What California Can Teach Us About The Crisis

Moe · 10/03/08 12:36PM

California has always fostered a kind of insane optimism that strikes outsiders as absurd and delusional and actually kind of sick. My favorite symbol of this, when I lived there, was Rent A Wheel, where you could "rent to own" chrome rims for your tires, your job is your credit etc. etc., for an eminently reasonable $200 a month. This was not the sort of business model I could see thriving back East, but there was something weirdly charming about that, and the charm was contagious, and probably enabled some regrettable apparel purchases. Well, today the rest of the country officially caught the contagion; because the nation's financial institutions are suddenly too spooked to lend money to anyone but Hank Paulson, the state of California can't borrow money, and Governor Schwarzenegger is hitting up Hank Paulson to the tune of seven billion dollars. California, much like its citizenry, has one of the worst credit ratings in the nation. It's the double-edged sword of that sunny optimism, which badly needs to be redirected and channeled toward the national interest and perhaps other pursuits like surfing.There is little wonder House Speaker and California congresswoman Nancy Pelosi seemed so immediately convinced, as Wall Street skidded toward apocalypse two weeks ago, that Congress needed to pass a bailout plan like NOW. What is truly sad is that she failed to convince so many of her state's fellow Democrats, most notably the congresswoman from the neighboring district of East Bay, Barbara Lee, to vote for her bailout bill. Barbara Lee wanted the bill to include provisions protecting homeowners from foreclosure. Which makes sense. Just last year Lee's district had the highest price-to-rent ratio in the country: 51. Fifty-one. People were signing up for mortgages when they could have rented for less than a quarter of the price. They did this because they were stupid, but also because housing prices kept rising, and when the value of your house rose you could take out a home equity loan and use it to buy a new car (and in many cases, chrome rims.) Last year nearly a third of vehicle sales in California were purchased with home equity An elementary school teacher who couldn't qualify for a bank loan to buy a $700 laptop could get a $450,000 mortgage because it had a house attached to it. No one ever anticipated that those houses would lose value quicker than the shiny new home equity-financed cars in their garages. In contrast, the lenders and the underwriters and the re-packagers and the insurers lobbied the SEC to allow them to amplify their exposure to the risk of that outcome exponentially by piling on debt of their own in a bid to maximize their profits, then proceeded to report said incredulity-straining profits in the assumption that they would continue rising and proceeded to pass those profits on to their employees, who in turn signed on for 100% mortgages on eight figure properties in Greenwich, where fear of the same sort of tidal wave of foreclosure has citizens proclaiming the financial crisis "Our Katrina." The whole thing was a show of such dramatic private sector incompetence it could not be achieved had the plutocracy not known exactly what the fuck it was doing, just as that great Californian Ronald Reagan knew exactly what the fuck he was doing when he railed against government waste only to ratchet up that waste to unprecedented levels by outsourcing most of the government to crony capitalists whose fiduciary responsibility by definition required they do all they could to maximize government waste. It was all an ingenious plan to de-fund the left and its socialist bureaucracy of bleeding-heart "programs," and it worked so well the Bush Administration ripped off the strategy to launch a trillion-dollar war that represents a vast minefield blocking any of Obama's plans to "level the playing field." Because while Obama's plans for the economy allegedly involve an average $800,000-a-household tax increase on the superrich, those plans were drawn up before the employees of Goldman Sachs spent their $21 billion in Christmas bonuses. The falloff in asset values has all the big pundits worrying we'll become the next Japan, but when you go to Japan and hear about the "Boom Years" of the eighties what strikes you is that most Japanese actually had some firsthand experience of said "Boom years." Did you? We allowed America to become the land of ten thousand centimillionaires; now that we have a crisis poised to disproportionately — from a Year On Year perspective, anyway; that's how these people think — hurt that untouchable class, it is not going to be easy to wring out a massive increase in nominal tax dollars from them. That is, of course, is what must be done. And it probably won't be positive for the Dow or the GDP or productivity levels or any of the arbitrary little numbers with which we're accustomed to measuring our economic well-being. It may well be a short term political windfall for the stubbornly fact-resistant class of politician who likes to say tax cuts on the wealthy always create jobs (when in fact no private sector of the economy besides health care has created jobs since 2000) or that Government "isn't the solution; more often than not it's the problem." What is the problem, of course, is people who think government is the problem who go into the government in what more often than not comes off like a twisted attempt to prove that. But the happy delusions of the state that brought us the Great Communicator are infectious, and the era clearly, desperately needs a Great Rebutter capable of optimistically guiding the country through what's going to be a rough time for all. The deep — and deeply unpatriotic — immorality of the "moral hazard" that has defined the past decade must be impressed upon every American voter. Every American voter needs to be able to visualize the 24-car garage of the billionaire hedge fund manager and wonder if some of the money might have not been better spent refurbishing the subway system or paying teachers more or helping an irresponsible homeowner renegotiate her mortgage or providing more comprehensive job training to some former welfare queen. All that stuff, after all, creates jobs too. But to impress these ideas upon voters requires a kind of moral authority that is undermined by pandering partisan rhetoric and the pages and pages of pork-tasting provisions of the bill Congress is about to pass. (It's also sort of undermined by gazillion dollar tax breaks of the sort extended to Treasury Secretary Hank Paulson for taking the job, but whatevs.) Warren Buffett could certainly muster it; more importantly, he could articulate recent history in a way the politicians he supports can't. More importantly, he can inspire and/or shame his partners in uberwealth into accepting and acknowledging a measure of social responsibility, and more powerfully, broadcasting that sense of responsibility to the public. Billionaire hedge fund manager John Paulson profited handsomely betting against the housing market; he now is giving much of that away to helping screwed homeowners. More people should know about him; more rich folks should emulate him.

