It was both a misfortune and, possibly, an opportunity for the new Nation of Israel that it came into existence just as the European colonial system was dissolving into chaos. As the Europeans and the Americans pulled back from or were thrown out of the vast territories they had controlled, bloody civil wars and revolutionary wars broke out all over Africa, Asia and even Latin America.
In the decades after World War II, just in the Near and Middle East, the following (often violent) changes occurred. 1943: the French pulled out of Lebanon and Syria, 1948: Britain pulled out of Jordan and Palestine, 1952: King Farouk of Egypt (seen as a British puppet) overthrown by a coalition of former Axis allies, Egyptian colonels Naguib, Nasser and Sadat.
While Naguib and Nasser wrestled for ultimate control, the new revolutionary Egyptian government forced Britain out of its Suez Canal holdings in 1954. In 1955, the Egyptians signed an arms deal with Communist Czechoslovakia. Aghast, the United States withdrew her offer to build the Aswan High Dam.
( US Secretary of State John Foster Dulles admitted later that he ordered the offer withdrawn while he was under the influence of the then not well understood condition called “jet lag”. In other words, he wasn’t doing his best thinking at the moment.)
In charge, finally, Nasser asked for Soviet help with the dam—thus orienting Egypt toward the Soviet block for the next couple of decades. The French secretly approached both England and Israel with the suggestion that they take out this new Soviet ally—and, just incidentally, get the Suez Canal back and reopen it to Israeli shipping—by launching a military assault on Egypt. On October 29, 1956 Israel struck across the Sinai and two days later France and Britain came by sea.
A brilliant Jewish veteran of the Jewish Brigade swept across the Sinai as if Egypt did not exist. French and British troops took the canal. Their victory was extremely short lived. The whole world went up in the air. Nasser was saved by the Russians and the Americans.
Eisenhower was enraged that the French and British had acted behind his back. He dressed down the French and British governments as if they were a couple of errant corporals. (He had a temper.) His rage came because the French/British/Israeli allowed Russian gunboats to move through the Dardanelles into the Mediterranean—something western foreign policy had prevented since 1815.
Also the move on Suez allowed the Russians to send masses of troops to reoccupy Poland and Hungary, which were in the throes of an apparently successful anti-Soviet revolt that fall. As the Russians crushed the pro-Western revolts, all we could now do was look on and try not to sound too hypocritical.
Ike ordered everybody out of Egypt—the Soviets filled the air with bellicose threats and got a lot of the credit for the withdrawal. Hungary and Poland would not be free for 35 more years, France and Britain had made their last attempt at governing the planet (as they had for 200 years or more) for all time. A one-eyed Israeli general named Moshe Dayan became a national hero and symbol.
The United Nations created an emergency force (UNEF) to occupy the Sinai and keep the Egyptians and Israeli away from each other. This was a partial victory for Israel—while Egypt remained its most powerful and dangerous enemy—the line between them was now reasonably peaceful. No more grenades through the windows at night on this front.
Nasser began a new Arab tactic. You get your backside kicked by Israel, and then you proclaim to the world loudly and often enough that you won—and you come out looking like a hero. (Nasser would do this one more time, leading up to 1967, and really alter power realities between Arabs and Israel!) Sadat would do it to great and good effect in 1973.
In fact Nasser looked like such a hero that the Syrians that they came to him in 1958 and asked if they could unite Syria and Egypt under Nasser. Thus was formed the briefly lived United Arab Republic, the UAR. That same year, Nasser and his allies turned their full fury on Britain’s remaining Arab friends.
A series of uprisings arose intended to destabilize every pro Western Arab state in the region. In some cases it worked. The Hashemite (a British appointment in 1922) king of Iraq was killed; his body was dragged through the streets of Baghdad behind a jeep. The Hashemite king of Jordan survived with the help of British troops flown in to prop him up. A political group that included young Saddam Hussein took over Iraq—with an undying hatred for both Jews and America.
(The Hashemites came from a kingdom in western Arabia that the Saudi’s overthrew in 1924. This left the former princes free to assume roles in kingdoms created by the British after the fall of the Turkish Empire in World War I. Both were quite dependent on their relationship to the West—the King of Jordan remains so to this day.)
But the Jordanian king Hussein was forced to relieve the British soldier who commanded his best troops—Pasha Glubb. Without Glubb, Jordan’s troops would fight as miserably as every other Arab army. This would cost Jordan terribly in 1967.
American marines landed in Lebanon to prop up the Marionite Christian government created by the French (to give this small, surviving remnant of pre-Muslim Christianity a homeland) in 1943. Somehow the nation would hold together until it destabilized completely in the 1970s, becoming a permanent home for some dangerously anti-Israeli radicals with lots of rockets.
For Israel life went on pretty much as before. Only now the nations surrounding them were even more hostile. It wasn’t just that the Jews were non-Muslims, they were now seen as friends of the increasingly hated United States—as much of the near East allied with Russia.
In 1967, the Arab world would turn upside down once again.
Sunday, February 8, 2009
Saturday, February 7, 2009
More On Jews and Arabs (4)
No event since the Crusades did more to alter relations between the Christian West and the Muslim East than World War II. We went into the war with a European nation ruling or influencing every single Muslim state except for Afghanistan, Turkey and Saudi Arabia, from the Atlantic shore of Africa far into the Pacific. (Only after the war did Christian hegemony begin to collapse.)
Moreover, with what seemed to be Christian connivance a non-Muslim Jewish state was being planted in the British protectorate of Palestine. By the late 1930s the Arabs saw themselves as having only one friend in the world—Adolph Hitler. Their one hope was that Nazi Germany might defeat the hated British and French.
There was an attempted Nazi Putsch in Baghdad—led by the colonel who eventually raised Saddam Hussein. There was unrest in Egypt. The Grand Mufti (the religious leader of Palestinian Arabs) of Jerusalem became an outspoken Hitler partisan until the British exiled him.
As war loomed, the British and French found themselves playing a desperate balancing act to keep Muslim protectorates and client states from going over to Hitler’s side. (Had, for example, Turkey gone with Germany as it did in 1915, there might have been no Russian front to absorb such a huge percentage of the German war effort.
All of this in no way redounded to the benefit of Palestinian Jews! What slight door there might have been open to Jewish refugees from Nazi territories was slammed shut. (The door to Depression stricken America was also shut tight—there was nowhere left for Jews to escape to.)
The Palestinian Jews volunteered to fight Hitler. They were permitted to form a single brigade of Jewish soldiers, which became to core of the Israeli Army. This was the first time Jewish military units were permitted to form since Medieval Spain (on the Muslim side, explaining some of the Spanish Inquisition). They were a bit out of practice—but they learned well.
