Speaking of Cement

I wrote to AARP asking why the letter they asked us to sign, which supported the massive bailout of Wall Street, was not able to be edited. I got a response explaining why AARP supports the bailout; in part, it reads:
“The financial turmoil we have been experiencing has negatively
affected the retirement savings, home equity, employment and access
to credit of millions of individuals, including AARP members.
Americans face a potentially historical economic crisis if Congress
fails to act decisively on a bipartisan legislative package to avert
a more wide-spread economic downturn. 

While current proposals are not guaranteed to work, inaction is
guaranteed to fail.   Washington must put aside partisan rancor and
act now.  If Congress does nothing, the looming fallout could: 

* Wipe out retirement nest eggs of those in or nearing retirement,
forcing many to rely on their families or loved ones to make ends
meet;
* Dramatically lower home prices, making it extremely difficult for
homeowners to move or borrow money to fix their current homes, and
* Dry up access to student loans, putting college out of reach for
countless hard-working students.

AARP is urging Congress to include the consumer bankruptcy
protections of S.2136/H.R.3609 in any upcoming financial legislation.
These provisions would help provide relief to the nearly 700,000
older homeowners currently in foreclosure or in default and at risk
of foreclosure.

Older Americans depend on their homes both for shelter and as a
retirement asset.  At the height of the subprime boom, older
homeowners were targeted by unscrupulous lenders because their
savings were primarily in their homes.  Many received subprime
refinance loans that were not properly underwritten.  Now, these
homeowners face the nightmare of foreclosure when they cannot make
their mortgage payments. 

This nationwide crisis engulfs not only individual families, but
neighborhoods and entire communities, as well.  As a matter of basic
fairness, homeowners at risk of foreclosure should be granted relief
as part of any financial package.

AARP strongly supports the inclusion of these provisions, which would
give bankruptcy judges the discretion to restructure primary mortgage
debt as they can currently do for vacation homes, investment
properties, yachts, and any other securitized debt.  This is an
effective way of providing relief to homeowners at no cost to
taxpayers. It would benefit all homeowners, not just those at risk of
foreclosure, as it would decrease the number of foreclosures,
stabilize home values, protect communities, and help put the economy
back on the path to recovery.

Congress showed us earlier this year that it can overcome partisan
obstacles to directly help Americans feeling the pressure of the
tightening economy.  We are hopeful they can come together again to
help families stay in their homes and protect their financial
security.” 

The letter was signed by a nice lady from Member Communications.

So here’s what I think about this:

First, I am not thoroughly convinced that this whole thing was not planned by the Republicans; this may be the “October Surprise.” Declare an imminent financial “crisis,” come up with a plan that is certain to anger the citizens both on the left and the right, tell Congress it is vital that it be passed immediately, tell the people just enough to scare them about the problem and infuriate them about the proposed solution, then let the Democrats think the Republicans will go along with it if the Democrats will, in order to save the country from certain doom. When the vote is cast, however, the Republicans “stand up against the president” and vote no, thus avoiding a catastrophic ending, they get to be the good guys, while allowing the Democrats to be the ones who went along with the much reviled Bush and voted to give away the treasury to the fat cats on Wall Street. Brilliant. Devious. So Karl Rove and Dick Cheney-ish. Having dispensed with that little bit of conspiracy theory, here’s the rest:

Yes, there are negative effects when you make bad decisions, and sometimes, unfortunately, others suffer the fallout. Those who invested in the stock market took a risk, hoping for a bigger reward, but the thing about risk is that it’s…well…a risk; stocks go up and stocks go down; there is no guarantee of profit, so those who put their entire retirement funds into the stock market are probably going to suffer. People seemed to understand this quite clearly when Bush tried to “privatize” Social Security. AARP members were smart enough then to realize that they would be risking their Social Security by putting it in the stock market, AARP took the lead against that bad idea, and its members, with a loud voice, said NO.

Well, we ought to have realized that putting all our other retirement money into the stock market would be risky also. This has affected my husband and me, too; we’ve lost thousands in investments in the past few days, but wisely, we did not put everything in the stock market. Yes, this is scary, but the truth is that we can afford to take a deep breath and give ourselves time to think this through, and the fact of the matter is that inaction is not “guaranteed to fail.” Many economists are saying the bailout as proposed by the Bush administration is exactly the wrong way to deal with this, and if the decisions of the Bush administration over the past 8 years are any guide, then we might want to stop and think before rushing ahead with their preferred option. Last time they rushed us into an important decision it turned out rather badly.

Doing nothing is possibly not an option, although it might turn out that is the exact thing we ought to do. In any case, doing the wrong thing in a true crisis often compounds the problem. There are other options for action that might be preferable; for instance, we ought to ask why it is necessary to deal with this from the top down. Why hand that money over to Paulson at all, especially since it seems that until now he’s been either unaware of the impending “crisis” or unable to avoid it?

