03 October 2008

The Wrong Cure: Bailing Out the Panic

If you're wondering what that howling noise is every time you turn on your television, radio, or read your news outlet of choice, let me break the bad news: it's now a full-on financial hurricane that few of us could ever have anticipated in scope, and even fewer of us know how to collectively 'circle the wagons' about even now. If you're wondering where your hard-earned money that you invested is, get in line and be prepared to wait a good while...you might also want to consider taking up prayer. If you're wondering if your money really buys anything, or hell if it even exists in this 'illiquid' market, welcome to the club. If you feel you've been duped by Wall Street greed and lax regulations on banks, you have been, as we all have. If you can't sleep at night because you're worried about the economy and your personal stake in it, the only thing I can offer right now is a hug, a smile, one of my home brew lagers, and a positive word of encouragement. We're in this now, folks, and we're in it all the way...best to get hunkered down.

What started as a trickle in late 2006 in the occasional financial blog about the housing markets cooling as people were overextended credit-wise has become a tsunami of constant battering from all sides: employment decreasing, investment and savings institutions evaporating almost every weekend, increasing inflation, the shortage of basic goods, on and on. Not to mention the entire mortgage mess of buying far more than what we could reasonably afford, and the entire personal savings mess of holding back next to nothing 'for a rainy day'. It's the stuff that people like Barry Ritholtz in his The Big Picture blog, J.D. Roth in his blog Get Rich Slowly, and Ron Lieber in his "Your Money" column in The New York Times have been warning us about for well, years, now. I've been reading their sage words for some time now, but kept hoping we'd somehow scrape through this mess relatively intact. But like many of you recently, I've been watching this financial meltdown...and let's call it what it is, an implosion...with an increasingly troubled eye as the chances of any escape disappear into the ether.

Personally, I am very lucky as I still rent, am still employed, and I implemented a debt-free plan some time ago that has worked amazingly well...but only after I faced some very dire circumstances. But no matter as I am involved in one of the most asinine panic runs on fuel I could have ever imagined. North Carolina, Tennessee, Georgia, all up and down corridors along the Southeast now have gas shortages because our refinery pipelines were shut down and/or destroyed when Hurricane Ike came ashore. For those of you who can readily find gas and pay in the mid $3/gallon range here in the States...I salute you. For those like myself who have found gas stations repeatedly without any product, prices near the $4/gallon mark, and long lines to get the maximum of 5 gallons...I truly do feel your pain. Last week, I could only find 3 stations in the entire town with any kind of gas, each with lengthy lines around the block, and all with a hefty price per gallon just to make things amusing for my wallet. In theory, this gasoline shortage is temporary...that in short order an influx of a new supply will come flooding in, the system will be forever repaired, we'll all return to our former ways of driving and spending, and this 'minor' setback will all but be forgotten. (Sound a bit familiar? Yeah, me, too.) Thirty minutes and five all-too-quickly pumped gallons later, I sadly accepted we've finally entered the Panic Era. And it's not just gas, or milk, or credit...it's everything related to what money does for us.

There is a fine line between totally going off the deep end in a financial denial versus taking a long, deep breath, reassessing a bad situation and then making a workable plan. Trust me, people, I've done both at one time or another and I am the product of families who have done both more than they should have in hind sight. Mistakes are made, checks expected that did not come, items bought that really should have been left behind...it happens and none of us, and especially all of us collectively, are immune. For better and for worse, we Americans live in one of the most materialistically driven societies ever to see the light of day: if we have it and like it, we want more; if it's new we must be the first to try it out; if we have it and others don't yet covet ours, we will do anything on Earth to make them jealous. It hasn't been about keeping up with the mythical Jones' for ages now: instead, it's about being better and having more stuff than The Jones' and rubbing it in their faces at the same time. (Watch the 1960s advertising-based drama "Mad Men" if you need further proof as to how this has been ingrained into our psyche and spending habits.) I am convinced, sadly, that those supposedly leading us into this Bailout of the Century have long since jumped...and want to take the rest of us with them.

