My Two Cents - Guest Commentary

07/30/2008

The purpose of the media is to provide sound bites, rile the masses while keeping them subdued at the same time, and evoke a sense of fear. Our government wants us to be afraid, because fear allows manipulation. Think of the war on terror, war on drugs, war on poverty, peak oil, and global warming All of these wars are directed at the populace by the government and through the media. Wars on anything allow governments to redistribute resources and levy taxes. We have to get ourselves unafraid and start thinking, rationally, about how much sense this propaganda makes.

Bad news sells - good news does not. People gravitate towards trajedy to gain perspective of their own lives. Back when I was a kid the poor starving children in China was my perspective with regards to my life. The fear of starving children in China was used by many adults to get their kids to clean their plates. I actually had a friend who was convinced that if she did not clean up then a child would starve in China. No doubt, my friend had a weight problem at the ripe old age of 8. The media also provides a platform for people who do really stupid stuff (like let their babies drown in swimming pools) appear remoursful, in need of sympathy, and not at fault. I still have not figured out how a child can drown at a pool party with lots of adults around.

I have been reading more about this housing bill and I am seeing hints that this may be more skewed towards an eminent domain bill. It may be up to the counties and those cities within the counties to organize, take over the properties and either lease them out or bulldoze and allow people to plant community gardens and orchards. As a positive, if the states are smart and can get assistance from benefactors and the business community, I can see more housing for students, more housing for people who qualify under H.U.D., more halfway houses for non-violent offenders who can be rehabilitated, and homes for children aged out of foster care and nowhere to go. Small businesses could also lease out these homes, as could seniors who don't or can't live alone, but don't want to live in traditional assisted living or nursing care facilities. Yes, this is very utopian but I don't see as there will be any money for big commercial developments. And what a wonderful opportunity to see kindness and healing prevailing over greed.

Andy, I hope we don't see hyperinflation and I am going to keep thinking positive on that one while I make myself drunk on my expensive Belgian chocolate. The next big wave of credit cards, car loans, and student loan defaults may show Bernanke et al that the patient is dead and life support has been disconnected. What happens when the pay-options reset next year is a guess, but I don't believe that this housing bill is looking out much farther than the day after it goes into effect. I also believe that the main focus of this bill is getting/or keeping people into homes that are vacant or may be vacant this year.

I don't know if the prevailing events are what Shumpter had in mind when he spoke his theory of creative destruction, but what is coming up in the credit markets could unravel the existing structures and even allow some semblance of financial sanity in its place. This, to me is what Paulson and the bankers do not want to have happen because it will expose them as well as bankrupt their fiefdom and those they serve. If indeed bankruptcy was not a possibility I do not believe we would be seeing such papering over and further tampering in the financial markets. Those with the most to lose tend to lose the most, thus it is in their best interest for now to keep as many SIVS and other conduits off the books. Marking to market can be a real bear as perhaps Merrill Lynch is discovering.

The hilarity of this is that with more stuff piled on top of the existing structures the weaker these structures become. I'm wondering about the introduction of covered bonds and if those fail where do they go? Into the Fannie and Freddie vault? Truly we are witnessing the insanity of greed. One my favorite authors,Taylor Caldwell stated that "Love is the imminent destroyer of logic and intelligence." I think I would substitute Greed for Love.

There are some good statesmen in office and these will be the men that eventually lead us out of this mess. And, until the devasting effects of boom and bust cycles are understood history will continue to repeat. The current dislocations and maladjustments in the credit markets today and coming up portend a situation that will take several years to clear.