The Mufti escaped to Berlin where he formed two divisions of Bosnian Waffen SS to hunt down anti-Nazi Serbs and Jews. (There would finally be terrible vengeance fifty years later in Bosnia.) DeGaulle’s free French pulled out of Syria and Lebanon after the fall of France—setting up the competing Muslim and Christian states of today.
Britain was left by herself to her near eastern balancing act, desperately trying to save her oil interests as well as block Hitler. By the end of the war, Hitler was no longer Britain’s deadliest near eastern enemy. On his way back from Yalta, Franklin Roosevelt stopped in Saudi Arabia to begin negotiations for oil rights that once had been almost exclusively British.
When Hitler was finally defeated, the Americans stopped Lend Lease and the British Empire collapsed into bankruptcy. By 1948, having kept the door shut to Jewish immigration for as long as they could, the British abandoned Palestine. Arabs may have been briefly hopeful that this new western power, the United States, seemingly bent on the destruction of British power and publicly anti-Semitic, would benefit them.
After all, the United States had sent shiploads full of Jewish children back to the gas ovens rather than take them in. Our anti-Semitism was overt and rampant. Jews were all but unemployable during the Depression, the best universities took only a limited number (thus creating the Jewish “ivy” league).
But when the British pulled out and the United Nations made a feeble effort at creating a partition in Palestine that left Jews in a totally indefensible position, the Arabs were disappointed in America. The Arabs fought even the wretched terms of the 1948 partition only to see the Americans back it. A Jewish State was born—for the first time since 60BC.
President Truman was way down in the polls and he NEEDED the Jewish vote in New York to win re-election. New York was then the state with the biggest block of electoral votes. Enraged, Arabs sent five western equipped armies to invade the tiny Jewish enclaves of Palestine and began their love/hate relationship with America.
The veterans of the Jewish brigade, not more than 5,000 men, an international Jewish community that scoured the world for weapons the British had denied Palestinian Jews, and Jewish civilians that learned war fast, beat back all five armies.
The only one that held—thus saving old Jerusalem for the Arabs—was the British trained and led Arab Legion from Jordan. It blocked the Jewish advance into their ancient capital. The armies of Arabia, Egypt, Lebanon and Syria were humiliatingly defeated.
Jews kept the new borders their arms had gained them. It wasn’t good, but it was better. Even though every square inch of Jewish territory remained in range of Arab artillery—which periodically used Jewish school buses and tractors for target practice from sites on the West Bank, Gaza and the Golan—at least the new Israeli army had a few more acres to operate from.
The Arabs at once began their “land for peace” game. The 1948 partition line (that they had violated now became the Arab Holy Grail). “Oh,” they said, “if only these warlike Jews would go back to the 1948 partition line, all would be peace and joy.” They hoped the rest of us would forget how passionately they had opposed that position in 1947-8.
As Arab shells rained down on their farms and Arab grenades sailed through bedroom windows, the Jews gained a striking reputation for uncooperativeness by saying NO.
It remained a nasty situation until the Egyptians threw Britain out of the Suez Canal. The British (and the French) wanted revenge. Who could be more helpful than the Jews who were already in a perpetual state of war with Egypt?
Nobody really knew what the new Israeli Army could do—we were going to find out.
Moreover, with what seemed to be Christian connivance a non-Muslim Jewish state was being planted in the British protectorate of Palestine. By the late 1930s the Arabs saw themselves as having only one friend in the world—Adolph Hitler. Their one hope was that Nazi Germany might defeat the hated British and French.
There was an attempted Nazi Putsch in Baghdad—led by the colonel who eventually raised Saddam Hussein. There was unrest in Egypt. The Grand Mufti (the religious leader of Palestinian Arabs) of Jerusalem became an outspoken Hitler partisan until the British exiled him.
As war loomed, the British and French found themselves playing a desperate balancing act to keep Muslim protectorates and client states from going over to Hitler’s side. (Had, for example, Turkey gone with Germany as it did in 1915, there might have been no Russian front to absorb such a huge percentage of the German war effort.
All of this in no way redounded to the benefit of Palestinian Jews! What slight door there might have been open to Jewish refugees from Nazi territories was slammed shut. (The door to Depression stricken America was also shut tight—there was nowhere left for Jews to escape to.)
The Palestinian Jews volunteered to fight Hitler. They were permitted to form a single brigade of Jewish soldiers, which became to core of the Israeli Army. This was the first time Jewish military units were permitted to form since Medieval Spain (on the Muslim side, explaining some of the Spanish Inquisition). They were a bit out of practice—but they learned well.
The Mufti escaped to Berlin where he formed two divisions of Bosnian Waffen SS to hunt down anti-Nazi Serbs and Jews. (There would finally be terrible vengeance fifty years later in Bosnia.) DeGaulle’s free French pulled out of Syria and Lebanon after the fall of France—setting up the competing Muslim and Christian states of today.
Britain was left by herself to her near eastern balancing act, desperately trying to save her oil interests as well as block Hitler. By the end of the war, Hitler was no longer Britain’s deadliest near eastern enemy. On his way back from Yalta, Franklin Roosevelt stopped in Saudi Arabia to begin negotiations for oil rights that once had been almost exclusively British.
When Hitler was finally defeated, the Americans stopped Lend Lease and the British Empire collapsed into bankruptcy. By 1948, having kept the door shut to Jewish immigration for as long as they could, the British abandoned Palestine. Arabs may have been briefly hopeful that this new western power, the United States, seemingly bent on the destruction of British power and publicly anti-Semitic, would benefit them.
After all, the United States had sent shiploads full of Jewish children back to the gas ovens rather than take them in. Our anti-Semitism was overt and rampant. Jews were all but unemployable during the Depression, the best universities took only a limited number (thus creating the Jewish “ivy” league).
But when the British pulled out and the United Nations made a feeble effort at creating a partition in Palestine that left Jews in a totally indefensible position, the Arabs were disappointed in America. The Arabs fought even the wretched terms of the 1948 partition only to see the Americans back it. A Jewish State was born—for the first time since 60BC.
President Truman was way down in the polls and he NEEDED the Jewish vote in New York to win re-election. New York was then the state with the biggest block of electoral votes. Enraged, Arabs sent five western equipped armies to invade the tiny Jewish enclaves of Palestine and began their love/hate relationship with America.
The veterans of the Jewish brigade, not more than 5,000 men, an international Jewish community that scoured the world for weapons the British had denied Palestinian Jews, and Jewish civilians that learned war fast, beat back all five armies.
The only one that held—thus saving old Jerusalem for the Arabs—was the British trained and led Arab Legion from Jordan. It blocked the Jewish advance into their ancient capital. The armies of Arabia, Egypt, Lebanon and Syria were humiliatingly defeated.
