Yesterday Tom Friedman of the New York Times wrote that in this credit crunch that is hurting the economy, no one is an island:

Well, you say, “I don’t own any stocks — let those greedy monsters on Wall Street suffer.” You may not own any stocks, but your pension fund owned some Lehman Brothers commercial paper and your regional bank held subprime mortgage bonds, which is why you were able refinance your house two years ago. And your local airport was insured by A.I.G., and your local municipality sold municipal bonds on Wall Street to finance your street’s new sewer system, and your local car company depended on the credit markets to finance your auto loan — and now that the credit market has dried up, Wachovia bank went bust and your neighbor lost her secretarial job there.

Five-Dollar Pig by Flickr user EricGjerde

Let’s take a look:

  • Pension fund? Ha! Yeah, right. We have about $450 in a 401(k) at this point.
  • Refinance our house? Nope. We’ve been smart, and have consciously chosen to rent for the past four years. It continues to be a good decision.
  • Local airport? Our local airport stopped offering public flights more than a year ago. Also, I haven’t flown since the summer of 1999—it’s too cumbersome and expensive, and rail and carpooling has worked beautifully for me.
  • New sewer system? I wish. This town’s infrastructure is crumbling. Besides, why can’t a municipality save up for a major expense, like we private citizens do for our own purchases?
  • Auto loan? Nope. I’m still driving my trusty 1994 Geo Prizm. Until I can pay cash for a newer used car, I’m not intending to buy one.
  • Neighbor lost her job? Again, my neighbors are doing OK. Not great, but they have never been doing great. We do alright for ourselves, but the whole disparity of wealth thing has been biting us in the butt for a long time.

I don’t have much of a vendetta against Wall Street. I do, however, think our entire economic system has gotten off-kilter and is ultimately unsustainable. I have never benefited from our current economic situation, compared to how others have benefited. Where I am today, I have basically nothing to lose. In fact, with our student debt far outweighing our assets, I have less than nothing to lose.

So from where I stand, with none of Mr. Friedman’s arguments applying to me, I have to ask, Why prop up an unsound and unsafe structure? Why shouldn’t we allow it to implode and rebuild itself? I have full confidence that our economy will rebuild itself. I believe that the free market works, as long as basic protections for stockholders, consumers, and workers are in place, and as long as antitrust is actively weeded out.

Is it not possible that what is happening is the market saying that the financial sector has grown too bloated and that we have collectively taken on too much debt? If that is the case, we don’t need a bailout, we need the financial sector to shrink along with our collective debt. That will be painful. I’m sure I will be affected by that economic pain, but it is not as if everything is currently fine and dandy for me economically. But isn’t it possible that such pain is an unfortunate fact of life that is necessary for a more sustainable economic future?

9 thoughts on “Will It Float?: Me

  1. I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.

  2. I see this as a situation where you the probably? early 30-something is pioneering / pressing in a new period of ideology.

    I agree with you and applaud your analysis: it really is good. However, to answer your question: Why shouldn’t we allow it to implode and rebuild itself? …

    I bring in the ideology argument. They [generally those 40? and older who have been part of the ruling class] have had unique and different experiences than you or I. I account your thinking and situation (which sounds really close to mine) as part of a peeling away if you will of older for newer traditions.

    A large part of me says, “let it crumble, its broken”, but if I were 40 or more years invested I’d probably be saying, “save the ship!” – a la Friedman style.

  3. I think you’re right about what I’d be saying if I was more invested in the current system, Chris. That’s why I’m wondering if it is overly selfish and naive of me to say we should let it restructure itself… or if, in fact, we younger people should be the loudest voices crying out against the bailout, because it’s bad for the long-term future?

  4. Ok. So here are my thoughts. I am no economist or philosopher, and so I have a hard time analyzing theoretical structures such as “the economy”. But I can speak personally, so here we go.
    As I tweeted to you, this economic downturn has deeply affected myself and nearly all of my friends (many of my neighbors work on wall street – my friend just called today to tell me her husband, who works at Lehman’s, is out of a job). My husband’s job (he does shipping for China) is inexorably tied to the economy, and so that is part of the risk of what he does (and the reward, when things go well). No amount of projecting we did even 2 years ago could possibly predict that we would ever lose this much business.
    Naturally, the assumption would be that of course I support the bailout – it means we instantly start making more money. Hooray for us! But actually, I do not support the bailout plan – at least as it is stated right now.
    It seems to me that we are attempting to fight against something necessary. For example, take the wildfires in California. It is a normative cycle that nature “cleans herself out” by wildfires, which is so necessary for clearing away dead brush and to provide a clearing for new life. Because we have built our homes in those forests, those wildfires are no longer desireable, and when they happen, we do everything to prevent them. By doing so, however, we actually add fuel to the fire, by creating such tinder-box conditions that the smallest spark will set thousands of miles ablaze. Of course, I don’t want anybody’s houses to burn down, but we have been seeing that by saving a few houses awhile ago, thousands are losing their houses today. In a similar way, in this economy, by “saving” those who wanted a house so badly (and shouldn’t have had one), we now have such a pile of underbrush, no wonder the country is ablaze. It is time to let it burn. As painful as that is, we need to clear out this system. By patching it up with duct tape, we are only doing harm. You used the word “sustainable”, and you are so right. This should be about creating sustainability. How are we creating a sustainable economy by rewarding those who have done wrong? We are simply enabling this defunct, tinder-box system to continue.
    So in any case, I am willing to feel the pain, if it means that pain will ultimately be redeemed by building a better system.

