Wall St. Turmoil for Dummies

The stock market rocks and rolls, international financial markets tremble, credit sources freeze up (loans are just not available for houses, credit cards, cars, etc.). The Bush administration proclaims, after attempting several gigantic bailouts (at U.S.-taxpayer expense), that the only solution is to write the Secretary of the Treasury a blank check (backed by U.S. taxpayers) for $700 billion to buy up the bad loans that are clogging the system.

Here's how the troubles started. Ronald Reagan did not think up "deregulation" or "trickle-down economics" but he adopted them as part of his uninformed, pig-headed ideology. And he was a charismatic man with a golden tongue; he cast a broad shadow from the Oval Office. His policies and his legacy deprived Wall Street of two essential functions usually provided by the government--law and order.

Over a couple of decades the financial big boys (and girls) increasingly tumbled to the realization that nobody was watching (aka "deregulation"). So they increasingly paid themselves huge bonuses tied, if to anything, to short-term balance-sheet manipulations rather than to good business practices, long-term profits, or shareholder interests. When a lot of poorly run savings and loans institutions crumbled, the government stepped in (at U.S.-taxpayer expense) to take a lot of the sting out of the situation for the big guys. (That's the "trickle-down" part--if the big guys make money, they will create businesses and jobs, and goodies will trickle down to all the little guys; this theory has been discredited as often as it has been used.) Ditto, Enron. Ditto, the dot-com crash.

So the stage was set for the next crisis. When the housing market bubble burst (no, Dorothy, housing prices couldn't keep going up 10-15% a year forever), the big guys were stuck with a lot of bad loans. Since they had been packaging and repackaging these "creatively" and selling them back and forth to one another in bundles (read "deregulation" again), a lot of big people from banks to insurance companies to hedge funds to retirement funds, etc. got burned.

Does the stock market volatility (the DOW down 500 points one day and up 400 the next) signal that the financial markets are in extremis and about to collapse? No, it signals that in the middle of the poker game the U.S. showed up at the door and the big guys started scrambling to guess who the biggest winners would be this time.

Tremendous Costs

There are two tremendous-cost packages that lie in the few years ahead for the U.S. government. One is repairing Bush's follies--a trillion dollars for the Iraq war and comparable amounts for the bailouts resulting from deregulation and poor oversight of the financial markets. The other is building a corrective future that confronts global warming, worldwide ecological decline, antiscientism and education decay, and devastating worldwide demographic tides (population and industry shifts, water and food shortages, etc.).

Our political leaders appear to be waking up to the consequences of petty politics and greed in high places. One can argue pessimistically that this awakening is empty campaign rhetoric that will lead, when office holders change in the next few months, to little more than business as usual. If so, civilization as we know it is doomed. Over the next few years a series of catastrophic failures will collapse the communications, transportation, and emergency-services infrastructure on which we all depend; over the next few decades there will be a thousand storms of genocide, collapse of city and nation administrations, and reduction to isolated, village-size communities throughout a chaotic, unconnected broader world--punctuated by terrorist and technological catastrophes.

There is the need to design and pay for these two tremendous-cost packages of repairs to our country, our world, and our way of life. There may be the political will--we shall see. But having already hocked our future and put our children and their children in debt up to their necks, is it even remotely possible to pay these staggering costs?

Yes, curiously, it is possible. The gap between the very rich and the rest of us has become increasingly absurd in recent years. Ninety percent of the wealth--both in the U.S. and the broader world--is held by 10% of the populace; 90% of the income, year by year, goes into 10% of the pockets. The Bush tax cuts to the wealthy were only the tiniest symptom of this disparity. Deregulation and generally defective oversight of tumultuously expanding global finances and industries have been growing this rich/non-rich disparity for years. What is required is revised tax policies that gradually but inexorably draw the very rich back down into the upper-middle class--back into the world of one or two lavish homes, not multiple grand estates; of first-class air travel, not private jets; of six-figure incomes, not incomes of millions and tens of millions of dollars a year. The several trillion dollars needed for world repair is available at no great pain--certainly at no more than spoiled, histrionic petulance--to anyone.

Will this be easy? No. Getting these hundreds of billions of dollars to work will be like squeezing a handful of mud. These are people who, within weeks, can have their major assets in the Cayman Islands and be living in Dubai on a Moroccan passport.

We live in exciting times, decorated with catastrophe after catastrophe, in one domain after another. Can our political, industrial, and military leaders find the wisdom and the will to build--stick by painful stone, hour by labored day--a positive future? Historically there is reason for pessimism and despair. Historically there is also room for hope.

News Events

On the news wire today, 9/9/08--

(1) United Airlines Bankruptcy--Some clerk at a minor financial news service Googled "bankruptcy" today and found an old story about UAL from 2002, but since the story wasn't dated, Google had put a current date on it. Within one minute after the time the "news" hit the financial wires, UAL stock plunged 75% from $12.30 to $3 a share.

After about 4 minutes the error was corrected, and UAL stock rebounded to about $11 by the end of the day.

(2) Kentucky Fried Chicken Security Threat--Today KFC moved the original copy of Col. Sander's 11 herbs and spices recipe to a new, more secure location. The yellow, hand-written sheet of paper was carried in a steel case, hand-cuffed to a security guard, with multiple other security guards deployed nearby.

(3) End of the World Next Week--The Large Hadron Collider will fire up next week. Some observers are worried that it may create mini-black holes or other exotic phenomena that will destroy the Earth. But most scientists don't think so.

Explanation: After 25 years of planning and building, the Large Hadron Collider, the largest, most expensive scientific experiment in human history, will start up. Thousands of scientists from over 100 countries have been involved. The LHC will produce energies several times more powerful than have ever been created before--except at the Big Bang creation of the Universe; the LHC's highest collision energies will approach to within one-trillionth of a second of the instant of creation.

The Bixby Letter

This evening I was surfing my way through the several hundred TV channels that come my way if I take the Comcast modem out of the TV's cable intake circuit (I only subscribe to Comcast's cheapest package, so I use their cable but circumvent their filter), and I stumbled into a showing of "Saving Private Ryan." And there came the reading of Lincoln's "Bixby Letter."

I've heard it and read it before--many times. So, probably, have you. A close study of the history of the moment does not bear out the accuracy of its details. And yet it stands as one of the most powerful, most moving documents that has ever graced the English language.

When the reading was over, I turned off the TV and sat in the dark for a half hour or so, thinking, wondering--with tears running down my face. Where does such power, such grace, such magic come from?

As the Indian sending smoke signals said when he saw the mushroom cloud rising in the far distance over the desert of New Mexico, "Gee, I wish I'd said that!"

Here it is.


Executive Mansion,
Washington, Nov. 21, 1864

Dear Madam,

I have been shown in the files of the War Department a statement of the Adjutant General of Massachusetts that you are the mother of five sons who have died gloriously on the field of battle.

I feel how weak and fruitless must be any word of mine which should attempt to beguile you from the grief of a loss so overwhelming. But I cannot refrain from tendering you the consolation that may be found in the thanks of the Republic they died to save.

I pray that our Heavenly Father may assuage the anguish of your bereavement, and leave you only the cherished memory of the loved and lost, and the solemn pride that must be yours to have laid so costly a sacrifice upon the altar of freedom.

Yours, very sincerely and respectfully,

A. Lincoln