During Troubled Times, an Entire Nation Prefers Mac n' Cheese

Sheila · 10/01/08 01:28PM

Back from 2001 downturn, it's the "comfort food during a recession" trend piece! Hey, writers, if you're assigned this topic, here's a peg: an "exclusive all night diner" is to open in dazed, freakoutnomic Manhattan: "Socialista mastermind Armin Amiri has decided to open an all-night diner—with a guest list from 11 p.m. to 4 a.m.," reports the Observer. Filling the hole left by the democratic late-night Florent with "upscale diner food"? Irritating, but it might be perfect for the market right now: based on the sheer number of trend pieces, it is evident that people love (or can only afford) mac and cheese during hard times. Don't believe us?From 2008: The Tennessean, July 28: "Comfort food and a comfortable atmosphere seems to have appeal in a tougher economy. On the flip side, past boom times have led to expensive and outrageous fare. "When times buckle down, people say, 'You know, I just want to feel comfortable, secure and warm." The Early Show, Feb. 5: "So the fact is we want comfort food in our high-end restaurants. Again, please, take me to that place...where I can be secure and familiar... Now here's another really important part about the comfort food, and this is what—where we get to our recessionary times." New York Times, Jan 31: "Unlike previous portrayals of the late '50s and early '60s as a time of unalloyed optimism, fashion's latest embrace of the past appears to reflect the nation's darkening mood. ''It is the fashion equivalent of comfort food — I think we need it... things are timeless right now, or you want them to be." Seattle Times, September 17: "We've been around a really long time and actually, if you look at the history of the 5 Spot, when they started, the goal was to create a recession-proof restaurant. And it's working. People go back to comfort food in hard times." San Francisco Chronicle, September 28: "In a Union City factory that twists out 150,000 pounds of Red Vines licorice a day, plant manager John Nelson is betting that $10 million in capital investments, made when money flowed freely, will help his 240-person plant prosper through tough times. "We won't call it recession-proof, but licorice has always held its own. It's kind of a comfort food." From 2001: New York Times, Nov. 4: "We ate high on the hog and low on the calf. We ate our way through the Eisenhower recession, the Cuban missile crisis, Vietnam, the assassinations of J.F.K., R.F.K. and Martin Luther King Jr., through Watergate, the Persian Gulf War and the Clinton crisis. Recently a journalist friend was on the street, covering the World Trade Center disaster. She ordered a sandwich, saying: ''Don't bring me any fat-free mayonnaise. If the world is coming to an end, I want the real thing.'' New York Times, Dec. 26: "Comfort food and blue-plate diner dishes showed up all over town, sure signs of a looming recession, but the door was wide open for a chef who could make simplicity seem like an inspiration rather than a limitation." New York Times, Jan. 26, 2002: "There was a lot of talk after 9/11 about what was going to be palatable for audiences, that people were looking for the theatrical equivalent of comfort food. I felt that way too." BBC, July 30: "Food manufacturers, retailers and utilities will also be cushioned from the worst effects of any recession."