Jews kept the new borders their arms had gained them. It wasn’t good, but it was better. Even though every square inch of Jewish territory remained in range of Arab artillery—which periodically used Jewish school buses and tractors for target practice from sites on the West Bank, Gaza and the Golan—at least the new Israeli army had a few more acres to operate from.
The Arabs at once began their “land for peace” game. The 1948 partition line (that they had violated now became the Arab Holy Grail). “Oh,” they said, “if only these warlike Jews would go back to the 1948 partition line, all would be peace and joy.” They hoped the rest of us would forget how passionately they had opposed that position in 1947-8.
As Arab shells rained down on their farms and Arab grenades sailed through bedroom windows, the Jews gained a striking reputation for uncooperativeness by saying NO.
It remained a nasty situation until the Egyptians threw Britain out of the Suez Canal. The British (and the French) wanted revenge. Who could be more helpful than the Jews who were already in a perpetual state of war with Egypt?
Nobody really knew what the new Israeli Army could do—we were going to find out.
Friday, February 6, 2009
Thinking--The Subversive Art
Watching Congress, the President and all the king’s horses flail about trying to rescue the economy somehow brings to mind the wonderfully misogynistic question that Lerner and Lowe (and probably George Bernard Shaw) put in the mouth of “My Fair Lady’s” Henry Higgins.
“Why,” he asks, “is thinking something women never try?” It’s only a fair question, of course, if you change it to include both sexes. For good measure you can throw in Congress, most Presidents and other governmental entities. Include the entire human race. We all so rarely try it. Why?
For one thing it’s hard work. For another it can bring up embarrassing questions. It can also derail historic assumptions. If you do it publicly, it can get you labeled weird (or worse) very quickly. Your friends will start to avoid you. Your boss will find you tiresome.
I remember an exchange I had the first year I taught school. It was a parochial private school where I was assigned to teach Eighth and Ninth Grade English literature and grammar. My four classes contained a substantial number of kids with genius I.Q.s (considerably above Obama’s 135).
We somehow had a real problem understanding each other. I was baffled; I’m not really a dummy myself. What was the matter? One day a quiet little kid raised his hand. “Mr. W---------,” he asked, “do you know what the problem is?” I admitted I did not.
“You want us to think.”
They were bright kids whose parents paid good tuition to send them there—and on to college. They had been prescriptively taught for years by educated teachers who did no thinking, asked for none and would have been unforgiving had any hint of it popped up. Smart, the kids quickly sensed that what was wanted was memorization and repetition with no alterations.
How hard was it for those intelligent kids to put their thinking mechanism back into gear in later years? Do you believe they ever did? How about the ladies and gentlemen, mostly with enough brains, who run Washington? Did they ever turn theirs back on again?
Look at our educated elite. On global warming, they let Al Gore and his crew of bright film makers do their thinking for them. They are still very good at memorization and repetition. The “New York Times” tells them what to think about books, movies and the arts. .
The “Wall Street Journal”, “Forbes” and “Barrons” tell us what to think about the markets; we allow “Newsweek”, “The Washington Post” and “Time” (with a few asides from “The Atlantic Monthly” and “The New Yorker”) to tell us what to believe about Iraq and Afghanistan—whether we are in or out of Washington. These are the opinion makers read by the Elite.
They enable the elite to stay in lockstep, with much of the rest of us tailing behind, careful not to say anything that might sound strange, either to one’s neighbors or one’s colleagues. (Strangeness—uniqueness?—is to be avoided at all costs. It carries too great a social, political and economic risk.)
This is true on Wall Street and Main Street, in the Capital and at the barber shop; it is equally true among the faculties of Harvard and Stanford. The penalties inflicted on a professor who falls out of step with his fellow academicians can be brutal indeed. (You think theologians are bad, watch professors!)
The expression “I think…” should be banned from most human speech. “I read”, “I was told”, or “I heard ought always to be substituted. Most people who say “I think” are bald faced liars.
At the end of his life, Albert Einstein—one of the few original minds of the past century—said that he had finally achieved the ability to think for about fifteen minutes a day. (And everyone DID regard him as weird—he sort of got away with it by looking kind of cute.)
When I first heard that story, I did some soul searching. I concluded that I, myself, was probably capable of two minutes or less thought per day. Half a century later, I may have worked myself up to an occasional five minute day. It is hard to do. I ask questions no one wants to hear. My neighbor, much more affluent than I (but who likes me, most of the time) says, “You’re readin’ too many of them damn’ books again, W………..”.
I was at lunch with a Wall Street lawyer (himself a very bright man) years ago when I asked him if I could make money working on the Street. “You couldn’t make a dime,” he replied, “you think too much.
“Look at the guys on the Street. They’re not smart. They’re fast; they have quick reflexes because they never think before they act. They buy; they sell—all on reflex. Instinct. By the time you had thought it through, the stock would have risen a half-point and fallen back again.”
Maybe, heretical suggestion, someone at Citicorp or Bank of America or Lehman Brothers should have taken a second or two to think it through.
But if they had, they would have missed the instant when the stock jumped half a point. That would have been bad—wouldn’t it?
“Why,” he asks, “is thinking something women never try?” It’s only a fair question, of course, if you change it to include both sexes. For good measure you can throw in Congress, most Presidents and other governmental entities. Include the entire human race. We all so rarely try it. Why?
For one thing it’s hard work. For another it can bring up embarrassing questions. It can also derail historic assumptions. If you do it publicly, it can get you labeled weird (or worse) very quickly. Your friends will start to avoid you. Your boss will find you tiresome.
I remember an exchange I had the first year I taught school. It was a parochial private school where I was assigned to teach Eighth and Ninth Grade English literature and grammar. My four classes contained a substantial number of kids with genius I.Q.s (considerably above Obama’s 135).
We somehow had a real problem understanding each other. I was baffled; I’m not really a dummy myself. What was the matter? One day a quiet little kid raised his hand. “Mr. W---------,” he asked, “do you know what the problem is?” I admitted I did not.
“You want us to think.”
They were bright kids whose parents paid good tuition to send them there—and on to college. They had been prescriptively taught for years by educated teachers who did no thinking, asked for none and would have been unforgiving had any hint of it popped up. Smart, the kids quickly sensed that what was wanted was memorization and repetition with no alterations.
How hard was it for those intelligent kids to put their thinking mechanism back into gear in later years? Do you believe they ever did? How about the ladies and gentlemen, mostly with enough brains, who run Washington? Did they ever turn theirs back on again?
Look at our educated elite. On global warming, they let Al Gore and his crew of bright film makers do their thinking for them. They are still very good at memorization and repetition. The “New York Times” tells them what to think about books, movies and the arts. .
