Yellow Brick Road ~ Redux

SUBHEAD: To survive this crisis we'll need cool heads, caring hearts, courage, and a little hope.

By John Schettler on 23 February 2009 in The Writing Shop

Image above: detail of Illustration based on characters from The Wizard of Oz". From
It was a terrible storm, and the house shuddered and shook so hard we thought we might lose it. We woke up the next morning in a very strange place, after the value of our homes took a freefall through the whirlwind of the blown housing bubble. Suddenly the landscape of our lives looked completely different. This wasn’t Kansas anymore!

Little munchkin news pundits were singing strange songs about CDOs and CEOs on the news, and we looked with horror (or delight) to see that our house had fallen on a very bad witch. The one good thing about the housing bust, I suppose, is that it brought down George Bush and his Republican party. But we were lost—where was all that re-fi money? Where were all the bankers competing for our business? Why was our credit card refused at Home Depot? Not to worry…

A Good Witch showed up and gave us the golden slippers of hope. We could get back to Kansas, it was promised, if we but follow the yellow brick bailout road—straight to the city of Oz where the Wizard holds forth. He’d tell us how we can get home again to the old, comfortable lives we were all so familiar with. And we could take the Tin Man of consumerism and the Straw Men in the banks and the Cowardly Lions in congress along for the ride.

That’s been the promise, after all, that if we just calm down and stay on the yellow brick road, we’ll get back to the good old days of endless revolving credit, easy finance, weekends in the shopping mall, mindless hours before the flat screen TV, and cheap gas. That’s been the promise of America that we all bought into at 29.99% interest—a promise served up in the great money green emerald city of Oz—Wall Street. Suddenly the system isn’t delivering anymore. Something went wrong.

Oil Can! Oil Can! How’s a decent consumer supposed to swing the axe into those blue light specials when credit is frozen? And who are all these little securities fraud monkeys swooping down on Wall Street to throw our straw money every which way, until the guts of this nation are scattered all over the place? That’s $700 billion over there, and there’s another $300 billion over there, and then a big fat trillion over there!

The Cowardly Lions in congress were frightened to death, holding their tails with fear an trepidation when Paulson whispered “Martial Law.” We fell asleep in the poppy fields of delusion, and almost lost our way. Most Americans have awakened to the crisis now, but they are still thinking that if we just get to Oz, the Wizard of Wall Street, Old Ben Bernanke himself, will show us the way home. There’s a sign on the door there now, and a surly guard bars the way.

The sign reads:

 But we coo so sweetly that the door finally opens. And the hope we brought with us is that all the Tin Man consumers will get shined up in the buffers, take heart again, and get back on the streets to shop. And all the Straw Men in the banks will have fresh new dollars stuffed in their bellies, and finally get some brains.

And that all the Cowardly Lions in congress and government will get some courage back again and take on a debt load fatter than a hippopotamus, thrashing it all from top to bloated bottomus. But we just want to go home, that’s all—back to the smell of apple pie, and the sound of grandma working in the kitchen, back to the baseball game on the radio while we mow the lawn on Saturday afternoon—back to the Kansas we once knew and loved.

The Wizard is great and terrible! He huffs and puffs and vents steam as his balance sheet bloats up to the breaking point. But behind the great kabuki theatre of the Treasury and Fed, with all the bailout plans and stimulus packages, we realize that there is just a tired, old, frightened man. He can pull the interest rate levers, and fire up the money presses but, in the end, he’s really lost control of the whole damn show. We put our faith in the Wizard, and he let us down—or did he? I seem to recall that the movie ends on a happy note after all, when Dorothy realizes that she had the power to return to Kansas all along, right in those golden slippers of hope!
That’s the moment we have yet to realize as a people—that the Wizards on Wall Street can’t save us, and Capital Hill can’t save us, and more spending just can’t save us at all. It’s up to us. We have to close our eyes to the fantasy that things will quickly return to the same old ways, and we have to click our heels to set our resolve to build something new in this country. If we don’t, I’ll guarantee you that there’s another Wicked Witch out there with an army of harpies that will be all too happy to take those slippers away and take charge of things again. You think the Neocons all died after Bush left office? They already have their eyes firmly set on 2012, waiting with warnings of terror, this time nuclear and biological terror according to Dick Cheney, and that will that will surely get their old game going again
So this is the moment.
We’ve followed the Yellow Brick Road all the way to Oz and realized that the promises made to us by the Wizard will just not do. We have to do something if this nation is to survive. It’s not up to Obama, or Geithner, or Bernanke any more. It’s not up to Citigroup or Bank of America.

It’s up to us.
Ok… now what?

