Tuesday, September 30

Financial forest fire

The US and world economies have been in varying degrees of turmoil for the past several days, especially as the US Congress has been discussing the merits of a proposed $700B bailout plan (in between sessions of haranguing each other across the aisle while suggesting this will be a bipartisan effort).

Treasury Secretary Paulson said there would be dire consequences if Congress didn't pass the bailout bill as soon as possible. Economists lined up to talk about their perspectives of the foolhardiness or wisdom behind the plan. Congressional members lined up to talk about their respective party stand and stump a bit to make sure the "Main Street" Americans they serve are aware of their position on the plan. There was a great deal of posturing, a great deal of rhetoric, but apparently there was a great deal of conversation that led to a proposed bill. Unfortunately, that bill was defeated on Monday by the House--Democrats blaming the Republicans and vise versa--and the Dow plunged 778 points.

Come Tuesday, Wall Street was doing brisk business as the bargain hunters sniffed around for opportunities. NYSE traders suggest there is still the potential for dire consequences if something doesn't happen soon. But all through this exercise in posturing, politicking, and planning, a certain kind of herd mentality has settled in.

I've talked with friends who believed the bailout plan was the best option ever until economists began to suggest there might be other options and then pundits started yammering. Then they shifted gears to follow some other lead dog, but many of them are simply dazed, confused, and very uncertain. John K. Galbraith, writing in the Washington Post, was one of those who suggested the bailout isn't necessary.

There has been some recent discussion about how the mortgage crisis through Freddie Mac and Fannie Mae is being handled. Essentially all activity was put on hold until the regulators could evaluate the status of mortgages to determine who could be eligible for a modify loan, perhaps extended years on the mortgage, etc. In other words, rather than crash through the foreclosure process, the regulators took a long hard look to determine what might be the best course of action. It's got to be a grueling process because they need to review each case individually, but it seems to serve all of the parties reasonably fairly.

This whole teetering of the financial system seems to me to be much like a financial forest fire. The end result of a forest fire is an ugly thing with ground and trees charred and blackened, no apparent signs of life. The consequences of a forest fire can be devastating: lost homes, lost livelihoods, even lost lives. It is not a small thing. But a contained forest fire, one that doesn't roar down a canyon and gobble up buildings in its way--is also a cleansing process. Overgrown underbrush, dead trees, dying trees, and more are cleaned out in a forest fire. Where it looks as though there is no life, new life is soon beginning.

The rebirth of a forest is a slow thing; Mother Nature takes her time. Though I do not wish any further loss of homes or loss of livelihoods, I think a rush to a solution is not the best alternative. Though I think plenty of our congressional leaders have been and are being petty, I think there is a great deal of perhaps unintentioned wisdom in spending a bit more time to think through the root causes of the financial straits in which we find ourselves.

It's easy to toss hedge fund or short traders or any other Wall Street insider to the wolves; they are, after all, the worst of the worst greedy, risk-taking capitalists, or so some like to say. Does Wall Street need more regulation? Probably. Is it ridiculous that an executive who has run a company into the ground or let it fail gets a multimillion dollar exit package? Absolutely. Is it a slippery slope to continue bailouts? Absolutely. Does it make more sense to put regulations in place recognizing there will always be scalawags and snake oil salesmen who will find away around the rules? You bet. Does it make more sense to make sure that the consequences of messing with other peoples' money and livelihoods are truly dire, even uncomfortable? You bet. Does it make sense to stop giving lip service to bipartisan efforts and actually be bipartisan? to stop campaigning for election or re-election and do the right thing for the people? No doubt about it.

Too bad we don't have financial firemen who can calmly and diligently "contain and control" this financial wildfire while others methodically draft a rebuilding plan with a clear vision of trying to do the best thing for as many people as possible. And then get buy-in from the people who matter, helping them understand that every niche constituency is not going to get served first or best.

It's a tough place we're in, but I sort of think we have to let it finishing burning to the ground. I just hope the rebirth and regeneration makes it all worth while and we don't botch it.

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