The “Wall Street Journal”, “Forbes” and “Barrons” tell us what to think about the markets; we allow “Newsweek”, “The Washington Post” and “Time” (with a few asides from “The Atlantic Monthly” and “The New Yorker”) to tell us what to believe about Iraq and Afghanistan—whether we are in or out of Washington. These are the opinion makers read by the Elite.
They enable the elite to stay in lockstep, with much of the rest of us tailing behind, careful not to say anything that might sound strange, either to one’s neighbors or one’s colleagues. (Strangeness—uniqueness?—is to be avoided at all costs. It carries too great a social, political and economic risk.)
This is true on Wall Street and Main Street, in the Capital and at the barber shop; it is equally true among the faculties of Harvard and Stanford. The penalties inflicted on a professor who falls out of step with his fellow academicians can be brutal indeed. (You think theologians are bad, watch professors!)
The expression “I think…” should be banned from most human speech. “I read”, “I was told”, or “I heard ought always to be substituted. Most people who say “I think” are bald faced liars.
At the end of his life, Albert Einstein—one of the few original minds of the past century—said that he had finally achieved the ability to think for about fifteen minutes a day. (And everyone DID regard him as weird—he sort of got away with it by looking kind of cute.)
When I first heard that story, I did some soul searching. I concluded that I, myself, was probably capable of two minutes or less thought per day. Half a century later, I may have worked myself up to an occasional five minute day. It is hard to do. I ask questions no one wants to hear. My neighbor, much more affluent than I (but who likes me, most of the time) says, “You’re readin’ too many of them damn’ books again, W………..”.
I was at lunch with a Wall Street lawyer (himself a very bright man) years ago when I asked him if I could make money working on the Street. “You couldn’t make a dime,” he replied, “you think too much.
“Look at the guys on the Street. They’re not smart. They’re fast; they have quick reflexes because they never think before they act. They buy; they sell—all on reflex. Instinct. By the time you had thought it through, the stock would have risen a half-point and fallen back again.”
Maybe, heretical suggestion, someone at Citicorp or Bank of America or Lehman Brothers should have taken a second or two to think it through.
But if they had, they would have missed the instant when the stock jumped half a point. That would have been bad—wouldn’t it?
Thursday, February 5, 2009
A Hundred Days Is Too Long
Surprise! President Obama’s approval rating has dropped 19 points in his first week. That has to be some kind of record. Were it to continue dropping at this rate, his rating would be way below zero in approximately five more weeks. It won’t, but the first drop should sober him.
On January 20 it seems there were a lot of people out there who expected Obama to walk across the Mall Reflecting Pond on his way to the White House. Seriously, it was almost as if they expected job offers in the mail by weekend, that on the 21st their banks would notify them that their mortgages were forgiven, their credit card debt vaporized, gasoline would be back to a dollar a gallon or less, and all those nasty little wars would have gone away.
Oh, and of course, Congress—Republicans and Democrats—would be locked in a permanent love fest with their new Leader.
Well, it’s already February and it hasn’t all happened. In fact, none of it has. People are still getting laid off, banks still tottering, Congress is still nattering away, and GIs still get blown up in foreign parts. People who really believed they were creating a whole new world with a whole new set of rules by simply pulling a lever on November 4 are becoming disillusioned.
After all, young and old, these are the generations that grew up wanting it all now. Mom and dad took twenty-five years to get all the things that made for a good life. Their kids wanted it all the day they were married—that’s the generation that’s fifty now. So they went out and charged it.
Master Card assures us on television that everything that isn’t “priceless” is available to us with a flick of the plastic. That’s “everything else”. So why should it startle us that this generation finally put itself under mortgages and loans they cannot hope to repay? It worked before; why isn’t it working now?
They expected Obama to put things back the way they used to be. Right now, with merely a flick of some governmental plastic. Overnight—just like you could buy what you wanted and have it delivered the next day. And Obama has begun to fail them.
His plastic isn’t working. It’s like the sinking feeling you get when your card comes up “ReJected”.
Oh he’s been able to make some symbolic moves. He’s overturned all those executive orders from the bad old Bush days that kept federal money out of the abortion business and other fun stuff. He’s announced that any bank that takes bailout money has to limit its senior executives to a half-million dollars a year salary.
This won’t hurt them. Just like Iacocca in the Chrysler bailout thirty years ago. He worked for a dollar a year—until he paid the government back. Then he took his millions in stocks and IOUs and went home.
Our bankers are gamblers today. In fact many of them are addicted to gambling. In effect we made them addicts when we changed laws and invented new commercial instruments that allowed them to gamble with their assets (thereby turning many of them completely toxic).
As any student of addiction will tell you, addition to gambling is actually an addiction to the adrenalin rush you get when you do high stakes gambling. The gambler becomes dependent on that rush—he must take bigger (and more foolish) risks to keep that rush coming.
The dependency becomes as great as that of a Heroin addict, and alcoholic, a sex addict or a workaholic. (These are all essentially the same kind of reaction.) Many of our bankers and handlers of commercial paper are as much junkies as any poor soul you see on the streets.
Obama keeps telling us the bailout is urgent (he’s not having all the luck he hoped he would in getting it). He doesn’t seem to realize that giving an addict another fix or another drink will not cure the dependency. Speed is necessary; he’s got to put these guys on a cold turkey regimen.
That will require new regulations and some new laws—guaranteeing that the addicted bankers are never permitted to gamble with other people’s money again. Cold turkey. No more bundles, no more risky mortgage or loan papers.
He’s got to face the fact that some of the people in his administration may be as addicted as anyone left on Wall Street. They won’t take happily to the notion that their favorite “casinos” are going to be placed off limits. He’s got a major, major problem on his hands—one he may never have dreamt of.
If he doesn’t deal with it BEFORE handing them bailout money, that problem is only going to get much, much worse. In the meantime, his approval rating is liable to drop much further.
Can you imagine how low Lincoln’s approval ratings (they didn’t take polls when he was in office, lucky fellow) would have registered after a dozen Confederate victories in a row? Obama may have to walk through the same shadowy valley of perceived failure. His job will be no easier than Lincoln’s.
That, more than merely coming from Illinois, will make him a worthy follower in the Great Emancipator’s steps.
On January 20 it seems there were a lot of people out there who expected Obama to walk across the Mall Reflecting Pond on his way to the White House. Seriously, it was almost as if they expected job offers in the mail by weekend, that on the 21st their banks would notify them that their mortgages were forgiven, their credit card debt vaporized, gasoline would be back to a dollar a gallon or less, and all those nasty little wars would have gone away.
Oh, and of course, Congress—Republicans and Democrats—would be locked in a permanent love fest with their new Leader.
Well, it’s already February and it hasn’t all happened. In fact, none of it has. People are still getting laid off, banks still tottering, Congress is still nattering away, and GIs still get blown up in foreign parts. People who really believed they were creating a whole new world with a whole new set of rules by simply pulling a lever on November 4 are becoming disillusioned.
