goes, “Half measures availed us nothing.”
Plus, I am not sure why we are bailing out homeowners who are in foreclosure. “They hired the money, didn’t they?” as President Coolidge famously said about Allied war debts to the U.S. after World War I. (Actually, he probably made a big mistake about that.…) But why should a taxpayer in Oklahoma who has been perfectly responsible about her mortgage be taxed to pay the mortgage of a homeowner in Phoenix who has not been responsible? That doesn’t make much sense.
Plus, home prices have not really fallen enough. They are still insanely high compared with prices 10 years ago. The housing market has revived where prices have fallen sharply. It has not revived where they are propped up. To prop them up introduces a rigidity into the system that we simply do not need or want. Well, anyway. It is all maddening. And I am getting scared. I was not even 30 when I started writing for this magazine. Now, I am 64. What do I do? What about my dwindling stock portfolio? What do I do about that? What do I do with my homes that I bought in moments of wild euphoria? How will I support myself when I am old and gray? I am terrified and that makes me fearful and angry.
I am really angry that “they”—the speculators— have stolen my peace of mind. But to be fair, I stole it from myself by my spendthrift ways and by extending myself too far. I really believed that we were in stable times and above all I believed the government would keep things on an even keel. I did not plan for calamity, as the saying goes, and now I am paying for it.
HOWEVER, NOW I AM IN MY GLORY. I am in Searcy, Arkansas, speaking at Harding University. This is a bit of heaven. The town is adorable. More than that, the people are fabulously kind. This is a Church of Christ school, like beloved Pepperdine. Wow, does it show. Good people. Smart people. The cutest thing there was a little 10-year-old girl who saw me walking across a lobby, turned toward me, and shook my hand as if she were a woman running for governor, as I am sure she soon will be. When I introduced her to the crowd, she waved to them as if she were Maggie Thatcher. I had a huge, immense crowd. They cheered and applauded. It was bliss. Hundreds wanted autographs. Again, ego bliss.
I had felt a bit tired earlier in the day, but the moment I got on the Harding campus, I felt great. When the speech was over, a high official of the school said he hoped I would have a safe trip home. I answered, “I am home.” I really love those people. No coincidence that my wife is from Arkansas and her hero father lived and died in Heber Springs, not far from there. By the way, I have his Silver Star and his citation for it right next to my desk in Rancho Mirage. I don’t think he fought for an America run by speculators— and run into the ground. We have got to do something about this situation. No one elected the speculators. Where did they get their money power over us? When did they start running the government, too?
Anyway, enough about that. Time to think about Harding, as fine a place as I have ever been.
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