A new hostage crisis, the culprit: Wall Street

September 21, 2008

(Copyright 2008)


By Tony Walther

The more I read stories about bundled mortgage securities and bank credit swaps and derivatives and short selling and even naked short selling the more I resent the fact that I didn’t study the right thing in school, but moreover I resent the fact that Wall Street could hold the rest of the nation hostage – “bail us out or we pull the pin and we all go to hell!”

There has to be something wrong with an economic system in which a relatively small number of people can hold us all hostage like this.

Certainly our government should have, and on some level did, see this coming and so did a lot of folks who have only a general sense of economics. When you borrow more than you can afford to pay back, when you over extend yourself, as an individual or as a business, and when lenders ignore whether you are putting up enough collateral or whether that collateral is real, as opposed to bogus paper (what do they call them, instruments?), you know eventually something bad is bound to happen. But if everyone else is doing it, it becomes accepted and even expected.

In reality, there is a lot of guilt to go around, from individual home owners to major investors and investment institutions. One big difference is that some of these (not all) major investors can go running to Uncle Sam and black mail him into bailing them out. You, Mr. and Mrs. Homeowner, or Mr. and Mrs. Small Business Operator try that trick, Uncle Sam will condescendingly shake his wise head and give you a stern lecture about being prudent with your money and taking personal responsibility, at least the Republican Uncle Sam will.

I am hoping that the Democrats (even though they are as a whole just as guilty as anyone else) demand something, a lot of things, in return for this gift of a trillion dollars or more to private enterprise, that is the assuming of virtually all the financial institution mortgage debt in the latest plan being worked out by the Bush administration. There needs to be relief for homeowners, maybe small business, and heck, why not even demand support for universal health care? Although, this financial crisis works for the anti-universal health care folks because what with the financial rescue effort they will cry crocodile tears and say, sorry no funds available (up until now they only had the war to take care of that – but heaven sakes, what if peace broke out?).

And here I’ll go into my universal health care pitch or rant: I currently (probably not for long) have private health insurance and it (the private plan) seems to think its goal is to not pay or put off paying (although it does pay a lot), and the whole thing is not efficient (medical office personnel and my wife and I having to re-bill, make phone calls) and all this for a hefty premium. Meanwhile the hospital I have used is being starved of the cash and supplies and personnel it needs because the for-profit company that owns it has it on the auction block. Gee that works so well for patients. Yup, private enterprise always provides the best and most efficient service (yes that was sarcasm).

I am sick and tired of hearing about how free-wheeling capitalism without government interference takes care of everything. And then I read that John McCain wants to tax my health insurance, and McCain wants to privatize Social Security.  I thought that notion had already been disposed of – can you imagine how folks would feel if their Social Security was subject to Wall Street whims, especially in this current environment? Oh, I know, the diehards will argue and show me charts on the stock market where over the long run………. Then I have to ask, what if you only have a short run?

I am not against the capitalist system; I’m one hundred percent behind it. But apparently there does have to be regulations.

Didn’t we as a nation go through this before in the Roaring Twenties when Wall Street and the man on the street were flying high over-extending themselves by buying on the margin and then it all came crashing down in 1929? And then it was: “hey buddy can you spare me a dime?”

I guess this time around so many were flying high by buying houses and refinancing and financial institutions were busy in their backrooms bundling up mortgages and selling them as securities to be resold and divided up so much that no one is sure who owns what or who owes what to whom – although I’m told that can be determined (in case you had any ideas). Meanwhile you have short sellers and other types of speculators who produce no product and provide dubious service (I know, they provide “liquidity”), but siphon off one heck of a lot of capital.

Maybe the notion of free and unregulated capitalism has lost its appeal.

If not, let’s just say no to the debt assumption our government is planning and let the free market do its job.

Footnote: George W. Bush was our first, and hopefully last, president to hold an MBA degree.