After all, young and old, these are the generations that grew up wanting it all now. Mom and dad took twenty-five years to get all the things that made for a good life. Their kids wanted it all the day they were married—that’s the generation that’s fifty now. So they went out and charged it.
Master Card assures us on television that everything that isn’t “priceless” is available to us with a flick of the plastic. That’s “everything else”. So why should it startle us that this generation finally put itself under mortgages and loans they cannot hope to repay? It worked before; why isn’t it working now?
They expected Obama to put things back the way they used to be. Right now, with merely a flick of some governmental plastic. Overnight—just like you could buy what you wanted and have it delivered the next day. And Obama has begun to fail them.
His plastic isn’t working. It’s like the sinking feeling you get when your card comes up “ReJected”.
Oh he’s been able to make some symbolic moves. He’s overturned all those executive orders from the bad old Bush days that kept federal money out of the abortion business and other fun stuff. He’s announced that any bank that takes bailout money has to limit its senior executives to a half-million dollars a year salary.
This won’t hurt them. Just like Iacocca in the Chrysler bailout thirty years ago. He worked for a dollar a year—until he paid the government back. Then he took his millions in stocks and IOUs and went home.
Our bankers are gamblers today. In fact many of them are addicted to gambling. In effect we made them addicts when we changed laws and invented new commercial instruments that allowed them to gamble with their assets (thereby turning many of them completely toxic).
As any student of addiction will tell you, addition to gambling is actually an addiction to the adrenalin rush you get when you do high stakes gambling. The gambler becomes dependent on that rush—he must take bigger (and more foolish) risks to keep that rush coming.
The dependency becomes as great as that of a Heroin addict, and alcoholic, a sex addict or a workaholic. (These are all essentially the same kind of reaction.) Many of our bankers and handlers of commercial paper are as much junkies as any poor soul you see on the streets.
Obama keeps telling us the bailout is urgent (he’s not having all the luck he hoped he would in getting it). He doesn’t seem to realize that giving an addict another fix or another drink will not cure the dependency. Speed is necessary; he’s got to put these guys on a cold turkey regimen.
That will require new regulations and some new laws—guaranteeing that the addicted bankers are never permitted to gamble with other people’s money again. Cold turkey. No more bundles, no more risky mortgage or loan papers.
He’s got to face the fact that some of the people in his administration may be as addicted as anyone left on Wall Street. They won’t take happily to the notion that their favorite “casinos” are going to be placed off limits. He’s got a major, major problem on his hands—one he may never have dreamt of.
If he doesn’t deal with it BEFORE handing them bailout money, that problem is only going to get much, much worse. In the meantime, his approval rating is liable to drop much further.
Can you imagine how low Lincoln’s approval ratings (they didn’t take polls when he was in office, lucky fellow) would have registered after a dozen Confederate victories in a row? Obama may have to walk through the same shadowy valley of perceived failure. His job will be no easier than Lincoln’s.
That, more than merely coming from Illinois, will make him a worthy follower in the Great Emancipator’s steps.
Wednesday, February 4, 2009
More On Making Assets Toxic
Yesterday we talked about the joys of bundling, the fun we had with that old fuddy-duddy Glass-Seagall off our backs, and all the good that using Banks as charities has done us. (We also pointed out that if we don’t get rid of bank charity and bundling and bring back something like Roosevelt’s old law, we’ll be right back in this mess very soon.) Let’s continue and see what other problems banks have that need to be corrected BEFORE we waste any more bailout money on them.
A “waste” you ask? Wells Fargo took a good, deep draught at the Bailout fountain a few months ago. Just yesterday word came that they were taking their most successful mortgage lenders on a nice vacation to Vegas—at what will essentially be your and my expense. Yes, waste.
Our bankers seem to be so intoxicated on speculation and what we used to call in the game of Hearts, “shooting the moon”, their judgment is not to be trusted without close supervision while they detoxify. (The process may have begun at Wells Fargo, which just cancelled the Vegas trip in the light of public scrutiny.)
They need, as they sober up from their long speculative binge, to get back to the fourth issue I mentioned yesterday. They have to start acting like bankers, sober bankers, and get back to something called “due diligence”.
Due diligence is a legal term that simply means “using your head” or “looking at all the available facts”. It is often defined in court as meaning that you should have done what any sane man would have done in the same circumstance. (Applying what they call in Torts Law the “reasonable man” standard.)
For a bank this means that before you hand someone three or four hundred thousand dollars of your (and your depositors’ and shareholders’) money, you check the borrower out. You ask reasonable questions like, does he have a job? Does his wife work? How long have they had these jobs?
What did they do before? How much do they make? Do they work someplace that is likely to be around awhile? Do they have prison records? Have they defrauded anyone else, gone bankrupt recently or been foreclosed on before? How much debt do they have? Etc. etc. You get the picture.
Much of this is part of the public record. It may involve a couple of phone calls double checking what appears on the application form. Last year’s tax return, and so forth. In other words it will take a bit of time, a few man hours. But, hey guys, you’re talking about putting a few hundred thousand dollars at risk. (With a bit of it being MY money, if I bank with you.)
This is precisely what banks stopped doing. When your sole interest is puffing up the books with what look like valuable “assets”—and then bundling them so you can sell them for even more profit as quickly as you underwrote them, little things like checking facts go by the board.
What’s worse, not only don’t you check the facts like a sane man, you start fudging the facts. If the application shows an income that can’t repay three hundred thousand in debt, you alter the income statement. You drop a few inconvenient items off the app. like a notice that the borrower is presently unemployed or has defaulted on five credit cards and so on—to make him appear like a decent risk.
Remember, this was all done with unsuspecting depositors’ money—and now we’re paying for it with that same depositors’ tax dollars. That’s what allowing banks to bundle, dropping the requirement that banks not speculate mindlessly has gotten us.
Before we bail them out, let’s take away the bottle. Make them sober up. Enforce it. Have the regulators in place (think of federal regulators’ visits as Congress ordered AA visits) before giving them one dime of tax money as a bailout. Or, as Wells Fargo showed us, they’ll sneak out to the Speculators’ Bar anyway they can.
A final thought on housing for the poor, the low income people who live in areas that used to be red lined. Admit that creating housing for them—that they can hope to afford to stay in—really is a work of governmental charity and act on it accordingly.
Expand Habit for Humanity housing; put government money behind it. Not banks. Let us see it as a line item in the Federal budget—not something hidden in a bundle sold by Citicorp. If we don’t want to house them, then let’s be honest enough to admit it.
To those who protest, “but we’re just giving housing to them” if we take it out of private hands, I answer, “We give food stamps and assistance payments without any return. Maybe we have to take the same view of housing. “I remind fellow Christians that Christ himself said, “The poor you will always have with you.” Nowhere does he make a distinction about the “deserving poor”.
