HARVARD SQUARE COMMENTARY

September 29, 2008
Implication for the Long Run

Developments Last Week

John Turner


Strange Bedfellows
September 22, 2008

When you see William Kristol and Paul Krugman taking a similar stance on an issue then you know something really bizarre is going on. The bizarre thing in this case is simply handing seven hundred billion dollars to the Secretary of the Treasury to buy anything he wants to buy at whatever price he wants to pay and to allow no oversight over the process by anybody else.

Seven hundred billion dollars is a lot of money and when it can be dealt with in a way pretty much outside scrutiny, with a guarantee of no repercussions, quite a few people are bound to get millions for reasons that don't stand up.

The problem is that lots of institutions have assets they want to sell, and that they can't sell because buyers aren't sure what they're worth. How is the Secretary of the Treasury going to know what they're worth? Well, you see, it doesn't really matter to him because if he pays a billion dollars for a packet of financial paper that he -- or some later Secretary of the Treasury -- has to sell for five hundred million, the half-billion loss doesn't come out of his pocket. It's simply dumped into the national debt. And this is the thing that makes the blood boil: the people who will get the half-billion extra are precisely the same people who have been cheating us all along. They're being rewarded for their corruption.

This is said to be regrettable, but necessary.

But is it necessary?

If the Bush Administration had wanted to set up a scheme to pay off the financial thugs they've been supporting all along, they couldn't have come up with anything better than this --- one last gigantic scam as they exit from office.

I hope Congress won't let itself be stampeded. But I don't have much confidence in the courage of our representatives.


Bundling, Slicing and Dicing
September 24, 2008

Almost every account of the financial crisis I've read says that institutions are reluctant to buy mortgage-backed securities because they are made up of so many different pieces no one can figure out what the whole is worth. This came about from the practice of bundling not only a great number of discrete mortgages but even pieces of mortgages into gigantic packages, which were then sold as assets under all sorts of confusing names.

You don't have to be a genius of financial analysis to see that the primary purpose of this bundling was deception. Why else was it done? And in financial transactions, deception, if not technically illegal, is fundamentally dishonest. Now those mountains of dishonesty have piled up so high they are strangling the financial system. What for years was described as creativity and ingenuity is revealing itself as what it has always been, pure crookedness. The bright young men who have been amassing billions on Wall Street are the moral equivalent criminals, clever criminals, admittedly, but criminals nonetheless. Their activity has led, as criminality always does, to the destruction of social equity.

If we really want reform of the financial system, we have to start by cleaning deception out it. It won't be easy because deception has been accepted for so long, many financial people see it as the essence of the system. They have lost the ability to imagine any other kind.

I saw the Washington Post's financial reporter Steven Pearlstein on TV last night saying that he would have no problem knowing what to do with a single mortgage. He could find out who the homeowner was, what his past behavior has been, what the house looks like, where it's located, and using that information make a rational decision what to do. But if he was dealing with a bundle of a thousand mortgages, which can't be treated as separate units, he couldn't begin to approach rational action. That should tell us something.

If we're going to have more effective regulation, shouldn't we start by forbidding deceptive bundling? That wouldn't solve the whole problem but it would be a good beginning.


Train Wreck
September 25, 2008

It becomes more obvious every day that the nomination of Sarah Palin will turn out to be a disaster for the McCain campaign. McCain sacrificed long range effectiveness for temporary advantage, and as we come to understand more about the Republican candidate, we see that's what he always does. You can pitch this kind of stuff as decisiveness, or leadership, or instinct of command just so long. After a while it presents itself as what it is, pure silliness. Mr McCain is an arrested adolescent.

Last night on TV, Chris Matthews asked, do we really want eight years of razzle-dazzle? His answer was clearly, no. Barney Frank, though, had the best line of all. McCain's ploy to postpone the presidential debate was, said Frank, the biggest Hail Mary pass in the history of football and in the history of Mary.

What the American people are gradually coming to see is that Ms. Palin's biggest problem is not unfamiliarity with national and world politics. A good mind can find ways to deflect charges of ignorance. It's the actual habits of mind that Ms Palin displays that get her into trouble. As Steve Benen of the Washington Monthly said of her responses to Katie Couric, they were either odd or nonsensical.

In politics, you can get away with some eccentricities. A certain number of them can be endearing. But it's unlikely, here in the first decade of the 21st century, that a majority of the people can fail to be troubled by a person who submits to a religious ritual for protecting herself against witchcraft. Even if she doesn't believe in witchcraft -- and it's pretty clear we are not going to find out anytime soon what she does believe in -- there's something bothersome about that.

Yet, what's far more worrisome than Ms Palin's witchcraft-protection gambit is McCain's decision to project her to the center of national decision-making. We have to ask, what did he have in mind? And the only answer that seems convincing is one more wild gamble to secure advantage. And the bet was put down regardless of the consequences.

Americans do like to gamble sometimes, but I doubt they want to gamble with the future of their children as much as McCain does.


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