Saturday, September 27, 2008

Letter to a friend - "Word from the meltdown"

This morning I sent the following to a hometown friend who has lived overseas for many years. His father ran a successful global company.

"I hope all is well with you, other than the fact that you are likely experiencing the same portfolio shrinkage as the rest of us. The political gamesmanship in the midst of this crisis is driving me nuts, but something your father once said to me came to mind as I was trying to understand what's going on. It may take a minute but I'll get to it.

So I'm sure you have followed the events and everyone can have their own opinions. The facts are that the big financial package was proposed by Paulsen, Bernanke, and company and after some difficult give and take there seemed to be the realization by Congress that something had to be done and the details of a deal were being hammered out. Then McCain goes to D.C. and politicizes everything. At the meeting in the White House with Bush, Obama and everyone else he just sat there and said nothing. He had already been around Capital Hill putting together a Republican coalition of libertarians, neo-con extreme free marketers and just plain resentful good old boys to back out of the agreement led by the ambitious Boehner who does a complete about face. His tactic was to paint the Democrats and Bushites plan as bailing out Wall Street and to assert that this group of Republicans was supporting Main Street. It's as clear as the nose on my face that there is no Wall Street as we knew it left to bail out, with Bear and Lehman gone, Merrill taken over, Morgan Stanley now 20% owned by Mitsubishi and still reeling and Warren Buffett being given one of the sets of keys to Goldman. Right now, right now, the need is to make sure that more non fat cat financial institutions don't fail. Wachovia and National City will likely go down this coming week if a package does not come from Washington and after that who knows. The revolting plan from this Republican group(double-entendre intended) seems to be a check list of tax breaks for corporations and the wealthiest that would exacerbate the differences between the well-to-do and Main Street, at least in the short term, and the insurance plan proposed would seem to further neuter a financial services industry that is already on its back, but I must admit the details of that are totally unclear. And the key to this is that they are painting it as, selling it as, a populist plan to protect Main Street against the rapacious folks on Wall Street. If they, over this weekend, don't win out, and I'm not sure that they even want to do so, the McCain campaign message will be that the Democrats sold out the regular guy to support those rich people in New York.

How is this possible? First, most Americans don't know much about economics or finance. That's understandable to some extent, but over time our country has become a relatively under educated and anti-intellectual one. Second, there is an abiding resentment against the wealth of and perceived arrogance of northeast intellectuals and financiers. This has a long history, with different story lines in regions like the South, Midwest, and the West, but the antipathy is the same. Much of it is based not just on perceived but real experiences, real exploitation, real arrogance over time. So now that we're at a point when the sky is really falling, just the phrase 'bailing out Wall Street' leads a majority of Americans to prefer rejecting the needed injection of liquidity even if, as they may not appreciate, it could lead to maybe half of their local banks failing over the next year and their small businesses having no access to credit. Yeah, the basis of their resentment has a lot of truth to it, I admit, and that brings me to your father.

In June 1980, I was back in Danville after getting my degree at Thunderbird and was packing up to move to New York for my new job in the international division of Manufacturers Hanover. I was over at your house one evening, as always, and ended up sitting in the den talking to your father about this new job. I asked him if he had any advice as I headed off to the big city for this new opportunity and he paused for a minute, looked me in the eye, and said, 'Borden, just remember one thing, the streets of New York are paved with shit."

I guess it's time to clean it up and save our entire economy as well. Fingers crossed for an effective package this weekend.

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