Saturday, January 17, 2009

What sequence of events caused the mess?

Hedge fund executive Oscar Schafer in a Barron's interview (January 12, 2009, "Hang on Tight!") described our current economic condition thus: "The world is experiencing a giant margin call."

Yes, a giant margin call enabled by easy credit extended to millions of people who couldn't afford a home, or couldn't afford as much home as they purchased.  Many of them then sucked the equity out of these homes to finance a lifestyle they couldn't afford, before defaulting on their mortgages. 

How did it all happen?

It started with policy makers in Washington who wanted to guarantee home ownership for anyone with a pulse. The Fed left open the spigot of cheap money by keeping rates too low for too long and America became intoxicated by illusory home price appreciation.

This party was then joined by money center moguls trying to juice returns by making big bets upon this whole sorry misuse of credit, until the house of cards collapsed.  Millions of people, who either ought to have remained renters until their income and assets could justify any mortgage, or who should have purchased more modest homes at fixed rates, were enabled by government-coddled institutions like Fannie and Freddie and popular legislation to "invest in our communities".  

The risks they took (policy makers, investment banks and millions of fiscally-challenged Americans), have poisoned the well that the rest of us must drink from -- perhaps for decades. Now, we hear that the other shoe to drop will come from commercial credit busts, or the next highest risk level of mortgages above sub prime.

This all has the same antecedent -- greed. Grandma warned us when we were children.  If you can't afford it -- don't buy it. If you can't afford to lose it -- don't bet it. In short, live within your meansGreed is the same thing that destroyed Rome. With God's grace, we'll get treatment and beat our addiction to debt before we all go down in flames.

Thursday, January 15, 2009

A president's farewell

I felt sorry for him as he approached the lectern with a sheepish smile.

As Kissinger reminded Nixon, I believe history will treat him better than his contemporaries. His policies precluded another attack since 9/11. To conclude otherwise is to posit that the other side simply stopped trying to harm us after 9/11. 

I'm reminded of another parallel with Nixon. Richard Nixon asked readers this question in one of his later books: if America does not lead in this world -- who will?

I repeated the question in one of my columns and a rebuttal came from a letter writer who declared that the correct answer to this question is -- the "leaders" of other countries.  I'm still wondering which 'leaders' she referred to.  Stalin?  Hitler?  Hussein? 

No, Mr. Bush's Middle East policy was not the detriment to America that some claimed. This President did not have the luxury of presiding over a peaceful world where "constructive engagement" with the enemy -- or recalcitrant allies -- would have been the wise course. The safety of American citizens has been this President's overriding concern and that will be a positive part of his legacy. 

George W. Bush
The biggest stain on the record of this administration was its failure to stem the profligate spending we have seen during the last eight years -- punctuated with a new drug program we can't afford.

That's a trend the new administration appears destined to continue.

Wednesday, January 14, 2009

Cartoon feedback to my last post

Regarding point #2 from my previous post concerning Al Franken, I'd like to thank my nephew who alerted me to an outstanding political cartoon (from Michael Ramirez a two-time American Pulitzer Prize-winning editorial cartoonist.).  

Even if I could draw, I couldn't improve on the way Mr. Ramirez makes his point in IBD.