Judeo-Christian tradition has long held that it is sinful to lend to a poor man at interest—no matter what fecklessness or moral failing may have caused his poverty. Let’s get banks out of it.
Whatever we do, let’s take banks off the sauce and put curfews (regulations, if you will) on them before handing them another trillion dollar support payment! I hope you’d do the same for your own child.
A “waste” you ask? Wells Fargo took a good, deep draught at the Bailout fountain a few months ago. Just yesterday word came that they were taking their most successful mortgage lenders on a nice vacation to Vegas—at what will essentially be your and my expense. Yes, waste.
Our bankers seem to be so intoxicated on speculation and what we used to call in the game of Hearts, “shooting the moon”, their judgment is not to be trusted without close supervision while they detoxify. (The process may have begun at Wells Fargo, which just cancelled the Vegas trip in the light of public scrutiny.)
They need, as they sober up from their long speculative binge, to get back to the fourth issue I mentioned yesterday. They have to start acting like bankers, sober bankers, and get back to something called “due diligence”.
Due diligence is a legal term that simply means “using your head” or “looking at all the available facts”. It is often defined in court as meaning that you should have done what any sane man would have done in the same circumstance. (Applying what they call in Torts Law the “reasonable man” standard.)
For a bank this means that before you hand someone three or four hundred thousand dollars of your (and your depositors’ and shareholders’) money, you check the borrower out. You ask reasonable questions like, does he have a job? Does his wife work? How long have they had these jobs?
What did they do before? How much do they make? Do they work someplace that is likely to be around awhile? Do they have prison records? Have they defrauded anyone else, gone bankrupt recently or been foreclosed on before? How much debt do they have? Etc. etc. You get the picture.
Much of this is part of the public record. It may involve a couple of phone calls double checking what appears on the application form. Last year’s tax return, and so forth. In other words it will take a bit of time, a few man hours. But, hey guys, you’re talking about putting a few hundred thousand dollars at risk. (With a bit of it being MY money, if I bank with you.)
This is precisely what banks stopped doing. When your sole interest is puffing up the books with what look like valuable “assets”—and then bundling them so you can sell them for even more profit as quickly as you underwrote them, little things like checking facts go by the board.
What’s worse, not only don’t you check the facts like a sane man, you start fudging the facts. If the application shows an income that can’t repay three hundred thousand in debt, you alter the income statement. You drop a few inconvenient items off the app. like a notice that the borrower is presently unemployed or has defaulted on five credit cards and so on—to make him appear like a decent risk.
Remember, this was all done with unsuspecting depositors’ money—and now we’re paying for it with that same depositors’ tax dollars. That’s what allowing banks to bundle, dropping the requirement that banks not speculate mindlessly has gotten us.
Before we bail them out, let’s take away the bottle. Make them sober up. Enforce it. Have the regulators in place (think of federal regulators’ visits as Congress ordered AA visits) before giving them one dime of tax money as a bailout. Or, as Wells Fargo showed us, they’ll sneak out to the Speculators’ Bar anyway they can.
A final thought on housing for the poor, the low income people who live in areas that used to be red lined. Admit that creating housing for them—that they can hope to afford to stay in—really is a work of governmental charity and act on it accordingly.
Expand Habit for Humanity housing; put government money behind it. Not banks. Let us see it as a line item in the Federal budget—not something hidden in a bundle sold by Citicorp. If we don’t want to house them, then let’s be honest enough to admit it.
To those who protest, “but we’re just giving housing to them” if we take it out of private hands, I answer, “We give food stamps and assistance payments without any return. Maybe we have to take the same view of housing. “I remind fellow Christians that Christ himself said, “The poor you will always have with you.” Nowhere does he make a distinction about the “deserving poor”.
Judeo-Christian tradition has long held that it is sinful to lend to a poor man at interest—no matter what fecklessness or moral failing may have caused his poverty. Let’s get banks out of it.
Whatever we do, let’s take banks off the sauce and put curfews (regulations, if you will) on them before handing them another trillion dollar support payment! I hope you’d do the same for your own child.
Tuesday, February 3, 2009
How To Turn An Asset Toxic
Yesterday I asked, How did banks and their assets get so toxic? I didn’t answer it then or that blog might have gone on forever. Today is the time to try to answer that question and to try to figure out how to prevent the current banking collapse from happening again.
“Greed did it!” Everyone including President Obama repeats over and over again, “Greed!” As a real answer to our problem that’s about as useful as calling someone a “communist”. It sounds horrid, but it doesn’t mean anything. We’re all greedy, after all—starting with the day we punched a kid for taking too big a piece of the birthday cake.
What really caused this big banking mess?
Four major factors come to mind immediately. All of them rather technical. One, we forced banks into the charity business. Two, we repealed Glass-Steagall. Three, some clever chap invented the art of bundling and let banks get in on the speculation. Four, bundling eliminated the ancient bank duty of acting with “due diligence”.
Before we gave any more banks a cent more in bailout money, we should reverse and/or outlaw all of these four causes. There should be the kind of nasty legal penalties for doing (or not doing) these things that send high level individuals to prison. Or any bailout will do nothing to cure the actual problem.
We cannot change the altered investment realities of a global economy or what other nations may do on their own exchange floors, but we can make our own banks go back to sound banking. Let’s go through these four causes point by point.
One, decades ago, banks redlined. This means they refused to loan to anyone who lived in a section of a city deemed too unsafe, too poor or occupied by classes and races of persons who were believed to be universally unreliable. This, justifiably, was outlawed.
But then we got a tad too proactive. From saying, Hey, you have to look at each applicant as an individual and evaluate his potential to repay on a case by case basis, we jumped an imprudent step further. We decreed that, REGARDLESS OF INDIVIDUAL MERIT, banks make loans in poor and undesirable sections. They were essentially put on a quota basis.
They were threatened with legal action—for discrimination—if they didn’t come up with lots of loans in those neighborhoods. Equal opportunity lending is a very bad idea if, by that, you mean that the irresponsible citizen with a horrible credit record must be given equal opportunity for a mortgage with someone with a sterling credit record and high income.
The question of, Can this guy ever repay—or will he even try to repay—gets totally lost. And that is the only rational basis for sound banking. Anything else produces very, very toxic mortgage paper—by which I mean paper that is essentially worthless because nobody is ever going to pay it back.
Once we start doing that, banks reasoned, why not give $400,000 mortgages to people who show they can reliably handle a $200,000 mortgage, but have only a fantasy chance of repaying the bigger one. There are lots of ways to do this—many of them learned in the old red line districts.