  5. I have been feeling much the same way. Karin and I have nothing invested; we have no stocks, no 401k, no nothing. We do own a house, but, though we bought at the exact wrong time (about 2 years ago, right on the cusp of the downturn), we agreed to a price, took out a fixed rate mortgage, and we will go on paying it. We’re in no hurry to move, and if the change in the market means we stay here a little longer than we would have otherwise, it’s not really a problem. Both of us are in relatively secure jobs (even if times are tough, people need their meds).

    Part of me feels bad for wanting the economy to get worse before it gets better, because, though I don’t think my family will be hurt more than superficially, a lot of other families stand to really lose. Most of me feels the way you do, though. Things have to get worse before they get better because if they don’t, they’ll only get much much worse later on. Though I don’t understand all the ins and outs of the economy, from what I do understand, it seems to me that this bailout is just a way of putting off the problems until later. Perhaps Henry Paulsen won’t be around to deal with the mess in the future, but you and I probably will, and my children almost certainly will. Let’s fix the economy, not just give it a Band-Aid for a generation or so.

  6. In the last 2 weeks I’ve seen my 401k drop by more than $2,000. That’s the most pain Michelle and I will feel from this. We’re a long way from retirement and the economy will bounce back, it might just take a while for that to happen.
    The funny thing is, no one really knows if the bailout plan will work. From the various sources I’ve read, helping families re-negotiate their mortgages to avoid foreclosure will have an immediate impact, and will keep the situation from getting any worse. Throwing money at a problem has been a staple of the Bush administration (remember the two “Tax Rebate” plans?). As Timothy said, this bailout, and the Bush rebates, are Band-Aids to cover up more fundamental economic problems. If Republicans really believed in free markets, they would not be bailing out these banks and socializing private debt.

  7. I completely agree with you. I am even sympathetic to Mr. Carr and Brian Carl’s arguments that we should get rid of the federal reserve so that banks are naturally accountable for the lending they do. Also, subprime mortgages should simply be outlawed. They only became legal in the 1980’s.

    How does your opposition to the bailout jive with Obama’s support of it?

  8. Hey Daniel,
    I do work with Andy. His job and mine are very similar, he’s a great guy. He has really worked on the whole creative process stuff.

    This is a cool looking blog, I’ll have to check it out some more. Have a good one!

  9. Hello Daniel,
    I certainly understand the inclination towards being somewhat apathetic if not downright gleeful towards the current situation. A few weeks ago I was interviewed by the Metro here in Philadelphia about my thoughts regarding the current crisis. I smugly replied that as a graduate student I felt rather insulated from the effects of the crisis as with most things. However as more problems have developed and as I’ve reflected on the situation a little more I’m not sure that people from our generation can take either my approach or the one you’re suggesting. As individuals we might not be immediately affected, as is the case with any crisis or event, but that doesn’t mean either that we shouldn’t care or that we won’t feel the mediated effects. Case in point, in the weeks since my interview with Metro my school has announced that it has lost approximately 360 million dollars from its endowment over the last year. This has affected issues with my funding for this year, and I wouldn’t be surprised if there are broader implications for educational funding by next year, even with the approval of the bailout. The problem is that even if the current system is broken, the people who will most likely be able to fix it are those who are struggling through the current system now.

    Revolutions tend to be most successful when they offer significant measures of continuity and protection for certain agents of change. Think of the American Revolution and how despite how remarkable it was, it still carried over significant portions of British Law and established government. I’m slightly confused by your assertion that you think the economy will rebuild itself. I mean, I think that’s certainly true, but the question is through what means and over long a time if you simply let it implode. There seems to be a slight dissonance between your advocacy of certain protections for consumers etc. and your stance that the market should implode, leading me to believe that perhaps we might be able to find a middle ground here. I think the most effective way to help the economy regain its strength at this point is to stabilize it as is, instill protections, and then work on reforming it without allowing destabilizing instability or implosion. Because I think that certainly an implosion of the economy will adversely affect all of us, you included. The prices of everything will go up, it will take some time to resolve what sort of standard we should operate under, etc., all of which will essentially result in a prolonged economic crisis.

    Of course having just said that, I just spoke with someone here who is in the financial sector who believes that any talk of an “implosion” is essentially contentless and that the market would right itself within two years even if left alone (this apparently has been the trend with the last five or six recessions, but I don’t know much about any of that).

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