What do we do?
This is the question at the end of so many blog entries I read these days, and it’s hanging out there like a untucked shirt, unanswered. There is a realization that the “system” as we have known it all our lives has come to a grinding halt and failed. There is a kernel of hope that we can get it started again, but a sinking fear that all the plans and dollars we’ve been throwing at the problem thus far will just not work.

Name brand analysts like Nouriel Roubini, George Soros, and even the late great Wizard Alan Greenspan himself have been coming to the conclusion that we have to do something more drastic. There’s been talk of nationalizing the big banks, long insolvent with the over-leveraged weight of all their bad securities schemes. Yet even that task seems so massive that no one seems to know how to proceed. We are stuck, still clinging to the fantasy that the old “system” can be restored to health. It cannot. The debt is simply too massive, and no amount of straw will make that scarecrow stand up again.
What do we do?
The new government, riding a wave of popular sentiment and the promise of change and hope, seems to be bent on simply restoring the old system that failed us so badly. James Kunstler’s acerbic pen summed it up nicely in his Feb 23 post: “The sad truth is that banking has become a Chinese fire drill—a frantic act of futility—as insolvent companies persist in covering up their losses in order to avoid the counter-party hell of credit default swaps that would ring the world's "game over" bell. This can only go on so long. All the chatter about "nationalizing" the banks really boils down to what kind of bankruptcy work-out will they be put through, how destructive will the process be, and how much of the pain can be shoved forward in time to people now in diapers and their descendants.”

Kunstler is just one of many reasoned voices on the bloggosphere pointing out the basic fallacy that a return to the old system is nothing more than wishful thinking at this stage of our economic crisis. Yet he is not simply shouting nay at the powers that be. He long ago offered us a roadmap of the future he sees as imperative—one that is built around smaller, decentralized, sustainable, and more self-sufficient communities—not the great sprawl of suburbia thrumming with the incessant hum of four cylinder engines.

And Kunstler is correct when he offers this strongly worded advice to President Obama:
“Among the questions that disturb the sleep of many casual observers is how come Mr. O doesn't get that the conventional process of economic growth—based, as it was, on industrial expansion via revolving credit in a cheap-energy-resource era—is over, and why does he keep invoking it at the podium? Dear Mr. President, you are presiding over an epochal contraction, not a pause in the growth epic. Your assignment is to manage that contraction in a way that does not lead to world war, civil disorder or both… If contraction and downscaling are indeed the case, then the better question is: why don't we get started on it right away instead of flogging rescue plans to restart something that is DOA?”
Peggy Noonan seemed to capture the mental confusion that false hopes bring as she reminisced on the golden days of the computer revolution while making a Wi-Fi connection from an airliner over the Rockies:
“It was a time so full of genius and dynamism that it went beyond words like "breakthrough" and summoned words like "revolution." If you were paying attention, if you understood you were witnessing something great, the invention of a new age, the computer age, it caught at your throat. It was like hearing great music. People literally said what had been said in the age of Thomas Edison:

"What will they think of next?"

What a buoyant era... That was 25 years ago. The world was on fire. It has cooled. And the essential problem with the crash we're in is no one can imagine quite feeling that way again. People can remember it, but they can't quite re-summon it. This isn't like the stock market crash of 1987 or the collapse of the dot-com bubble in 2001 . People are not feeling passing anger or disappointment, they're feeling truly frightened. The reasons: This isn't stock market heebie-jeebies, it's systemic collapse.”
It has taken a very long time for the “system” itself to admit that. I might argue that the banks, with their off balance sheet juggling game, remain in denial about their insolvency—and the ex-bankers now in their new government posts share the same delusion. The question remains: what to do about it? We have seen the natural reactions people take, hunkering down and making do. People have made what I call changes of necessity.

Some have finally faced the insoluble weight of the debt they accrued and filed bankruptcy to start over—and thank God Jefferson’s own experience with debt led him to become a champion, along with Franklin, of the basic right to a fresh start as defined in the bankruptcy laws. It should come as no surprise that the Republican controlled congress under Bush worked feverishly to revise and weaken the bankruptcy protections, making it more difficult for people to discharge debt, just before this easily foreseeable financial crisis swept over America. As the Church Lady might say: “How convenient!”

Other people have moved back home, or with relatives. Former homeowners have become new renters after losing their slice of the American Dream to foreclosure. Most have cut back spending and started trying to save. Some have planted gardens. Farmers Markets are starting up in cities and towns all over the country.

