More Random Thoughts

I’m not an economist. I’m not running for anything. I’ve never been on Wall Street. But I’ve been thinking again.

Thinking about the economy. Thinking about banks and investment banks. Thinking about CEOs. Thinking about politicians. Thinking about the bailout, now called a rescue plan. Thinking about how this relates to employment.

As previously noted, the subprime mortgage mess (which made a whole lot of bankers, investment bankers, and CEOs rich) got us into our current financial crisis, the greatest since the Great Depression. At least, that’s what we’re told. That has led to the credit markets “seizing up.” Banks have stopped loaning money to each other, which means that employers can’t borrow money when they need it for their payrolls to pay their employees. At least, that’s what we’re told. We’ve gone from a crisis affecting Wall Street to a crisis affecting Main Street. At least, that’s what we’re told.

It’s not that banks can’t loan money to each other. They won’t — because they can’t make the kind of money they did during the subprime mortgage bonanza (now debacle). Thus, the banks and other powerful financial institutions invited Congress to play chicken. Bail us out, or all streets become rubble. Congress, never good at playing chicken with anyone, particularly with their biggest campaign donors, bailed.

After allowing the big dogs to make a fortune by making loans to people who didn’t qualify for them, Congress (including both McCain and Obama) is now giving more money to the big dogs, so they won’t inflict the pain they’re feeling on Main Street. Congress has been advised to do this in the starkest language by Treasury Secretary Henry Paulson (former CEO of Goldman Sachs where he made millions every year, allowing him to accumulate a net worth approaching a billion dollars) and Federal Reserve Chairman Ben Bernanke (former economics professor at Stanford and Princeton, where he became friends with the scions of Wall Street).

No one can explain the bailout. No one knows its long-term effects. For the short term, it’ll be pain medicine for the big dogs and no one else. It’s remarkable that the little dogs, most Americans, who employ members of Congress will allow them to remain employed. If we had any other employees who acted this way, we’d fire them. But in each election, 90% plus of all incumbents are reelected. There’s no reason to believe that won’t happen again this year.

So let’s not blame the big dogs of Wall Street. Let’s not blame Paulson or Bernanke. Let’s not blame Congress. Let’s place accountability where it belongs.  With the employer — us.

1. 

   ACU Frank says:

   September 29, 2008 at 12:12 pm

   Amen, Brother.

   I work for a financial institution that has about 1,000 mortgages on the books, with none in delinquency. We haven’t had a foreclosure in more than a decade. We also demonstrate every day a strong commitment to helping the poor and underserved of our communities become financially successful.

   But, as a non-profit credit union with self-imposed limitations on managerial compensation, we had no incentive to participate in the pyramid scheme that made so many of our banking peers rich. Many of us felt strongly this day would come… and those who did the wrong thing would get their “come-uppance”.

   We just didn’t factor in the weak will and even weaker backbone of Congress.
2. 

   LKS says:

   September 29, 2008 at 4:11 pm

   Well Frank,

   I work for a financial institution as well. We do not have a mortgage department but we are seeing construction loans go into foreclosure and well as retail loans go bad. We never loaned to anyone with a Beacon Score under 650 (even employees) and each loan has gone through a committee consisting of all the Board members and the loan officers.

   Guess we ‘did wrong’ and are getting our ‘comeuppance’ now? No one here has gotten rich, there were no incentives to make poor loans if any at all. We have kept lenders on staff who didn’t make a single loan in 6 months. We are privately held by about 250 stockholders.

   Be careful when you start pointing fingers – sometimes they can point back.
3. 

   ACU Frank says:

   September 30, 2008 at 10:37 am

   Not sure what fingers are pointing back, but…

   You are correct that bad loans do not necessarily indicate greed or fraudulent behavior. Sometimes that just happens. I’m still not sure why you think the taxpayers should bail out your stockholders.
4. 

   John Phillips says:

   October 2, 2008 at 9:32 am

   Frank and Linda,

   Thanks for your thoughts and differing points of view. I guess we’ll know tomorrow for sure, but I’m inclined to believe that Congress will still bail, even though a lot of independent economists think such a huge bailout plan is unncessary. I’m not smart enough to know, and I really doubt that anyone has those kinds of smarts.

   What has already happened (which includes the nationalization of financial institutions and which will be broadened if the bailout passes) is a striking departure from what we’ve always said about our system of capitalism and free market approach. It would be refreshing to hear someone clearly say that and go on and say, therefore, that our system doesn’t work any more–that we must turn from free markets to the government in the future–that some sort of quasi-socialistic system is now in order. And maybe they’d be right, but no one has the guts to say it, even though that’s exactly what’s happening.
5. 

   LKS says:

   October 2, 2008 at 11:33 am

   Frank

   We still earn a profit and have no need to be bailed out. We are taking our lumps. I am not saying anyone should or would be aiding our stockholders. You assumed that.

   My finger was pointing back at you and how you seem so eager to place blame with everyone who disagrees with your stance.