On the Contrary

This is from the highly irritating TV commercial by J.W. Wentworth to get your money from a structured settlement upfront.  But the catch phrase and the way it is used reminds me of a petulant child who can no longer live with the deal he made.  They got the amount of money they got because it is paid out over time.  Now they want it all now.  I want my money because I deserve it.  Does it remind you of the American people and why we are in this economic predicament?

They, and they are everyone from those who ran their credit card balances up, took mortgage loans they couldn’t afford, to the bankers who leveraged their firms to Nth degree, had to have it all now.  It was their money and they wanted it now.  I watched a TV media financial analyst on CNN who obviously believes the stimulus package is a the wrong way to go, advise viewers to invest in stocks in Asia where you could get 10-15%.  Do you get it?  He is part of the problem.  As long as there is a drive to get the highest rate, once again we will be on the treadmill to push the market to take unreasonable risks again.  They don’t get that they were and are part of the problem.  The competition for investors money will just push the system over the edge again as we forget the lessons that are being burned into us right now.

Then there was the morning anchor on MSNBC who was demanding to know what the President was doing about the stockmarket?  “Didn’t he see the market drop today?”  There was real panic in her voice. Well, I guess her 401k just took a major hit. and she finally got it.  The problem is she thinks there is an instantaneous fix, and he should do something about the stock market right now!  Sorry Barbie, but the stock market and its ever increasing climb on the credit bubble is what has gotten us here.  He needs to ignore the stock market and look to the long term.

It seems everyone understands how serious the situation is, but then they want an instantaneous fix.  There isn’t one.  Until the debt and losses are wrung out of the market, it is going to continue to get worse.  Somehow all the Kens and Barbies on the media circuit have not quite got this one yet.  We are all going to take a very serious financial hit.  The final fix will not have a bailout for anyone.  A serious financial hit is not giving up your morning latte.  We are all going to have to pony up.  And of course, as a nation, we have not faced up to this yet.  We are still locked into our “It’s my money and I want it now!”

This is not quite true.  People on the low end of the scale are getting it because they, as usual, are the first to suffer the consequences of our free ride.  But now all those people who were somewhat insulated so far are starting to get scared.  But they still aren’t scared enough.  The way forward will require a whole lot bigger stimulus package, it will take nationalization, or a form thereof, to take the banks out of the hands of the bankers, and then break them into smaller pieces to be returned to the private sector so that no bank is too big to fail.  The mortgage crisis will only be solved when we write down the principal on each house to its fair market value, and fix the interest rate at 4-5%.  Oh you can hear the shrieking already.

There will be winners and losers in this deal, but mostly losers.  Bank’s management and their stock and bondholders will take a major hit, but then their lack of oversight through the board of directors is part of the problem.  Securities holders that have investments in the mortgages will take a big hit as they lose part of their investment, but they are losing it anyway.  Some homeowners will win because they can stay in their houses if they still have jobs, and some will lose because even with those markdowns, they still can’t afford them.  We as taxpayers will lose because we are going to have to run one hell of deficit to get the economy running again and invest in our country. I don’t know why the Republicans are all a dither about this now since it did’t bother them for the last eight years.  This is going to have to be reduced in the future by higher taxes on all of us, not just the rich.

But with all that sacrifice, the real winners will be our children.  If we can get this economy fixed and restarted, with investments in health care, education, energy, and infrastructure they will just have a fighting chance in the future.  But right now we have too many who are still demanding, “It’s my money and I want it now.”  Not any more.  It’s our money now because we are all in this together.

UPDATE:  This morning I opened the papers to see that Mr. Friedman in his column took on the same subject.  But he notes that while he agrees with my way forward, he also notes that the devil is in the details.  Taking over institutions may have complex and unforseen consequences.  I suggest you give it a read (New York Times).