Dollars and Sense

Well, here's the rub for me.
I do get the basic day-to-day financial stuff. Ten years ago, I not only asked my acquaintances how the hell they thought they could afford a silk purse home on a pigs ear salary... I also secretly made a habit of stopping off occassionally at the balloon-flying, banner waving preconstruction sale sites and explaining the nuts and bolts meaning of balloon mortgages to the people standing in line. I can honestlly say that, of the hundreds of people I "educated", only one person followed my advice and that was my husband - who had other motivations. Universally, the response I got from folks was that yes, they understood my message, but the short term reinforcer far outweighed the long term consequences.
Since I am not a financial wizard, a few weeks ago I had a little spare time and I thought, oh what the heck, maybe I should learn a little about the whole AIG thing. YIKES! Forget about peeling an onion, this is like peeling the universe! I was doing okay on the greedy insurance policies, the bank rating system manipulation, the astounding leverage amounts ....heck, I was even hanging in there on things like the decimation of Iceland. But, then when i realized that, hell yeah AIG is holding us hostage and -even better- they can! On to international trade agreements and how we need a bad guy because we need to keep trading with all those nations we have agreements with. So,China is elected to be the bad guy ...oh yeah, pay attention, because their election as bad guy actually began a few years ago through selective media presentation. Could it really be that China has all the toxic paint and meds? So, from there I took a peek at things that had been restricted for import from other nations .....uh oh
Before my brain melts, I am going to stop this little financial sel-education and go back to figuring out quantum physics and why gravity is not really what is holding us to the earth.
P.S. I have been known to read Mad magazine also.

I only wish i was as intelligent and informed as Anna Quindlen so as I could understand what she was talking about. What a pompous ass! Does she really think we are all Mad magazine readers in disguise/.

As always, Anna Quindlen is on target. Her reasoning is sound, if somewhat simplistic: Things which are too complex are easier to dismiss. But there is another angle, too. When complex notions serve the insatiable American appetite to acquire and consume, who really cares how things work? Madoff was making money when all others were losing? So what? This is immaterial if, in fact, I'm the one who reaps the benefit. Believing the housing market will forever grow in exponential ways is counter-intutitve, but we accepted it as reasonable because we were the beneficiaries. This is not just ignorance. It's delusion. And who among us can say we weren't victims of our own grand deluisions?

The suggestion is that someone understands this system; let us look back.

???Why are we surprised all the time, almost weekly??? by bad financial news, asked Victor Halberstadt, professor of economics a Leiden University in the Netherlands and a veteran of the Davos event. ???Do we really understand too little about the economy? I???m afraid the answer may be ???yes???, and that is why policy makers are going to Davos???.Everyone is at a loss, this is the start of a period of huge improvisation. There is no longer any best practice around to refer to.??? Davos 2009

And a bit further.

A Rockefeller Foundation study group opened its work in 1979 with a sad statement by Johannes Witteveen, former managing director of the IMF, that no one has a ???clear and complete understanding??? of how the present international monetary system really works.

And finally back to 1932 and Garet Garrett???s ???A Bubble that Broke the World???.

If these last few passages have been difficult, take the fact lightly and without blame. Of all the discoveries and inventions by which we live and die this totally improbable helix of credit is the most cunning, the most liable, the least comprehended and, next to high explosives, the most dangerous. All that bankers themselves really know about it is how it works from day to day. Beyond that it is a gift from Pandora.

But let us be honest; it is the job of the hedge fund manager, the investment banker, or the AIG financial products executive to make money. Understanding the system for him is relevant only as it relates to making money ??? and that is rational.

For me, a couple of quotes from Martin Mayer???s in ???The Greatest-Ever Bank Robbery??? are closest to the mark:

What makes the S&L outrage so important a piece of American history is not the hundreds of billions of dollars, but the demonstration of how low our standards for professional performance have fallen in law, accounting, appraising, banking, and politics ??? all of them. We are farther along than anyone thought on our road to a Hobbesian society. These days you can???t trust anyone.

Aggressive entrepreneurs and cynical professional associations warped reputation in the study of economics, fiance, and law by supporting - and supporting lavishly - only those academics who would toe their line....One notes in passing the triviality of dealing with this moral and intellectual disaster a an episode of "deregulation."

Gosh doesn't the press have some responsibility to learn the basics of the stories they cover? As an English major forced by single parenthood and the roll of the dice to earn a living in the investment industry I can appreciate how alien these topics may seem to outsiders, but the reason citizens don't understand is that no one in the media is willing to provide actual information - largely because they are too lazy or afraid to acquire it themselves. Reporters, editorialists and talking heads, take enough pride in what you do and who you serve! and learn what compound interest is, why subprime securitization and CDOs were scams that fostered wholesale bad lending, and so on. Stop hiding behind the new cliches - toxic assets clogging bank balance sheets. Do the homework so you understand why the so-called liquidity premium might be fairly applied to the assets "clogging" balance sheets. Stop complaining its too hard.

The cause of the current crisis and subsequent economic decline varies widely in the minds of economists and talking heads. For the most part, we are told that greed and deregulation led to the crisis. Of course, the media never mentions the facts concerning the Federal Reserve's artificially low interest rates, a fiat currency whose issuance creates a debt spiral that can't be escaped, or the worldwide depletion of petroleum that is vital in ever increasing amounts.

