I always have to take a deep breath before I try reading the Wall Street Journal’s editorial. It almost always irritates me. Today I almost threw it.
Today’s absurd rant was about how the stock market’s loss of 25% this year is Obama’s fault because he isn’t more reassuring to capitalists in his policies and pronouncements. However, it fails to mention that the last three weeks of Bush’s term saw a drop of about 1080 point (360/week), and the first five weeks of Obama’s shift we’ve lost about 1200 points (240/week). This is hardly a dramatic worsening – maybe even an improvement if my basic math is right – and shows us that even respectable capitalists are kind of making stuff up.
The editors have a point that people who are in the business of making money have little reason for encouragement. They might even be right that Obama’s policies are a bad idea. Nobody should be surprised that our two political parties (which both largely share the blame for decades of neglect) should be trying to emphasize the ways that the other has caused or worsen this problem, and to some extent this is important because the government can either make this thing better or worse. But ultimately this mess is beyond what government can handle. The problem is more fundamental than that.
The piece closes with the complaint, “This is no way to nurture a wounded economy back to health.” They have a funny idea of health: For years we’ve had an economy based on warfare and exploitation; on manufacturing a fraction of what we consume and relying on temporary residents to harvest our crops (and ship their wages back home); on “growth” that generally occurs in essentially parasitic sectors like incomprehensible investment products, marketing, and way more real estate than we need.
A fundamental breakdown has occurred, and the Journal’s moronically cheerful claim that “what goes down will come up,” shows their failure to grasp the extent to which things are shifting. Ask the Romans, Portuguese, Vikings,or Aztecs about whether that claim is true. The current crisis is only the acute stage of an illness that has been brewing for years. This is the heart attack, but the arteries have been clogged since well before 2008.
I chose that combination of ex-empires for a reason. It is a sampling of the possible fates that may be awaiting us. Anyone who has not done so should immediately read Jared Diamond’s Collapse: How Societies Choose to Fail or Succeed, which essentially addresses the question that is eventually faced by all empires that have outstayed their welcome on the planet: Do we change what we’ve been doing or do we keep it up and go right off the cliff? This is a frightening thing to contemplate, but contemplate we must. Our ability to find new solutions will have a direct impact on whether this transition is just really uncomfortable or entirely catastrophic.
The concept of ownership has been tied in knots. In its efforts to avoid nationalizing our largest banks, insurance giant AIG, and two of the big three automakers (and who knows what else), the government has kept shoveling money into them in arrangements whose complication defies comprehension.
In any case, the people who “owned” these entities have only a dubious claim. Most of them never set foot in the operations their speculation helped to finance. The capitalist system of financing was such that people were encouraged to borrow money whenever possible. This extended both to cases where the borrower couldn’t afford the loan and to times when money wasn’t needed.
I once attended a five-day training on economic development that started with the advice that it was foolish to use your own money for business expansion. The opportunity cost was too great, and it was better to use money to leverage more money. The added expense of interest was worth it. It was counterintuitive, but it all added up in the looking-glass world of the financial bubble.
This lack of clear ownership also applies to home mortgages. Before the boom, a mortgage was typically held by the lender; if something went wrong with the creditor, ownership reverted to the bank as compensation. However, if a mortgage was sliced into many derivatives, combined with many other mortgages and sold to the four winds—as it has been in many cases to whip more air into the real estate bubble—it isn’t clear who owns the paper corresponding to any single house.
So in a foreclosure, who should get the house? Who knows? There might be hundreds of people with competing claims. There might be thousands. For all I know there might be millions by the time you unwind all the derivatives. N
In many cases, credit agreements are intact and we should leave them so; we need all the stability we can get. But in a growing number of situations, a web of investors, creditors, suppliers, and taxpayers have competing claims to dwindling resources. In these cases, we should look beyond our old ideas of financial ownership to discern who is really invested in the business or dwelling. More importantly, who is best positioned to keep things moving?
Often, this will be the employees. Sometimes, the customers will have the greatest interest. In the case of dwellings, the residents generally are best-positioned to keep things stable. There may be some economic boost to be had from hiring contractors to “trash out” foreclosed homes, and then later sell people new household goods that wind up in landfills as a result of this process. But I don’t think that we really want to base our recovery on such unproductive and unsustainable (and heartbreaking) practices.
Our old system of ownership is disintegrating, and in cases where there is no clear ownership we need to let go of it as quickly as possible before the rot spreads further. We cannot afford to protect the “investment” of people who are not really invested (i.e. actively involved in the property) unless it really makes sense to do so. In many cases the money is already gone and only bookkeeping tricks are preventing insolvency.
If we let outdated notions of property rights hobble us, we are likely to watch further deterioration and even greater displacement. The more stubborn we are, the harder the lesson will eventually be.