Sunday, September 14, 2008

When Government fails to govern

Perhaps it is time for our populace to read the dictionary entry for the word govern, a word which arises from the Latin gubernare; to steer. Implicit in the noun "government" is the action of "governing". And governing involves controlling, guiding, directing and other actions that significantly influence the course of events in the entity being governed - for the positive. We had governors on our aircraft engines, specifically to prevent catastrophic overspeeds. One would expect those who are in the position of governing to act, in advance, to prevent societal overspeeds as well.

Comment by Alan Greenspan in regard to the current financial melt down:

"This is a once-in-a-half-century, probably once-in-a-century type of event," Greenspan said in an interview on ABC. "I think the argument has got to be that there are certain types of institutions which are so fundamental to the functioning of the movement of savings into real investment in an economy that on very rare occasions — and this is one of them — it's desirable to prevent them from liquidating in a sharply disruptive manner."

It's an interesting statement, but it leads me to ask, "If certain types of institutions are so fundamental to the functioning of the movement of savings into real investment in an economy, and these institutions have been subject to federal oversight and regulation, why didn't you oversee or regulate them?"

I have posted before that our current "free market" capitalism is unfettered capitalism only until things go horribly wrong, and then a government (socialist) solution is applied, at taxpayer expense. The bill for the "free lunch" always arrives. It's just delivered at a later day to someone who never got to eat the meal. If our government were to govern, then bail outs would not be so necessary.

My simple summary of the mess is that folks saw that there was money to be made in the mortgage market. But there is a finite number of people who can really afford taking on a mortgage obligation. Thus, the market for soundly issued mortgages was fixed. The lenders were faced with a pie of finite size that they had to fight over. But fixed size markets are not the American way. So the market had to be expanded, and that was done by issuing mortgages to people who did not have any business borrowing such sums of money. Thus, the creation of new mortgage packages that made it appear, by smoke and mirrors at the time of issuance, that the borrower did qualify. Sort of like Army enlistment standards - when you can't find enough people who meet the realistic standard, redefine reality and lower the standard. Within a short period of time, these marketing geniuses had written billions and billions of dollars in mortgages to a hell of a lot of people who had nowhere near the means to successfully meet the long term conditions of these mortgages. And Bob's your uncle. Totally predictable. Lots of short term profit and impressive "economic health" indicators, but a toxic mix with a ticking detonator.

My cynical take is that our GOP friends ( and perhaps most of the country) have no concept of what Infrastructure is, and how it is vital to the sound functioning of the country. Profits are not infrastructure. Expanding markets are not infrastructure. Infra structure holds and supports the organism. When you weaken infrastructure, the organism collapses. Infra structure requires preventative maintenance. Infrastructure needs to be maintained in a manner that supports current and future need for the organism to be healthy. Governing is part of that task.

So, we awake this morning to the collapse of Lehman and Merrill-Lynch. Both as a result of a failure of the government to govern. And yet, there is a cry from a certain segment of the population for even less governing.

And as a P.S. about government failing to deliver, here's a piece from the IHT about us overseas voters getting assistance in casting our ballots this Nov. Note that is is not our government that established this exceptionally helpful program.




FDChief said...

The reality of U.S. governance is that 1) Americans like to talk about "freedom" and how the government that governs best governs least and the "problem" of faceless bureaucrats overregulating ordinary people's lives, until 2) the cold economic fact that a small handful of very wealthy people have the capacity to smash those same people's lives is brought in upon them. Then they whine and wriggle for "some to do something" and the Feds - since only the Fed has the economic power equal to a Proctor & Gamble or a Bear Stearns or an Enron - make some cosmetic adjustments to deflect a trifle of the raw ugliness that is unsoftened lassiez faire capitalism.

The GOP has been here before, quite recently, when the stinking commons realized exactly how nasty the effects of Newtie Gingrich's "Contract On America" was really going to be, with families having to take in their impoverished grannies after the Social Security benefit cuts and even MORE addicted vets and homeless whackos on the even-faster deteriorating streets. Whenever Americans have to face u to what the GOP's infatuation with taking tx monies and giving it back to the rich they have quailed. And rightfully so. Look at the so-called "Gilded Age" and see the Republican dream, as the Astors and Vanderbilts glide past the reeking crowds of working poor.

As I've said, this election is. for me, turing into a referendum on the American soul. We are being asked to take a chance on a somewhat nebulous "outsider" (although he is truly a political insider as much as anyone else) as opposed to willfully choosing four more years of the least competent administration in modern history. If we cannot, then we will be visited by the government we deserve, and to hell with us. Even if we do, our past political stupity is coming home to roost in the form of fiscal implosion and social dislocation. We have dug our own graves, and are only now beginning to whimper as we look don and realize how dark, cold and deep they are.

WASF, indeed.

Publius said...

Al, good that you're continuing to post such timely and cogent pieces. I've waited to see what happened this week before posting. Events have unfolded pretty predictably, IMO. I don't have a lot to add here, but, I do want to make three points. First, I think that in all fairness, we need to recognize that the blame for this total failure of the government's oversight of the financial system is shared by the two parties.

Legislative? Well, all one need do is track contributions and votes to appreciate the role that Democratic legislators have played in this meltdown. Fanny and Freddie are especially compelling in this respect.

Executive? The failure dates to before Bush. Clinton's triangulation style of governance encompassed many of the "reforms" that have led us here.

But how about this scary scenario. What if Bush had gotten his way about diverting a portion of FICA taxes to the market? Can you imagine what would be happening now if peoples' Social Security payments were being affected?