That's It, Neocons! Big Government Will Pay Off Those Big Loans On Your Big Cars, But No More Big "Ideas"

Moe · 09/30/08 05:53PM

"Not once did we consider asking Washington to bail out the Sun," proclaimed the conservative New York newspaper in a deathbed editorial this morning that cited the importance of adhering to its highminded free-market "principles." But it turns out that they did almost precisely that kind of! See, some of the Sun's capitalist backers had a bunch of money invested in the private equity firm Cerberus, which controls the auto financing firms Chrysler Financial and GMAC. (And also, owns Chrysler itself, which was also a bad idea.) Auto financing firms are sitting on truckloads of car loans gone bad in no small part because people can't get home equity loans to pay them off like they used to, which is (a major reason) why the whole auto industry has gone to shit. So…guess which struggling private equity firm was about to get some major R-O-L-A-I-D-S from that big communist bailout bill all those ideological comrades of the Sun just voted down?Yup! Cerberus! Oh well, that's the free market! Says a source: "[Sun Editor Seth] Lipsky gave up trying to raise money after the bailout failed to pass." So it turns out it is not only middle-class social conservatives in Kansas who will vote Republican against their economic self-interest. Zionist New York plutocrat neoconservatives will too. Even if it means silencing their mouthpiece forever! Don't worry, Seth, Republicans will continue doing the talking (out of both sides of their mouths) for you, as conservative columnist David Brooks did today:

Big Gay Barney Frank Apologizes For "Offending" Republicans

Moe · 09/29/08 03:05PM

Apparently there's some meme that 12 Republicans were ready to vote for the bailout package but Democrats' "bedside manner" or something put them off. (UPDATE: Oh Christ, this?) Anyway, House Financial Services Committee Chairman Barney Frank took a question about this at the Bailout Fail press conference just now and tranched it a new one. Everyone in the room laughed because the room is filled with politicians and journalists and seriously what do they give a shit about the economy, Barney Frank just won himself a 14th term and we will no doubt be seeing more of him. (Gawker day editor Alex Pareene's response: a more succinct "Barney Frank <3!") Swoon, on so many levels! Dow down 603 at close.*

What The "Subprime Poetry Crisis" Means For The Overheated Metaphor Market

Moe · 09/26/08 05:52PM

Last night at a poetry reading marking the release of the 2008 Best American Poetry anthology the distinguished poet and Finding Forrester star Charles Bernstein delivered a stirring plea for swift intervention to stave off the subprime poetry crisis. "As we know, lax composition practices since the advent of modernism led to irresponsible poets and irresponsible readers," he said. "Simply put, too many poets composed works they could not justify." (Read the whole thing; it is awesome.) But it made me anxious! At the risk of pronouncing a subprime trend post by adding this news to that of the subprime mortgage crisis and the subprime celebrity crisis I personally underwrote, I am going to leap a few logical conclusions ahead and ponder whether this liquidity crunch has begotten too many issuances of new metaphors.No one has done more to glut this market than I. Back in March I whined that all men in New York treated women like "complex illiquid financial instruments that are difficult to value" and then in April I was back comparing the stock market's overreactions to conflicting economic indicators to an unhealthy relationship with a horny teenage boy. Then yesterday an ex-paramour with whom I was G-chatting compared our relationship to "capitalism in its late stages." Meanwhile on Wall Street the bankers have been actively trading in a reverse play on all those market metaphors. Yesterday it appeared that Goldman Sachs had lobbied the New York Times to run a clarification of a story it had run characterizing the venerable bank as "ailing"; "embattled," both parties agreed, was a more appropriate term. Since when did bankers give a shit about language, right? I mean, since when did they really even read? But suddenly, betrayed by the illiquid market in jargon, acronyms and euphemisms they once believed to be so safe, they've been drawn back in to the world of blue chip words, challenged to find their places among the varying shades of snide and "Pollyannish," dismissive and philosophical, populist and fatalist, conveyed when one chooses to broker seriously in enough palpable words like "crisis" and "panic," "meteoric" and "deterioration," "besieged" and "implosion" that they can more honestly reevaluate the fundamentals of the old pink-sheet pejoratives of "bailout," "protection" and "socialism." So who knows, maybe everyone is properly hedged. Maybe a skyrocketing Gross National Metaphor index could even shore up civil society and strengthen our frayed national fabric! Like the internet, but also the opposite of the internet.