You fudge on the applicant’s income (which in some cases may not even exist). You give him zero down to get him in the door. You give him ludicrously low interest for the first few years (so that he’s not even lowering his mortgage each year, but actually increasing what he owes), and then zap him with an enormous increase in his monthly payment so you can start collecting on what he actually owes. Profits on this were, initially, huge.
That’s as toxic as Love Canal ever got. And, on the way to this La La Land, you get the fusty old law that Roosevelt put in place—Glass-Steagall—repealed. When FDR took office, banks were failing by the thousand, often because of foolish investments. So Glass-Steagall was passed to keep banks from speculating on air. They had to stick to taking deposits and lending money for things like homes and cars. Nothing speculative.
After 1999 and the repeal, banks were free to get back into speculation with a vengeance. Only they weren’t speculating with their own money, they were speculating with yours. One of the really fun ways to make money speculatively was bundling (Two).
Bundling for banks wasn’t all that different than Bundling in Puritan New England. (You crawled into bed with someone you didn’t know and took your chances with VD and paternity.) A bank out in Missouri or Iowa bundled all kinds of mortgages—from those on executive homes actually bought by high income executives, to mortgages made to middle class owners who could never hope to pay them off at real rates, to mortgages on homes occupied by the poor, the feckless and the addicted.
Then you took these bundles and sold them to big banks in New York—who put them on their books as sound investments, as assets. The big banks often made bigger bundles and sold them to other big banks all over the world. All listed as on the sheet as sound investments.
Very quickly much of the wealth of the planet, like an inverted pyramid, was based on the entirely speculative assumption that somebody making $30,000 a year could be expected to repay a $300,000 mortgage—PLUS the debt on the fourteen credit cards he had been offered. And, of course, plus payments on two new cars.
From the little bank in Missouri to the big bank in New York or London, the little guy with the little income was carrying a massive load. At some point, very like a Ponzi scheme, too many of those little guys at once couldn’t go on. The music stopped and there were nowhere near enough chairs.
Change this way of doing business BEFORE you bail them out, or we’ll be right back here in a few more years—or months. Tomorrow we’ll look at “due diligence” and a few other things that need changing before any bailout goes through.
“Greed did it!” Everyone including President Obama repeats over and over again, “Greed!” As a real answer to our problem that’s about as useful as calling someone a “communist”. It sounds horrid, but it doesn’t mean anything. We’re all greedy, after all—starting with the day we punched a kid for taking too big a piece of the birthday cake.
What really caused this big banking mess?
Four major factors come to mind immediately. All of them rather technical. One, we forced banks into the charity business. Two, we repealed Glass-Steagall. Three, some clever chap invented the art of bundling and let banks get in on the speculation. Four, bundling eliminated the ancient bank duty of acting with “due diligence”.
Before we gave any more banks a cent more in bailout money, we should reverse and/or outlaw all of these four causes. There should be the kind of nasty legal penalties for doing (or not doing) these things that send high level individuals to prison. Or any bailout will do nothing to cure the actual problem.
We cannot change the altered investment realities of a global economy or what other nations may do on their own exchange floors, but we can make our own banks go back to sound banking. Let’s go through these four causes point by point.
One, decades ago, banks redlined. This means they refused to loan to anyone who lived in a section of a city deemed too unsafe, too poor or occupied by classes and races of persons who were believed to be universally unreliable. This, justifiably, was outlawed.
But then we got a tad too proactive. From saying, Hey, you have to look at each applicant as an individual and evaluate his potential to repay on a case by case basis, we jumped an imprudent step further. We decreed that, REGARDLESS OF INDIVIDUAL MERIT, banks make loans in poor and undesirable sections. They were essentially put on a quota basis.
They were threatened with legal action—for discrimination—if they didn’t come up with lots of loans in those neighborhoods. Equal opportunity lending is a very bad idea if, by that, you mean that the irresponsible citizen with a horrible credit record must be given equal opportunity for a mortgage with someone with a sterling credit record and high income.
The question of, Can this guy ever repay—or will he even try to repay—gets totally lost. And that is the only rational basis for sound banking. Anything else produces very, very toxic mortgage paper—by which I mean paper that is essentially worthless because nobody is ever going to pay it back.
Once we start doing that, banks reasoned, why not give $400,000 mortgages to people who show they can reliably handle a $200,000 mortgage, but have only a fantasy chance of repaying the bigger one. There are lots of ways to do this—many of them learned in the old red line districts.
You fudge on the applicant’s income (which in some cases may not even exist). You give him zero down to get him in the door. You give him ludicrously low interest for the first few years (so that he’s not even lowering his mortgage each year, but actually increasing what he owes), and then zap him with an enormous increase in his monthly payment so you can start collecting on what he actually owes. Profits on this were, initially, huge.
That’s as toxic as Love Canal ever got. And, on the way to this La La Land, you get the fusty old law that Roosevelt put in place—Glass-Steagall—repealed. When FDR took office, banks were failing by the thousand, often because of foolish investments. So Glass-Steagall was passed to keep banks from speculating on air. They had to stick to taking deposits and lending money for things like homes and cars. Nothing speculative.
After 1999 and the repeal, banks were free to get back into speculation with a vengeance. Only they weren’t speculating with their own money, they were speculating with yours. One of the really fun ways to make money speculatively was bundling (Two).
Bundling for banks wasn’t all that different than Bundling in Puritan New England. (You crawled into bed with someone you didn’t know and took your chances with VD and paternity.) A bank out in Missouri or Iowa bundled all kinds of mortgages—from those on executive homes actually bought by high income executives, to mortgages made to middle class owners who could never hope to pay them off at real rates, to mortgages on homes occupied by the poor, the feckless and the addicted.
Then you took these bundles and sold them to big banks in New York—who put them on their books as sound investments, as assets. The big banks often made bigger bundles and sold them to other big banks all over the world. All listed as on the sheet as sound investments.
Very quickly much of the wealth of the planet, like an inverted pyramid, was based on the entirely speculative assumption that somebody making $30,000 a year could be expected to repay a $300,000 mortgage—PLUS the debt on the fourteen credit cards he had been offered. And, of course, plus payments on two new cars.
From the little bank in Missouri to the big bank in New York or London, the little guy with the little income was carrying a massive load. At some point, very like a Ponzi scheme, too many of those little guys at once couldn’t go on. The music stopped and there were nowhere near enough chairs.
Change this way of doing business BEFORE you bail them out, or we’ll be right back here in a few more years—or months. Tomorrow we’ll look at “due diligence” and a few other things that need changing before any bailout goes through.
Monday, February 2, 2009
Toxic Waste--Toxic Assets
I love the term “toxic assets”. As I understand it, an asset is something of value—like a house or a savings bond. I always associated “toxic” with waste or garbage. (If your kid plays on toxic waste, his hair will fall out or he’ll turn green, so forth.) What happens when WE play with “toxic assets”?