On balance, of course, I think we also have to recognize that the Republican Party has ceded any claim it may have had to representing or caring about the majority of the American people. Note that despite his roaring populist bullshit, John McCain still favors getting Social Security into the market. This slow learner is very dangerous.

So far as the American people are concerned, I share FDChief's thoughts. I'm especially troubled by the number of women who've somehow been able to rationalize moving from Hillary's camp to McCain's, for no other reason than that one of their own is on the ticket. These women clear value gender identification over even their own rights over their own bodies. Not to mention issues such as equal pay for equal work. Is there a word stronger than contempt?

Aviator47 said...

Yes, Publius, both parties and both administrations own a share of this, but the sub-prime/Alt-A mortgage crisis belongs to GWB. It was totally on his watch.

And why did this happen? Because Americans worship the quest for the "Free Lunch". At every level of income/wealth. No one performs a "stewardship of the common good" role. As long as a profit came be made or someone can acquire something, all is well.

I had to laugh when GWB pushed privatizing (oopps, can't use that term any more) Soc Sec as being a facet of an "Ownership Society". For the lower half of the wage earning population, what they are going to own individually would be peanuts. There is, however, considerable profit to be made on their total collective peanuts, and that's what his eye is on.

Another marketing ploy for this privatization is to point out that ultimately (over the long stretch) the market has always risen. But people do not take their monthly withdrawals from a retirement fund in "over the long stretch" value. They take it at the value that is in effect on the day of withdrawal. And a year of withdrawals at depressed market values can really hurt a modest pension package. I knew many folks who had to return to work after 9/11 because they could not afford to draw on their pension plans at the low value they had fallen to. And, if you are over 72, this option is not available.

So, here we are, and the govt is taking drastic measures, with our grand and great-grand kids money to play catch up ball over a situation that they had the authority to prevent. And they are pinning roses on themselves for doing so. Yes, blame can be laid on "Wall Street", "Investment Banks", and "Greed". But they were only playing by the rules that this administration, and to a lesser degree, its predecessor allowed by refusing to be stewards of the long term common good.

And, sadly, since scapegoats have been already identified, the mass of the people will never figure it out. Whoever offers the more attractive "Free Lunch" will get the votes.

At least the inability to reign in inflation will give us a pension boost in Jan. Might as well be a REAL American and focus only on our own selfish needs.



basibeast said...

I like this, I like it a lot.

Paulsen and congressional Republicans, or the few that will actually vote for this (most will be unwilling to take responsibility for the consequences of their policies), have said that there can't be any "add ons," or addition provisions. Fuck that. I don't really want to trigger a world wide depression (that's not hyperbole, that's a distinct possibility), but I'm not voting for a blank check for $700 billion for those mother fuckers.
Nancy said she wanted to include the second "stimulus" package that the Bush Administration and congressional Republicans have blocked. I don't want to trade a $700 billion dollar giveaway to the most unsympathetic human beings on the planet for a few fucking bridges. I want reforms of the industry, and I want it to be as punitive as possible.

Henry Waxman has suggested corporate government reforms, including CEO compensation, as the price for this. Some members have publicly suggested allowing modification of mortgages in bankruptcy, and the House Judiciary Committee staff is also very interested in that. That's a real possibility.

We may strip out all the gives to industry in the predatory mortgage lending bill that the House passed last November, which hasn't budged in the Senate, and include that in the bill. There are other ideas on the table but they are going to be tough to work out before next week.

I also find myself drawn to provisions that would serve no useful purpose except to insult the industry, like requiring the CEOs, CFOs and the chair of the board of any entity that sells mortgage related securities to the Treasury Department to certify that they have completed an approved course in credit counseling. That is now required of consumers filing bankruptcy to make sure they feel properly humiliated for being head over heels in debt, although most lost control of their finances because of a serious illness in the family. That would just be petty and childish, and completely in character for me.

I'm open to other ideas, and I am looking for volunteers who want to hold the sons of bitches so I can beat the crap out of them.

sheerahkahn said...

Ah, good, back to posting, I'm reading and thinking...though I have to confess a certain observational irony about the whole thing.
Considering the Republican have lamented the Democrats representative of all things socialized, if not borderline communistic, it is worth noting that under the Republican control they've pretty much socialized our financial institutions.
Ironically, the one failed institution the Republicans don't want to socialize is health care...perhaps it's because the healthcare providers didn't pour enough money into the Republicans funds for that kind of "favoritism."

Aviator47 said...

Sheer wrote: "the one failed institution the Republicans don't want to socialize is health care.."

Consider that socializing medicine might benefit the people much more than the providers, and you might understand the situation better.

Welcome back


Corner Stone said...

Sheer said:
Ironically, the one failed institution the Republicans don't want to socialize is health care...perhaps it's because the healthcare providers didn't pour enough money into the Republicans funds for that kind of "favoritism."
Or more accurately, a functioning and efficient national health care program would demonstrate once and for all that government can be a force for good in people's every day lives. At that point the only constituency the R's would have is the fattest of fat cats and whoever they could pay off.

On topic for this post - not to sound too much like charles or anything but I believe I was ranting about the largest transfer or wealth in mankind's history on the old ID site at least two years ago. This is no crisis, this was completely planned - predictable and predicted. All the greedy MF'ers knew they could do this, knew they would never be held accountable and *planned* for systemic failure. Who benefits if the system fails? The people with the most access to resources. They can buy protection, legislators (obviously), and other resources that the peasants will never have access to.
Say good-bye to individual freedoms and hello to serfdom.