Everyone Has A Sudden Hatecrush On Hank Paulson

Moe · 09/25/08 05:44PM

It is a stunning reversal of fortune of the sort his old investment bank just narrowly averted thanks to Warren Buffet and the government to which he to which he does not have to pay any of those "tax dollars" he is throwing around to save his old neighborhood! But yes, sources are now informing us Billionairish bald man Hank Paulson is officially hot. Just yesterday we were still thinking the Treasury Secretary and Most Important Man in America Right Now looked creepy and mechanical compared to his furry little Fed Chief partner in congressional rage collection. Then suddenly today our very own commenters are telling us that no, actually, he is hot. As with all the really significant developments in this market collapse, Daily Intel started this trend when they posted a shirtless photo of Hank circa 1973. But look, he got the job done. Unless Republicans succeed in botching the plan he will save Wall Street. Very fast. So who is this guy?Judging from the recent Fortune profile we went back and read, he is exactly the type of dude we'd never see ourselves getting involved with, which maybe gives you some insight into how he has stayed married for 39 years. A non-ideological mild-mannered Republican pragmatist who likes to work out, he's depicted as a consummate optimist. Oh yeah and he doesn't drink. "Slow to grasp the seriousness of the credit crunch." And there's this scary quote that is so scary because he sounds like he thinks he is expressing some serious conviction:

5 Reasons This Depression Really Is Going To Be Fun!

Moe · 09/25/08 01:18PM

We're not even officially in a recession, and already the culture czars over at New York have dubbed the economic crisis precipitated by our financial system's collapse The Greatest Depression! Such hyperbole, I know! So what makes the tag feel so goddamn right? Other than the fact that I think it is really great I don't have to write about subprime celebrities anymore? I found five things that are basically all the same thing and formed a little listicle!1. Because money is overrated! We know this. We know it so well. And just to prove it we pay billions of dollars to science to prove it to us, year after year after year. And yet. As a society we totally live and die (no not really, we just act like we live and die!) by the tiny nuances of the trajectory of the aggregate of all the flows of all that money, as if it Really Totally Matters. We do this, obviously, because we're obsessed with making comparisons - am I at least doing as well as last year? Am I really smarter than his last girlfriend? Shouldn't I buy a house now that all my friends are doing it? - because it is just so much easier than the Is This Bringing Me Joy question that seems so totally sappy and sentimental we find it to be a hilarious joke when some little Third World country like Bhutan pragmatically invents a Gross National Happiness Index because no one actually thought of that first. But as the Times reminds us today:

Let's Turn Everything Into a Comment On the Economy!

Sheila · 09/23/08 04:29PM

From the Mailbag: "Here’s a tip for you: I was just down on 27th Street for a meeting and thought you might like to know… [strip club] Scores West is reopening (tomorrow or Thursday) as a 'juice bar' because they still can’t get a liquor license. There’s a sign up outside the door right now." That means they can (legally, technically) dance "bottomless," yay! Here, let's write the generic media response: Which is better: a topless strip club with alcohol, or a naked one without? And what does it mean for Wall Street? (Answer: it doesn't mean anything; as Moe already pointed out, the ask-a-stripper angle on the freakonomic meltdown is so, so tired.)

Uplifting Economic Indicator!

Moe · 09/23/08 04:24PM

The "suicide index" is still very low compared to 1929 and with those farmers in India. Maybe money does buy diminishing marginal happiness? [Slate]

Oh Good Grief, Don't Blame The Media For This

Moe · 09/22/08 01:35PM

Last week Nick hated on the media for being too alarmist in its coverage of the collapse of Wall Street; Ryan pointed out this morning that the problem is that they weren't alarmist enough. So we ran the numbers: with some blips the media has been dropping the R-bomb as well as the D-bomb pretty steadily since the CDO market first started dropping off, with a dramatic uptick around the Bear Stearns bailout. Could the problem be that no one fucking listens to the media? And that is a damn shame, because despite the necessary myopia with which it covers a beast whose single most deleterious attribute is its inherent myopia it will occasionally offer up such gems as:

Strippers! Nose Jobs! Six Easy Ways To Explain Economic Disaster

Moe · 09/22/08 11:15AM

The collapse of capitalism is actually too damn overwhelming for most journalists — much less their readers — to grasp. So how to approach? With a tried-and-true socio-anthropological take on What It Really Means In America As Told To Some Narrow Niche Of Society. Let's start with strippers!