This week’s “BusinessWeek Magazine” says the problem with our banking system is all of their “toxic assets”. Are they suggesting that our entire banking system—or a substantial portion of it—is not much more than a pile of garbage that’s been left unrefrigerated for too long?
That, when you contemplate it for a moment, is a truly horrible thought. It suggests that a very large part of what this nation thought was its wealth was really infectious trash. It’s toxic to the banks that bought the stuff, toxic to shareholders in those banks, its toxic to the people whose mortgages the trash paper claims to represent. In other words, it’s liable to make everybody sick. Including taxpayers with absolutely no stake in these institutions except that they live in this country.
What’s worse, nobody seems to have a handle on exactly how much money this stuff represents. In a stack of bundled mortgage papers, how much is real value; how much is worthless? Are we talking a trillion? Two trillion? More? Less? If you hold stock in those institutions, how much is any of that worth? How about instruments based on credit card debt? How big is that?
Bank of America, which felt healthy and hungry enough to gulp down Merrill Lynch last fall is said to be on the verge of legal insolvency. (For Federal regulators NOT to take over a bank, the value of the bank’s assets must exceed its liabilities.) BoA is said to have only a tiny margin left before liabilities outstrip assets. One little flip of the market—and boom.
You want to line up for that bailout? (Incidentally, “BusinessWeek” says the bailout has already failed.) Can we afford to prop up something as huge as BoA? We don’t even know what its assets are really worth. How many are toxic? How many are sound?
But if it fails, what else falls down with it? Nobody knows. That’s why nobody wants to lend to another bank (so it can lend to you). Nobody knows what, if anything, the borrowing bank’s assets are worth. Will it be around to repay? Around or not, will it be able to pay? Nobody knows.
Nobody, but nobody wants to go through its own books, its own stack of bundled mortgages and credit card debt to see which ones might really be toxic. A bad answer to that question could tip you into insolvency. By next Friday. Or sooner. So nobody knows.
Obama doesn’t know. Congress doesn’t know. The Fed doesn’t know. Probably most bank CEO’s don’t know (some may have horrible premonitions—but they can honestly say they don’t know. Not knowing can be used as a “Get Out Of Jail” card if necessary).
If you KNOW there’s a peevish and hungry lion around the next corner, you may be able to come up with a way of dealing with the situation. But if you have absolutely no idea what may be around that corner, the situation becomes insolvable.
Ask any businessman. Ask any general. Intelligence (knowing) is vital.
So how did our banks get into such a mess—where their asset column smells more like a pile of rotting sewage than money? How did they wind up in such a messy, ugly situation? How did a banker’s life get so “toxic”?
Wouldn’t it make some kind of sense to take a census of this stuff, garbage and all, before committing ourselves and several future generations to paying for all of it? Tell me the thing is cracked and needs some fixing, and I still might buy it. Tell me nothing—I won’t buy.
Right now, they are telling me nothing. I’m not buying. I don’t care how critical President Obama tells me speed is. Pressure for speed is an old encyclopedia salesman’s trick. “Buy TONIGHT or we can’t give you all these wonderful extras.” They used to do that in “Going Out of Business” sales in the old Times Square. I always walked away.
Let’s know what we’re buying first. There’s only so much garbage my container can hold. As much fun as I think the phrase “toxic assets” may be, I don’t like the real stuff at all.
Tomorrow, let’s look at some things we ought to do before there is any bailout at all.
This week’s “BusinessWeek Magazine” says the problem with our banking system is all of their “toxic assets”. Are they suggesting that our entire banking system—or a substantial portion of it—is not much more than a pile of garbage that’s been left unrefrigerated for too long?
That, when you contemplate it for a moment, is a truly horrible thought. It suggests that a very large part of what this nation thought was its wealth was really infectious trash. It’s toxic to the banks that bought the stuff, toxic to shareholders in those banks, its toxic to the people whose mortgages the trash paper claims to represent. In other words, it’s liable to make everybody sick. Including taxpayers with absolutely no stake in these institutions except that they live in this country.
What’s worse, nobody seems to have a handle on exactly how much money this stuff represents. In a stack of bundled mortgage papers, how much is real value; how much is worthless? Are we talking a trillion? Two trillion? More? Less? If you hold stock in those institutions, how much is any of that worth? How about instruments based on credit card debt? How big is that?
Bank of America, which felt healthy and hungry enough to gulp down Merrill Lynch last fall is said to be on the verge of legal insolvency. (For Federal regulators NOT to take over a bank, the value of the bank’s assets must exceed its liabilities.) BoA is said to have only a tiny margin left before liabilities outstrip assets. One little flip of the market—and boom.
You want to line up for that bailout? (Incidentally, “BusinessWeek” says the bailout has already failed.) Can we afford to prop up something as huge as BoA? We don’t even know what its assets are really worth. How many are toxic? How many are sound?
But if it fails, what else falls down with it? Nobody knows. That’s why nobody wants to lend to another bank (so it can lend to you). Nobody knows what, if anything, the borrowing bank’s assets are worth. Will it be around to repay? Around or not, will it be able to pay? Nobody knows.
Nobody, but nobody wants to go through its own books, its own stack of bundled mortgages and credit card debt to see which ones might really be toxic. A bad answer to that question could tip you into insolvency. By next Friday. Or sooner. So nobody knows.
Obama doesn’t know. Congress doesn’t know. The Fed doesn’t know. Probably most bank CEO’s don’t know (some may have horrible premonitions—but they can honestly say they don’t know. Not knowing can be used as a “Get Out Of Jail” card if necessary).
If you KNOW there’s a peevish and hungry lion around the next corner, you may be able to come up with a way of dealing with the situation. But if you have absolutely no idea what may be around that corner, the situation becomes insolvable.
Ask any businessman. Ask any general. Intelligence (knowing) is vital.
So how did our banks get into such a mess—where their asset column smells more like a pile of rotting sewage than money? How did they wind up in such a messy, ugly situation? How did a banker’s life get so “toxic”?
Wouldn’t it make some kind of sense to take a census of this stuff, garbage and all, before committing ourselves and several future generations to paying for all of it? Tell me the thing is cracked and needs some fixing, and I still might buy it. Tell me nothing—I won’t buy.
Right now, they are telling me nothing. I’m not buying. I don’t care how critical President Obama tells me speed is. Pressure for speed is an old encyclopedia salesman’s trick. “Buy TONIGHT or we can’t give you all these wonderful extras.” They used to do that in “Going Out of Business” sales in the old Times Square. I always walked away.
Let’s know what we’re buying first. There’s only so much garbage my container can hold. As much fun as I think the phrase “toxic assets” may be, I don’t like the real stuff at all.
Tomorrow, let’s look at some things we ought to do before there is any bailout at all.
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