In support, we have new powers given to the treasury, and even a recent call to ditch the US dollar. The US dollar has been a reserve currency for the nations of the world for over half a century and the majority of the American people are clearly unaware of the tremendous benefits this provides to our county. The consequences of dropping the dollar are unfathomable because the value of assets held in US dollars would drop like a stone. Peter Schiff, who is one of the now famous prognosticators of last fall's crash, outlines how the Federal Reserve is turning on the printing press in order to finance the purchasing of US Treasury bills with the end result being the destruction of our currency.

President Obama's campaign was financed heavily by banking and Wall Street elites. He is wondrously popular, and very much a believer in the need for government to finance everything from education, to health care, to environmental initiatives. Is it possible that the current economic crash is in fact a controlled collapse, designed to manipulate stubborn citizens to accept a global currency, major deficit spending, and a socialist expansion of government power? Obama wholeheartedly supported the first financial bailout, and even now supports the governments takeover of large financial firms. Obama's true colors are demonstrated by his desire to not lose sight of social initiatives, even as the nation continues to pile on debt. He also has not spoken out against the calls for a global financial regulatory body or even a global currency. So it appears that Obama's two pronged attack on America involves blowing out its currency's reserve status by inflating it to a point of saturation, and expanding the socialist agenda and policies.

Some have argued that the money used in the bailout is no more than a promised transfer of wealth from the public at large to major financial players. Both Henry Paulson and Geithner were major financial players for Goldman Sachs and the New York Fed respectively. So what are we to do then, as our economy is torn apart by derivative time bombs and Federal Reserve shelling? The collapse of our debt-based economy was inevitable. The economy can't remain in a state of perpetual growth on a planet of finite resources. Yet even in a time of trouble, the government, purposely or unintentionally is subverting our liberties by grabbing additional political and financial control.

She shows how confuse we angry foilks really are.

Amen
And while I agree with fellow posters who, quite rightly hire experts - but we are not talking about the exact way to launch the shuttle.
Madoff was getting higher returns than the market and no one asked why? How come? That made very little sense.

There were bank failures last year due to over exposure to mortgages but we are all acting like we are just finding out about this.

And remember Enron? Just like AIG - a shell game..what did we do??

True enough. I retreat from things I don't understand, so I have a fixed-rate annuity retirement fund, for which decision I am not sorry. But, another place where Americans have ceased trying to understand is in the tax code, a ponderous mess if there ever was one. Those who try to do their taxes themselves still have to use helper software. Financial laws and practices have become so complex, and change so often, ordinary people have stopped trying to keep up with it. And those who make it their business, I believe, like to keep it that way.

After reading Geithner ???s WSJ op-ed this morning laying out some of the details he failed to deliver when he first unveiled his non-plan plan a month ago

This is similar in nature to fraudulent schemes that promise ???what???s inside the bag is worth $1 million, unless you open the bag???.

In this case there may be a few ???good bags??? similar in nature to salting the mine schemes, but for the most part everyone knows what???s in the bag is toxic garbage. What really makes no sense whatsoever is why the government would risk 97% with shared ???upside??? instead of just buying it all.

Somehow, Geithner (and Obama by implication) believes that igniting a bidding war between hedge funds and private equity over a bag of cow manure will inspire confidence that there???s gold in the bag. Such insanity cannot possibly work, which means it won???t.

well said !!!!!!! Thank you Anna

It is true many Americans are clueless about financial matters. How else can you explain the huge sums which are entrusted to Wall Street experts who charge huge fees , win or lose, and keep attracting new suckers as they wipe out the old ones. Mr Madoff was a typical Wall Street thief, just a bit bigger and better at it than many of his peers. If understanding results from this financial meltdown: it is that Wall Street can not be trusted.

The one point that bugs me is that the rating agencies are supposed to be the people who help non-financial people to have some idea of what is a good or bad investment. How did they manage to get it so wrong? Perhaps finance is so complicated that you'd be hard-pressed to find a single person who actually understands the global financial crisis. There will always be people who claim to know and understand, but they probably don't....

Even the most partisan of voters out there understand that every politician in Washington D. C. is on the take in one way or another. Buy I don't believe we clearly understood to what extent.

The one thing that I find facinating about this Wall Street - Washington D.C. conection is the way these people simply refuse to let go of their ways. In the face of a financial collapse of incalculable proportions (literally) , a world economic debacle that can very well land us in a global great depression, a Wall Street in dire needs to regain it's credibility to continue operations--- We have these people still fighting for their bonuses, and polticians scrambeling to find ways to get them.

Damn them to hell.

Bravo, Ms. Quindlen.
I think you are absolutely correct in what you say about our understanding of the matters that fill our media reports for financial news. Your presentation is, as usual, fascinating.
One statement in particular sums up much of the content in your article ??? ???The great unspoken issue behind the tanking of the market, the mess in subprime mortgages and the bailout bill is that Americans don't understand the basics of the economy.??? I want to take that statement a little further and express concern that Americans generally don???t understand the basics of their own daily personal use of money. How many American families actually budget their spending? Do they know how to look at their spending and develop a budget that can improve their cash flow? Yet this is the electorate that is giving the politicians the power to do that with our nation???s use of money.
Similar to the way you point out how financial institutions outsourced responsibility to those they assumed were ethical and responsible, we do the same when we elect our representatives. Who do we expect to watch over the process? Politicians want to satisfy the electorate ??? who is now outraged, and demands retribution.
Yes, we all need to get an education on these matters. What we need now is to fix the problems, instead of trying to find happiness in punishing people who offend our sensibilities. Eventually, good policies will break up companies like AIG into sensible functions.