Throw out The Bums!
In blogland, there seems to be an assumption about “the bums.” The bums are “Them” in the “Us-Them” war that is all aboil as economic turmoil intensifies and the downturn’s byproduct of personal pain engulfs more people each day.
A macroeconomic debate–whether or not to declare the largest U.S. banks insolvent, zero out equity shareholders’ investment, and put government in charge of their restructuring and future resale–instantly has become so pervasive that one almost wishes the NFL were still ruling Sunday afternoons so that we’d have something else to talk about. It’s become water-cooler fodder, as current as Oscar gossip.
Still, many of us are so bad about talking about bank nationalization. We don’t know enough about it–even when Nobel Prize winning New York Times columnist and Princeton economist Paul Krugman and others try to dumb it down for us–to know whether or not it’s a good thing for us, for the country, etc. For instance, nothing in the words Krugman uses below flies over our head; it’s the entirety and immensity of what he’s talking about that baffles us.
The case for nationalization rests on three observations.
First, some major banks are dangerously close to the edge — in fact, they would have failed already if investors didn’t expect the government to rescue them if necessary.
Second, banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can’t risk letting much bigger institutions like Citigroup or Bank of America implode.
Third, while banks must be rescued, the U.S. government can’t afford, fiscally or politically, to bestow huge gifts on bank shareholders.
How are we really to get our minds around the concept of Roubini Reality, which appears to assert that the past 15 years of societal, cultural, corporate, and political behavior, trajectory, and design were but a hallucination from which the world is being shaken roughly awake?
For understanding, we turn to insight sherpas, which is where we hear about “the bums.” The bums are the scoundrels who are to blame. They are 24 individuals and the entire American population of consumers, according to a self-laudatory slide show Time Magazine has assembled. They are the chicanerous imbeciles who ran all the banks, according to many commentators. They are the three-faced prevaricators in the home building sector who overborrowed, overbuilt, and overcharged for houses, when in fact, apparently they should have been expected to sit patiently, not building and not finding new customers until the boom ran its merry course. They are the unscrubbed and the unscrupulous populace who opted–undeserving and now caught red-handed–for homeownership.
Now, above all, they are government officials–a hybridized mix of idiocy, incompetence, and criminality–who, according to the champions of economic Us-Them warfare, are bent on using malevolent powers, not only to help all “the bums,” but to stick “Us” with the enormous, multi-generational invoice for the help–which, by the way, won’t help.
“The bums,” in other words, are “Them.” “Us,” the good guys, are most often referred to in these polemics as “taxpayers,” or “the taxpayer.”
A question comes to mind when you hear a rant along the lines of this one from Mike “Mish” Shedlock, one of the very smartest economic critics out there in blogland:
Geithner is attempting to bail out his banking buddies, no more, no less, and he does not give a damn what it costs taxpayers to do so. And while everyone and their brother has hopped on the Nationalization Train (please see The Nationalization Train Has Left The Station), I think there are at a bare minimum a half dozen questions that need to be addressed first (please see Nationalization Revisited).
Citigroup is struggling to remain independent even as it knows full well, that without still more government intervention, it is worthless. In fact, Citigroup is less than worthless because without more taxpayer cash infusions it cannot survive.
To hell with Citigroup. Bust it up and sell it. It’s the best possible outcome for everyone involved.
The question to Mish is who is “everyone involved?” We wonder this partly because when you subtract equity holders and homeowners who both stand to lose a great deal when and if this eventuality takes place, how many tax payers are there left as beneficiaries of such a smart move?
You’d think from much of the cant out there among the bloggers that the “taxpayer,” or “Us” is a group entirely discrete from “Them,” the verminous, villainous, numbskulled, dimwitted perpetrators of the crash.
The point is, many, many of “Us” are “Them.” If you can’t understand and explain to someone who doesn’t understand why it’s best economics practice to nationalize the banks; why it would be the most effective housing strategy to write-down the face value of the principal of mortgage loans to going market value; why home prices must fall into their 80-year lockstep with cost-to-rent and household income to restore order to the universe … then maybe you are not “Us” after all.
Maybe, you’re “Them.”
Clearly, though, two insights are becoming ever more apparent through the hyperbolic din that is the blogosphere. One–an old one that comes from Jesuit teaching–is that telling the difference between scholarship and plagiarism comes down to one simple thing: footnotes. The other is that, when it comes to declaiming economic theory or criticism, passion minus discipline eerily resembles a dangerous streak of extremism.
We, the author, candidly believe that while we know we’re going to get stuck with the tax bill like the rest of “Us,” we must acknowledge there’s a dollop or two of “Them” in there as well.
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