 Bartering is slowly becoming more prevalent. And on the other side of the line, scam artists, like the good old carpet baggers, have flooded the Internet with all sorts of phony scams. I was delighted to learn yesterday that my email address had been selected by the Netherlands National Lotto to receive one million Euros! Bottom feeders have been gobbling up distressed properties in foreclosure auctions. They smell blood in the water, even though the bottom is still nowhere in sight for residential real estate, and the crisis in the $25 trillion dollar commercial RE sector is just starting to warm up.
These coping behaviors, or the misguided opportunism of the scam artists, are just the leading edge of the changes we must make if we are ever to find anything that remotely resembles Kansas again. Slowly, reluctantly, the “powers that be” are seeing one high priest after another break from the common faith of rescue plans to advocate more drastic measures. Some call for nationalization of the banks, a task so enormous that I wonder if they realize just what it will entail. I have called for this as well, but I realize that a bank like Bank of America alone would dwarf the FDIC’s ability to make an orderly takeover, both in terms of dollars to back up deposits and staff to manage the 5800 branches in the US. Now throw in Citigroup, and probably JP Morgan-Chase as well—and remember that old JP already swallowed over 5000 WaMu branches when that bank failed. Clearly nationalizing and ‘cleaning up the system’ for a restart will be an enormous task.

The NY Times believes it can be done, however: “The United States has a successful history of seizing insolvent banks through the Federal Deposit Insurance Corporation. The takeovers contemplated here are larger in scale and would be more complex than those that have generally fallen under the FDIC’s purview. But the notion that the government totally lacks the know-how to nationalize insolvent banks is not valid.” The proof of that will be in the pudding. Just making good a guarantee on deposits will be a huge enough task for the FDIC.

Managing the newly nationalized banks could only be accomplished by decapitating the top of the staffing pyramid while leaving the rank and file middle managers and employees in place. It will be a scary and difficult task, but if it doesn’t happen we’ll continue down this yellow brick road of denial and delusion, and the crisis will only be drawn out, with more protracted misery on Main Street. The big banks have to be broken up into smaller regional entities and rebuilt from the ground up. The Boyz the led them have to go.

We’ll spare then the guillotine for now, though timely investigations and vigorous prosecution would be a step that would restore faith on Main Street. The fat cats like Stanford and Madoff must lose everything—everything. The banks can no longer be allowed to be “too big to fail.” They have failed—failed us all.

In her article, Peggy Noonan tried to visualize the next great wave of innovation and “growth” that would then restore America to greatness. She was wise enough to realize that both the financial elite and the political stooges they have bought in Washington will have to be reformed. Yet she saw the regeneration of America starting not on with a newly rebuilt and reformed Wall Street, but rather in the humdrum garages of the common man on Main Street.

“Just as our political regeneration will happen locally,” Noonan wrote, “in counties and states that learn how to control themselves and demonstrate how to govern effectively in a time of limits, so will our economic regeneration. That will begin in someone's garage, somebody's kitchen, as it did in the case of Messrs. Jobs and Wozniak. The comeback will be from the ground up and will start with innovation. No one trusts big anymore. In the future everything will be local. That's where the magic will be. And no amount of pessimism will stop it once it starts.”

The faith and hope in those ruby red shoes is evident in Noonan’s thinking. It may be that people will close their eyes, click their heels together, and eventually bring about a new America, but it will not be easy. It will take enormous effort, much struggle and sacrifice, and all the ingenuity and good will we can muster. The flip side of this effort is that old Wicked Witch out there, still lurking like the dark specter of Dick Cheney in a wheel chair—down but not out. The ‘bad guys’ have other ideas. Let us never forget what happened in Germany after that economy collapsed in the wake of the First World War. And let’s not forget what happened in Russia with the rise of Bolshevism and Communism when that revolution went down.

Change is a welcome balm, but change can also be very painful. It remains to be seen just what measure of pain the current crop of Americans will be able endure before they give up the ghost and let the men in black coats back into the White house in 2012. Make no mistake…the storm troopers are out there, still scheming and plotting and planning their return to power. Benjamin Netanyahu, a conservative hawk if ever there was one, was just invited to form a government in Israel. If you think the side show we saw in Gaza last January was interesting, just wait until Ben sets his mind on the big boogieman of Iran. And you can bet that somewhere, the disgruntled Neocons are looking for another dark horse to ride to the White House.

This is why the political winds of change that brought Obama to the presidency must not now abate into the gentle swells of appeasement to the old financial game that brought us to ruin. We can’t continue to throw money at the old system, or think we can just jump start the engine and get on with the buying and selling that once consumed our souls as we consumed an endless stream of imported plastic and cloth from China.

The NY Times quoted Obama as he signed off on another $797 billion in stimulus spending: “I don’t want to pretend that today marks the end of our economic problems,” the president said on Tuesday at the signing ceremony in Denver. He added, hopefully: “But today does mark the beginning of the end.” Does it? No one knows, of course, but a bigger question may be whether we really want to know. One of the most persistent cultural tics of the early 21st century is Americans’ reluctance to absorb, let alone prepare for, bad news.