 I absolutely agree that we ought to think about using that money to refinance the mortgages of those faced with foreclosure, and not just older homeowners; young families need help, too, perhaps more than us older folks. They have likely put most of their money into purchasing a home, and they have not yet had the many years that my husband and I, and most other older people, have had to build their savings back up after purchasing their home (hopefully, we all did that and did not rely on the value of our house to carry us through retirement). We must consider them when making decisions about this. They will, realistically, be living with the consequences of whatever decision is made longer than we shall, and they will be doing it while raising kids and trying to save for their own retirement in an increasingly difficult economic era, and without the certainty of ever being able to collect the Social Security that we will have and that they will pay for.

Many young, inexperienced, first-time home buyers, who did not have the experience of having bought and sold homes before, as most of the older generation have, were also targeted for those subprime mortgages. If the holders of those mortgages got some of their value, and the homeowners had the chance to stay in their homes and continue paying for them at a rate they could afford, that would help the homeowners, help the financial institutions (without rewarding them for risky behavior), prop up the value of all the homes in neighborhoods, not leave the government owning millions of low-value, vacant and deteriorating houses, and get money into the financial system to unblock the flow of credit. But the administration has been against including such help for homeowners; they only want to help those at the top of the food chain.

Most importantly, we ought to take note that giving that money to those at the top will bail out executives and shareholders, but it is the poor and middle class that will pay for it. In fact, the administration claimed that many companies would actually reject government help if it meant they couldn’t continue to pay millions in compensation and “golden parachutes” to their top executives. So how bad could their situation be if they would make such a demand, and why should taxpayers be paying for their mansions and yachts? We need to put financial institutions on notice that they will not be able to take such risks, rake off millions in bonuses for themselves, and hand the bills to the taxpayers when it all heads south. 

The other thing we ought to be addressing is that infusing this massive amount of money won’t fix the bottom-line cause of this mess. We don’t make anything here anymore. All the good, well-paying manufacturing jobs have been sent overseas, so we have nothing of any value to sell, no real, tangible assets. We have turned into a service economy. All we have now is paper and plastic, dollars and credit (“financial instruments”), and we trade those like they are actually worth something, but they aren’t. Nothing is made here, but everything is sold here, we are encouraged to continue to buy, buy, buy, and our dollars just drain away. So the basic problem with our financial situation right now is that the United States has been living on credit for far too many years. It used to be that when you wanted something, you saved up and bought it. Not anymore. Now everyone wants it all…right now…with no down-payment and no payment for two full years…

So businesses use credit to buy inventory from China, to make payroll, to expand… They buy things with money they don’t have, hoping they will sell at a profit the things they bought from China, get the money later and be able to pay their credit bills. Individuals use credit to buy groceries, to buy that big screen tv, to go on vacation… They buy things with money they don’t have, hoping they will get the money later and be able to pay their credit bills. In the past few years, when the cost of homes was spiraling up, people bought homes they couldn’t afford, using subprime mortgages to get in the door and then defaulted when they couldn’t pay. They bought a home with money they didn’t have, hoping the home would increase in value and they’d be able to sell it later at a profit before their rates went up, and be able to pay the down payment on a better house… Purveyors of those subprime mortgages sold them to people they knew couldn’t afford them, pocketed the fees and down payments, and then quickly sold off the mortgages to others who sold them to others who combined many mortgages together into “mortgage-backed securities,” basically good mortgages thrown together with bad ones into a piece of paper that nobody even knows the value of… And now those who did that want us to pay for their worthless paper with money we don’t have, hoping the homes will increase in value and we’ll be able to sell them at a profit and replace the money later… We would be getting deeper into debt, or more accurately, putting our children into debt, to bail out people who took a stupid, risky gamble. 

Our national debt right now is around 9 trillion dollars, and that does not include the costs of Bush’s Iraq war. Our grandchildren’s great-great grandchildren will still be paying this off. We can’t afford health care, but we can borrow to pay for an unnecessary war. We can’t pay for more teachers, but we can bail out Wall Street on the national credit card. This is just irresponsible and we owe our kids better. The fact is that we do not have $700 billion dollars; it’s just not there. If we do this, it will have to be done on credit. We do not have the right to put this on our children and our grandchildren, even if it is going to be very painful for us to break our credit addiction now. We must learn to say no to ourselves, both as individuals, businesses and our country as a whole, if our kids and grandkids are going to be able to survive.

One way that we actually can get out of this mess is to insist that the government put money into research and development of new, clean, renewable energy and fixing our crumbling infrastructure, upgrading our schools and bringing back some good jobs. Yes, creating good jobs is not a quick fix, but it is a sustainable path to restoring our economy without mortgaging our children’s future.

In any case, the markets will be fine. Yes, some companies will go under due to their bad decisions, just as some homeowners will suffer for theirs, but at some point the market will correct itself, people will start snapping up bargains and there will be an infusion of money into the system, then we will see the markets start to creep back up. And in the meantime if people can’t get more credit, well then, we might just have to do it the old fashioned way, save up and buy it later.