Wednesday, September 17, 2008

#450 Booty Call

#450 Booty Call

"Never let the booty call move in with you." -- Tom "Blow Me Up" Leykis"

The syndicated schlock jock was talking about men and women. But the warning is equally valid when talking about the financial pirate booty now falling into the briny deep. We all let the booty move in and we're now paying the price, and a stiff price it is.

I have spent my professional lifetime trying to understand the economy and to make it clear and interesting to people who don't care and don't know why they should care and who fall asleep whenever they hear the stories of bubbles and busts we've been telling for the last umpteen years.

And I've tried to do it without sounding like a preacher or an advocate of a viewpoint or a dry academic.

I'm not sure this goal is reachable.

But maybe now, it's at least in sight.

The mortgage meltdown, the skyrocketing cost of energy, the failure of Fannie Mae and Freddie Mac which own half the real estate in America -- maybe including your house... and now the failure of both Lehman Brothers and Merrill Lynch... and the upcoming misery with American Insurance Group --AIG and Washington Mutual, WaMu has made all this even more important.

Solutions based on bad or failed ideas are not going to work. Those include deregulation, federal bailouts, or any combination thereof.

The president is both right and wrong when he says the economic resources and tools to fix Wall Street's (and our) mess exist. He's right, in that we do have the strength and the money to put ourselves back on track.

But he's wrong when he ignores the roles that neocon and libertarian thinking have played in creating the process, he's wrong when he trusts political appointees and lobbyists with the task of cleaning up the ocean floor. He's wrong when he says time alone will solve the problems. Time won't solve anything lasting.

The President says the "fundamentals" are strong. If by fundamentals he means commerce in general, he's correct. If he means the current thinking and the current personnel, he's wrong.

I have neither the space nor the knowledge to recommend a full fix. But here's a start:

The first place to look is "GAAP," or the Generally Accepted Accounting Principles. A lot of GAAP makes sense. But some of it does not. Like when they book income or expenses or depreciation when they feel like it instead of when it actually happens. You can't count a sale as income until the check clears. There's an awful lot ofGAAP into which the booty can fall, never to be seen again -- or, conversely, raised in hologram form, when it doesn't really exist.

The next place is "off the books" entities. Here, too, too much can be hidden. Until it's too late.

Then there's one of the prime culprits in the current mess, "mortgage backed securities." Mortgage backed securities can be a fine instrument for bundling loans and raising cash. Except there are too many bad apples in the barrel, to mix a metaphor.

Then there's timing. While it's true that you can't "time the market," and that anyone who tells you you can should be carted off to the nearest rubber room. But timing matters. If you look around at the failed firms, you're bound to find people who knew what was going on and where it would lead well before the embattledCEOs announced a problem. Their timing is based on the notion that if you wait long enough and bail fast enough, you can outrun the ocean that's swamping your boat. It never works. You can't time sounding the alarm either. But neither can you ignore the obvious signals.

We've probably figured out that we need to stop lending large sums of money at low rates to people who obviously can't afford to pay them back. You probably have figured out that the "interest only" orlowball introductory mortgages come back to bite you in the rump if you lose your job or if there's a sudden spike in interest rates.

That's a start. But it's only a start.

(Portions of this Wessay were offered as part of my radio program on WBLF, State College PA. And, sorry, there's no room for Shrapnel this time. Friday, McCain's "Fundamentalism.")

I'm Wes Richards. My opinions are my own, but you're welcome to them.(R)
(C)2008 WJR





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