We are plugged into more information sources than anyone could have imagined even 15 years ago. The cruel ambush of 9/11 supposedly “changed everything,” slapping us back to reality. Yet we are constantly shocked, shocked by the foreseeable. Obama’s toughest political problem may not be coping with the increasingly marginalized G .O.P. but with an America-in-denial that must hear warning signs repeatedly, for months and sometimes years, before believing the wolf is actually at the door.”

Shocked by the foreseeable indeed!

It amazes me that so few, particularly in our mainstream media, saw this crisis coming. One look at the rising value of home prices, paralleled by both personal and national debt lines, made it obvious to me that a bust was the inevitable backlash that was coming. A few intrepid bloggers, myself included, wrote articles on the impending nature of this crisis years before it happened, though I take no pride in that. Most of that time I felt I was just shouting at the wind, while “Flip That House” aired weekly on the Home & Garden Channel, a maddening image of what Americans were blindly busy with all across the nation in 2005. While I think the shock of the near term collapse has finally awakened most Americans from the dream of ever growing house equity and consumerism, I still feel they now cling to the belief that the authorities will fix it all again, and things will eventually get back to “normal.”

I’ll be labeled a doom-sayer if I beg to differ with that delusional thinking. What I do know is that if you believe things are difficult now, you ain’t seen nothin’ yet. That’s not doom and gloom, just plain common sense and a willingness to face the reality of our situation. Change is going to be far more dislocating than people now imagine. The NY Times asks: “Will Obama concede aloud that some of our “too big to fail” banks have, in essence, already failed? If so, what will he do about it? What will it cost? And, most important, who will pay?...But at a certain point, as in every other turn of our culture of denial, outside events will force the recognition of harsh realities. Nationalization, unmentionable only yesterday, has entered common usage not least because an even scarier word — depression — is next on America’s list to avoid.”

To better the Times one, I have already argued that the depression is not pending, not threatening as the next tsunami wave to sweep over our economy—it is already here. The shock to the markets was every bit as severe as the initial crash of 1929. The loss of equity, retirement portfolios, and jobs is now happening at a pace that would exceed the Great Depression of the 1930s. (See 11th hour, Part II for a comparison of our crisis to the 30s). In unemployment, for example, our current U-6 figure, which is the only number we can use to equate with how unemployment was tracked in the 1930s, is now at 13.6%. After the market crash of 1929 a look at unemployment data shows the figure stayed at 5% or less for at least seven quarters, yet we reached 13.9% in just one quarter!

Things that many astute observers saw coming long ago are now daily news headlines. The markets continued their swoon on Feb 23, with the Dow approaching 7000 and the S&P approaching 700. The depression is not threatening as the next evolution of this crisis—it here now, and well underway. Our task remains: what to do about it? James Kunstler is correct to realize our effort now should not be about restoring the old status quo and recovering our past glory, but about managing the severe contraction and down-scaling of our lives.

This means we will have to find a way to take care of millions of Americans who, even now, find it difficult to put food on the table and keep a roof over their head. And we have to do this in a way that does not involve FEMA camps. The effort now should not be about how to insure ‘counterparty risk,’ or pay off the big preferred stock and bond holders for BofA, Citigroup, and JP Morgan. It needs to be about securing adequate food, shelter, and medical care for the millions that are now struggling in this country to make ends meet—for one more tick down on the ladder of prosperity takes them from poverty to the streets, and we all know where that could lead.

The problem will not be solved by NORTHCOM, or by a brigade from the 3rd Mech Division now training for domestic deployment. Roll troops into an American city and all you do is invite our very own Iraq war—only this time it will be fought in our living rooms, gardens and towns—over here, and not over there. The government and congress had better get this, and that quickly. The next evolution of this crisis is already being previewed in countries all across the globe. We need, more than ever, a way to truly provide for the common good.

And it must begin with the realization that the wealthy in America have already reaped their harvest. If they have losses on the books for what they have done—so be it. They must take the same hard medicine that they seem so willing to allow Joe Sixpack to endure. If we continue to pledge our ever thinning dollar to the benefit of the banks, then history will take the same well worn path to civil unrest or all out revolution in this country. It is a path we must, and can, avoid if we simply admit the severity of the crisis, and then reorient our priorities and remaining assets to secure the wellbeing of the citizens who collectively remain the United States and America.

To do this we will need heart—not for renewed consumerism but for true compassion and caretaking of our neighbor. We will need intelligence, with plans aimed at social benefits and basic security for the people, and not at restoring the Good Old Boyz to their banking splendor, and we will need the courage to force our cowardly lions in government to do our will, and not the will of the banking elite. Hope and a pair of ruby red shoes might help as well.

So when will we begin to voice these demands? Yesterday could not be soon enough.

See also:

No comments :

Post a Comment