And while we're laying out all our cards on the table, let's toss out another one from the Honest Dealer: we are a nation with an elected leadership that will not lead if it means playing well with others from the opposing party, a President and Administration that has so over-embellished 'facts' on so many other affairs that we can no longer take them seriously now, and a Presidential campaign that seemingly has went on longer than most Roman conquests. I can't speak for everyone, of course, but for the last few months I've just been praying Dubya would quietly go off into his Crawford sunset and not start another war (or really just stay the hell off the global stage for once) before he did so. Unfortunately, bad decisions and horrible decision-makers can't be outrun forever, so in these past few days I've had to endure Dubya try on numerous occasions to teach me about a global economics situation he doesn't know a damn thing about, either. Welcome to the Reckoning. Or the Rapture. (Your choice.)

In many ways, it is a battle between Wall Street and Main Street ('the haves' and 'the have nots' if you want to go all socialist on me) now, because no one else has a set (or the legal power, yet) to settle this nonsense. In short, someday we're gonna have to suck it up and take some really nasty medicine if we have any hopes of getting any better for the long run. Instead of doing that, we're heading straight into a blossoming class warfare. The Main Street kids are looking at the Wall Street kids and want to rumble over the latter's market manipulation and greed, while the Walls want to fight the Mains because most of us don't know a damn thing about building investment portfolios, if we save anything at all. Sadly, neither camp seems to know anything for certain about the future of money or the markets and it's practically the blind leading the blind right now. Forget about the banks seizing up credit because they don't trust one another's balance sheet anymore...long term, Main Streeters don't trust Wall Street nor their Government anymore, and the Mains are the much bigger gang to worry about. I didn't vote for Dubya either of the last two elections, but I respect that a great number obviously did. Problem is, I'm pretty sure none of us voted for Hank Paulson and His Great Agenda. Even the wonderful folks at Minyanville are grappling with their bearings after Hank's recent proclamations, and that site is about as close a union of the Streets as we can ever reasonably hope. Dylan Ratigan and the Gang over on my beloved "Fast Money" have been working overtime to explain this meltdown to the average viewer, night in and night out, but with only a limited success...because even the fundamentals are no longer constant.

If what we all were taught...smart and dumb, rich and poor, city and farm, male and female, black and white and everything else in between...about how money works and circulates in this economy ceases to exist, how the hell do we fix anything going forward?

Honestly, until we fall hard and 'hit bottom', I'm not sure we can. (Hitting that financial hell was the only thing that truly worked for me, truth be told. When you have to face your problems at that level, you learn from them and are far less likely to repeat them. ) Additionally, I'm not sure we should even be considering a bailout as the be-all and end-all of this crisis. Pete DeFazio and some other leaders have actually come up with an alternative plan that makes much more sense to me, or at least gets us going on a less 'slash and burn' through the Treasury path, and it could perhaps calm some of the frenzy that's pervading so much of everyday conversation. But only the Paulson suggested $700+ billion bailout will save us from all these bad debts, the mass media say. I disagree, as evidenced by what is still included in said bailout: to lure lawmakers to vote yes on the 'rescue plan', we're also giving tax breaks left and right, covering everything from wooden practice arrows for children, to Puerto Rican rum, to auto racing track facilities. (Note to NASCAR®: you've bled your fans dry enough with the ticket prices and such, take some of those profits and help racing facilities, yours and others, maintain their own damn tracks and stop seeking right-offs.) So, we're essentially bailing ourselves out by cutting our future revenues coming in and still playing political games...yep, that outta work, look at the successful track record for it so far.

Further still, I'm not sure we even deserve a bailout until we adjust our priorities. It will be painful, but it's long, long overdue. We are addicted to living beyond our means and then creating whole segments of the economy to help us get ourselves in debt for just that purpose. Our grandparents, our great-grandparents for some of you, survived the Great Depression and it forever etched memories of thriftiness and hard work within that generation...where did those ideals go, anyway?? Just as you don't give money to a drug addict knowing it's going to be spent on something that will only fuel the addiction, giving a bailout to a society that has no idea where all of its trillions are going as it is...and who amongst us knows where our tax dollars are spent? Anyone?? Anyone?? Bueller??...you only place a band-aid over a gaping gunshot wound. The bad blood will still seep out somewhere, folks, and with this Panic-driven bailout all you've done is just moved the exit site. And I already dread the size of the mess that we'll all have to clean up.

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