Friday, March 20, 2009

Losing Our Religion

I made some comments earlier about Tim Geithner, and wrote about his comments that there was some "basic inherent economic value" in troubled Wall Street assets. I want to expand today on why I see statements like these as troublesome, and why Tim Geithner needs to be replaced.

My critique of Mr. Geithner - and perhaps of others in the Obama administration - centers around the fairly obvious disconnect between Geithner and others within the Wall Street Fantasy Land and the rest of us who actually live in the real world. Consider, as an example, this comment by CNBC talking head Mark Haines:

Raines makes the following breathtaking comment:
Let’s get back to what I regard as a fundamental issue here. I know it’s politically unpopular, politically incorrect. I know it goes against all of the populist indignation that’s out there right now. But you can’t really, it seems to me, expect that these Wall Street companies are going to be run well by a bunch of people who don’t make more than $250,000.
Let's take a moment, after picking ourselves up off the floor, to think about this bizarre notion.

First of all, Haines drops the "politically incorrect" stinkbomb, that roughly translates into, "now I'm going to speak in the secret code of all of us right wing lunatics. Once I say this please disperse it widely on FreeRepublic or Fox News."

After all, if this argument was rational, there would be some basis that Haines would proffer in support of this idea. We've heard, again and again from the right, that the plan to raise taxes on those making more than $250,000 would unfairly affect small business owners. Here's one example:
Obama's populist rhetoric suggests that he's only going after the super-rich. Yet reportedly half of individuals earning over $250,000 a year are small business owners. During the past 15 years, small businesses have been creating over 90% of net new jobs -- altogether, more than 20 million jobs. How smart is it for the heavy hand of government to come down on these employers?
Apparently this "half" of all those making more than $250,000, who create 90% of net new jobs aren't even qualified to do their own jobs. And their companies aren't run as well as the Really Big Companies where you need a person to make a Whole Lot of Money because they are Super Smart and Super Cool.

Maybe Haines should watch any current episode of
Celebrity Apprentice. These folks all make more than $250,000 a year. It should be clear to anyone that these folks are really, really smart.

Or to quote Borat, "Not."

Mr. Haines was apparently asleep during the Enron debacle. We saw, played out on the international stage, the depressing fact that Ken Lay thought he had been "fooled":
“I don't think I'm a criminal, number one,” says Lay. “Am I a fool? I don't think I'm a fool. But I think I sure was fooled.”
While no person wants to admit, on the world stage, that they were a fool, few of us who watched this corporate fiasco unfold can successfully parse Lay's distinction between "being fooled" and "being a fool."

And more to the point, as chairman of Enron, Lay was paid the big bucks
not to be fooled or be a fool. Supposedly these guys make all the money they do because they somehow see things that the rest of us don't. They have sufficient vision to be able to steer a large corporation away from foolish decisions, ideas and the like. They have the insight to direct a large company toward goals that won't be viewed as foolish afterward. If they don't have the qualifications to do this, so goes the myth, they aren't qualified to be a "captain of industry", to quote my favorite captain of industry, Tony Soprano.

Who, then were the fools in Enron? Was Ken Lay a fool, or were the Bright Folks who hired Ken Lay the fools? Or perhaps they were all fools? I favor the latter evaluation.

So back to Mark Haines, and Tim Geithner. I think it is important to state that Haines' comment that Wall Street corporations need people worth more than $250,000 a year is not a matter of political correctness.
It is critical to realize that most of the money made on Wall Street doesn't arise from actually making anything. Those men and women who run your 401K investment account don't create anything except more money (recently less money). At the end of the day, there is no picture they can take of this thing they actually made or built or helped build. As we've all seen, the vast sums of money recently bleeding out of Wall Street office suites was conjured up by manipulating debt. Borrowed money and credit lay at the center of any "bubble." After all, if there was something real at the center of these funds, there would be no bubble to break. This is like the difference between "owning" a house (when in reality the mortgage company really owns the house) and actually owning a house. No "bubble" can alter the fact the a home owner really owns a home, a house with a real address on a real street.

Since debt lays at the center of almost everything Wall Street does - whether we're talking about the accumulated and amalgamated debt of people like you and me surrounding our homes or autos, or the credit default swaps/wagers on whether those mortgages will or won't go sideways - it is critical to remember that all debt and credit depends on confidence - the belief that this person who I lend money to will pay it back with interest. This confidence is an
act of faith, not a matter of fact.

The notion that we need Really Smart People to guide the ships of industry is an act of faith within the Wall Street confidence game/religion. It should be painfully obvious that that idea is an act of faith every time you look at your 401K balance right now.

Likewise with Tim Geithner. When he says that Wall Street assets have some "basic inherent economic value" he speaks an article of faith, not a statement of fact. Again, check you 401K balance. Is there some 'inherent value' to it, or does it more resemble mine, which clearly appears to have a declining value, that appears to be an investment I should not and cannot rely on?

This gets to the heart of why I think Geithner and a bunch of these other folks need to go. They are speaking metaphysical mumbo- jumbo. They speak about such 'inherent value' in order to get me to believe these assets have some inherent value - not because really they do. They want me to believe this so that I will have confidence, so they can continue their gameplaying. Without my confidence in them, they cannot change water into wine, economically, or perform some alchemical alteration of lead into gold within the Wall Street arena. Like paper money itself, which only has value as long as we all believe it does, Wall Street hoodoo merchants depend on our confidence in them. Given what we've all witnessed in the last six months, can anyone produce a good reason for giving them our confidence?

Until we Americans come to grips with the plain fact that the likes of Ken Lay, Tim Geithner, and a list of other people, want to fool us into these confidence schemes, we will be bigger fools than they are. We've been talked into accepting the article of faith that debt is OK, that more debt is great, that betting on debt to make more money is a good idea. Until we divorce ourselves from these Articles of Faith in the Wall Street Religion, we shouldn't be surprised to find we need to lose our religion.

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