Wednesday, October 01, 2008

Easily Forgotten

Sarah Palin and the $700 billion rescue package are both likely to end up in the dustbin of our collective consciousness, and sooner than the current media storm would suggest would be the case.

Palin will undoubtedly acquit herself acceptably tomorrow night. The expectations for her have been pushed –largely by her own campaign – to the level where if she doesn’t blubber or throw-up she wins. And Biden will say something – almost anything will do – that the media will latch on to to provide balance to the story they want to write: “Both Candidates Make Missteps.”

The NY Times has twin leads today, “Experience, Often Tripped Up” and “Past Debates Show a Confident Palin, at Times Fluent but Often Vague” (which replaces an earlier headline about “Two Personas,” which was pretty close to gibberish. (In fact, the entire Palin piece seems to lack any critical analysis.) So the narrative is already set that will determine the outcome.

And come Monday morning, events will have by-passed the Veep Debate and it will begin its journey to forgotten-hood. Most people will conclude that neither Biden or Palin is their first choice, and will return to focusing on the actual candidates, both of whom can be counted on to make some news fairly quickly after the debate – and in the case of McCain, if it goes really quite badly, probably even during the debate so that the story will be forgotten all the quicker.

But can the same be said of the Big Bail-Out? Surely, it seems, the Bail-Out is The Most Significant Event of Our Time. But my guess is that the same phenomenon will swallow it up before too long. Major economic events are still to come, perhaps even in the next few days if not weeks. The coming months will bring news of the effects of the so-called credit crisis as businesses begin failing in non-financial sectors. (Little discussed because of the Big Bail-out is the Small Bail-out ($25 billion) for the auto industry. I can remember when a much less impactful loan guarantee for Chrysler was thought to be the End of Capitalism As We Know It.) And the stories are coming will make us soon forget the days when we thought all we had to do was give a guy named “Hank” three-quarters of a trillion dollars and all would be well.

The “credit crisis” (which has been ongoing for some time now), and the “Wall St. Meltdown” are simply symptoms of a deeper and more serious problem. The truth is – and this is Something We All Know ™ -- we are experiencing a jobs crisis. The reason mortgage-backed securities (and other “asset-backed” securities like those backed by car loans and credit-card receivables) are losing value is because consumers aren’t making their payments. And the reason is that they do not have the funds to do so. (Of course, the market for these securities is crashing in part due to the fact that everyone is trying to unload them all at once – and the only takers are true bottom-feeders.) It’s not abusive lending tactics, nor pushing too hard to get more people into home ownership, or any of the other proposed “root” causes.

Too many Americans (and others elsewhere in Developed World) have not been earning enough for quite some time. In fact the explosion of consumer debt reflects the fact that consumers have not had other sources of funds, and have turned to borrowing to maintain lifestyles. Surely some have done so improvidently, borrowing for lavish homes, vacations, expensive vacations and schools, etc. But an awful lot of the debt that consumers have taken on has been to cover something fairly close to the basics – food, shelter, clothing, etc.

I believe we are nearing the end of a long cycle of rich and powerful people taking more and more from everyone else. I can recall a time when most companies provided pensions on which one could comfortably live. I can recall a time when most employees earned enough to cover a home, a car or two, a decent lifestyle – all on top of a non-working spouse. I can recall when employers needed to pay their employees enough so afford their products. (Yes, I am nearing “Old Codger” status.)

The consequences of this long decline will be far more wrenching than the $2500 that the government says we need to spend to “bail-out” “Wall St.” (The plan is, of course, not a bail-out at all but rather an expensive recapitalization, and the interests being bailed out aren’t the Wall St. financiers but the equity holders of the financial institutions that will benefit.) We are nearing a time far more like the Great Depression than most Americans now think, with challenges that will absolutely dwarf the current “Wall St. Crisis.”

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