I just finished reading an article in a recent issue of the New Yorker entitled The Ponzi State. It talks about the collapse of the real estate market in Florida, specifically in and around the suburbs of Tampa.
The talk of plotted out but undeveloped (or underdeveloped) subdivisions, with streets and street signs and street lights but no houses, or a few scattered houses surrounded by overgrown empty lots, all struck me as eerily familiar: it sounded just like Salton City, California, a place I’ve blogged about and made music about, visited once a decade ago and learned about in a great documentary called Plagues and Pleasures on the Salton Sea.
You see, Salton City was once a speculator’s dream, a boom town that never boomed, a suburban paradise-to-be that never quite managed to happen. In the 1960s a city that would ultimately boast a population of well over 100,000 people was conceived, laid out, and to some extent even built — the streets are there, and in many places even the necessary water, sewer and electrical hookups — but now it’s virtually a ghost town, or at least it would be a ghost town, if it had ever really been a town in the first place.
The Salton Sea is a strange place, a cautionary tale to the rest of us, but few have even heard, much less learned from, its lessons, and it seems now that we’re watching the same story unfold — on a much larger scale — throughout Florida and elsewhere in the wake of the housing bust.
Shady high-stakes gamblers using other people’s money Investment bankers getting their comeuppance is one thing. Global economic collapse is something else. This is only a Panic if we make it one. Fear begets fear, which leads to the populace en masse taking drastic steps we normally would not. Hyperbolic news reports become self-fulfilling prophecy.
Just say no. Kill the collapse by refusing to give in. And whatever you do, don’t give the swindlers another $700 billion to play with.
I am not a free market capitalist. I don’t believe that those whose primary objective is to obtain as much money as possible can always be trusted to do so scrupulously (or, for that matter, competently). I also do not see the government as a malevolent force. In the words of Abraham Lincoln, ours is a “government of the people, by the people, and for the people.” The government is us. This, given the current widespread disdain of “Big Government”, would suggest that America has been struggling through an extended period of self-loathing. But mostly it just means that the government exists to manifest the will of the people.
Is it the people’s will that we give investment banks $700 billion (that’s about $2300 for — or rather, from — every single one of us, infants and elderly included, by the way) as a reward for proving themselves wrong about the merits of deregulation? Government is bad when it keeps them in line, but it’s good when it saves them from suffering the consequences of their mistakes. Wonderful for the rest of us.
A couple of other developments today have my blood boiling at an even more rapid pace than it already was: first, I learned that Congress is also preparing to give $25 billion to the auto industry to upgrade its outdated plants to produce more fuel-efficient cars. Fuel efficiency is a good thing, and if GM, Ford and Chrysler manage to improve it, rock on. But let’s be honest: this has nothing to do with protecting the environment, or even reducing our dependence on foreign oil. It’s about saving the asses of more free market capitalists who suddenly find themselves facing the music over years of bloated incompetence and obscene executive salaries.
Second, John McCain has proudly declared his intention to suspend campaigning, and also wants to postpone Friday’s debate with Barack Obama. Never mind the fact that suspending campaigning was actually Obama’s idea (O called M this morning to discuss the idea of a joint announcement, then M jumped the gun and stole the thunder). How exactly does it benefit the people, who very soon will head to the polls and hand over the reins of government to one of these guys, to postpone the debate? Is the Senate really going to be in session at 9 PM this Friday? If so, I’m sure they’ll give themselves overtime pay.
Meanwhile, the rest of us might spend the weekend contemplating this.
I’ll admit I am way out of my area of expertise on this. I prefer to remain as ignorant of the goings-on of Wall Street as possible. But since Wall Street has made itself significantly more relevant to the day-to-day lives of average Americans over the past week or two, I’ve been paying more attention.
Needless to say (well, maybe not, since I’m saying it), I’m not incredibly enthusiastic about the plan to give $700 billion from the taxpayers to these fail(ed/ing) investment banks. It’s probably a better way to spend the money than the war in Iraq, but not by much. It certainly puts some perspective on Washington’s reluctance to invest in things that would actually improve the lives of the people who are footing the bill (roads, schools, healthcare, etc.).
Here’s something else that puts some perspective on it: according to an article in today’s New York Times, Warren Buffet, investor extraordinaire, is planning to invest $5 billion, via his Berkshire Hathaway company (which clearly has not wasted the money on its website), in Goldman Sachs, one of the ailing investment banks. Now as I see it, Buffet is trying to help salvage the situation, and (being a smart capitalist) he’s also making an investment he believes will pay off for his company. But I think there’s something deeper and perhaps even more altruistic than simply providing a cushion for Wall Street CEOs who are fearful that their golden parachutes might not fully deploy.
Buffet’s move looks, to me, like a lesson by example to other ultra-rich investors: you might just be able to fix this problem yourselves, without dragging the rest of us down with a poorly-reasoned public bailout, the effects of which remain to be seen but are likely to be even more disastrous and long-lasting than the crisis they’re designed to avert.
Update: Then again, never mind.