Sam Smith, 2008 I’m going to break a prime rule of journalism: never admit you don’t know what the hell is going on. At best, explain it; at worst, quote an expert, but never, ever just shrug your shoulders.
The courage to reveal my shame comes from one simple fact: I can’t find anyone else who knows what’s going on, either.
Never in the history of the United States has so much public money been spent with so little accounting of where it is right now and where it’s going next. Never has so much public money been spent by order of officials who helped to create the crisis the money is supposed to resolve. Never has so much public money been spent by officials for the benefit of so many former colleagues. Never has so much public money been spent with so little explanation by the media. And never has so much public money been spent with so little debate over possible alternatives.
Given that the economic crisis grew out of the world’s greatest Ponzi scheme, it is perhaps not surprising that we are being handed solutions that reek of the same larcenous craft. Given that our most honored politicians, economists and media failed to warn us of the problem, it is perhaps not surprising that their present explanations are so vague and vacuous. And given that gravity still functions even when common sense doesn’t, it is perhaps not surprising that we continue to fall.
Still, it would have been nice if we had heard more from the General Accounting Office or the SEC, if Barack Obama had suggested a solution other than that recommended by the Goldman Sachs alumni association and if the media had treated the numbers as real math rather than just so many adjectives.
To one raised in the math of small business, such casual use of digits is hard to comprehend. What do they think a billion dollars is? Monopoly money?
Excuse me, I should have said trillion dollars. One month into the crisis and already I’m three zeroes behind the times.
Actually, I went through some the stories we’ve run on the topic in an attempt to get a better hold on the matter by checking every place the word ‘trillion’ was used. One thing stood out: while no one could quite agree on how many trillions in derivatives were floating out there doing their mischief, the numbers were in the three figures while the trillions of dollars lost by people in the retirement funds, home foreclosures, market value etc. tended to be of single digits.
Looked at another way, the real dollars based on real things lost by real people amount to less than one percent of the fake gambling money involved in the disaster. Even the total housing market is, according to journalist Joshua Holland, only one sixth the size of the mortgage security house of cards that was built on it. Holland estimates that the total worth [sic] of all derivatives was about $500 trillion “or roughly 10 times the output of the global economy.”
One of the ironies about this affair is that while the losses of the high rollers are given high priority by the government and the fate of the low and unmighty is nothing more than a talking point, much of the responsibility for the crisis is being placed on the little guys and the little loans. While there is no doubt that there were stupid and/or predatory housing mortgages issued and that numerous individuals got carelessly in over their heads, what seems to be sinking us is the far more important speculation in the derivatives market. But the big guys get the billions while the little ones get the blame.
Meanwhile, there has yet to be a single major program directed at seriously helping the vast majority of ordinary Americans injured by the casino capitalists, even though it would be far cheaper than turning a generation of incompetent and reckless MBAs into trust fund babies of the federal treasury.
Similarly there has been little interest – even on the part of Democrats – in a classic approach to such a problem: major public works such as expansion of ecologically sound energy systems or building new rail service.
The foreclosures seem to represent a small percentage of the total crisis and the financial personal problems that led to the foreclosures represent even less – something that could be handled far better by case by case review by local bankruptcy courts or by the government becoming a passive equity partner of troubled homeowners, rather than by taking over whole mortgage portfolios of banks and dealing with it all at the national level.
But we still need a lot more facts. We need a far better idea of what is happening, where the money is really going and who is really being helped.
We also need to be able to compare what is going on to other alternatives. As an example, Ethan Pollack of the Economic Policy Institute notes:
“As money is spent, it creates beneficial ripples through the entire economy. The evidence is that most of the money from the recent tax rebate was saved rather than spent, thus blunting its stimulative benefit. By comparison, other options – such as infrastructure spending, aid to states, food stamps, and unemployment insurance benefits – are much more cost-effective because they target the needs most likely to channel money back into the economy. Mark Zandi from Moody’s Economy.com estimates that each dollar of refundable tax rebates only boosts GDP by about $1.26, while each dollar of infrastructure spending could provide a $1.59 boost. Not only are many of these stimulus options more effective, but they also have the added benefit of assisting those hardest hit by the downturn and tackling long-standing infrastructure needs that would lower transportation costs, decrease traffic, and increase business productivity.”
Here are some of Zandi’s examples of what a dollar spent by the government will deliver in economic benefits:
$1.73 Food stamps
$1.59 Public works
$1.36 Aid to states
$0.30 Corporate tax cut
$0.29 Make Bush tax cuts permanent.
One thing is clear, however: we have turned our fire engines over to the arsonists and you don’t need a single number to know that isn’t a good idea.