Enough, Already

How much is enough?

Looks like the answer to that question is in for a makeover.

A few years ago, when I was in radio news, I covered a speech by actor Edward James Olmos to an audience of high school students, and it left an indelible impression. In a lesson about human nature, Olmos told the students that he was being paid $10 million for his role in an upcoming movie. That probably sounds like chump change today -- perhaps even to him. His message to the students was, there’s never enough. “If they pay you $5, you want $10,” he said. “If it’s $100, you want $1,000. If it’s $10,000, you want a million.” The point being, there’s no such thing as “enough” when it comes to human nature. But at some point, we all have to define the word for ourselves. Typically, if we don’t come up with the right answer, life gives it to us.

A few years ago – actually about 20 now – I thought my credit card interest rate was too high and I was shopping around for something better. There was a little bank in the South that got a reputation for offering the lowest rate in the country. Problem was, you had to qualify for it, and I quickly realized that I just couldn’t  – their income standards were much too high for me. That southern bank was Wachovia.

This past week, on Jim Cramer’s Mad Money show on CNBC, he talked about the once-proud American Express, reminiscing about the time when the only cards they issued were the kind where you had to pay off your balance in full every month  -- no exceptions. When you flashed an American Express card, people knew instantly about your standing in life.

Then, Cramer said, the company started issuing credit cards – the kind you didn’t have to pay off every month, and that became a major part of their business. Of course, their business grew – but at what price? Now, he said, there is a lot of “toxic waste” on Amex’s books, and the company is a shell of its former self.

After I left radio, I went into the newspaper business. Newspaper companies were used to having dominant positions in local markets and making enormous profits, but now many are in trouble, because those profits aren’t there any more, due to fierce competition from the Web. The newspaper conglomerates whose business models are based on the traditionally huge percentages of profit are having to live with less, and because of their outstanding loans, some of them just can’t do it.

The current economic collapse is forcing huge corporations and kitchen-table budgeters alike to take a hard look at that little word enough. It’s best summed up by a line from that Oliver Stone movie Wall Street, when Charlie Sheen says to Michael Douglas, playing the ruthless Gordon Gecko, “How many yachts can you ski behind?”

There, now I’ve said it.

Working the System

A lot of us are pointing fingers at the financial whizbangs and the CEOs that we blame for getting us into this meltdown situation. But the questions remains, were they doing anything illegal, or just working the system?

The FBI is said to be investigating many of these people now. But for the moment, it seems our favorite villains were playing with the cards that were available, according to the rules.

Who among us can say that we never worked a system if it was in our favor? Our accountant turned us on to a quirk in the law that lowered our taxes. Someone we knew got us backstage into a concert, even though we had no real reason to be there. Our uncle was the chief of police, so we didn't get a ticket when we should have. There are probably many variations of this. How many of us refused to work the system when the cards were in our favor? It's OK, you don't have to answer that.

The solution, of course, is repairing the system to that people can't work it any more, or at least not as easily.

Following the Wall Street collapse of 1929, some regulations were put into effect that are still bnefiting us today. If they weren't in place, we'd really be in a pickle. But not every loophole was plugged. And when it comes to money, new loopholes open up as the financial wunderkinds put their creativity to use.

So, we learn by experience --  in most cases, the hard way -- but we do learn. After the earthquake comes and the buildings collapse, the buildings that go up in their place are usually able to withstand greater shocks. That's what will happen when this current crisis passes.

Let's make sure we are grateful for the lessons learned -- and make sure that our leaders turn them into policies that protect us going forward.

There, now I've said it.

Grabbing the Wheel

The Bush administration, and Treasury Secretary Paulson in particular, have been getting a lot of flak over the plan to deal with the current economic crisis.  But hey, at least they have come up with a plan, which is more than most of the critics have done.

No, the Treasury Secretary should not have carte blanche to spend almost $700 billion without oversight. But he has done his job. There's a plan out there on the table to get kicked around, tweaked, picked apart, and transformed.

Is it going to work? You've seen enough of those disaster movies where the asteroid is heading for Earth,  and they launch a spaceship with nukes in it to deal with the threat. In some movies it works, and in others it doesn't -- but somebody has to try.

Doing nothing is not an option. Jus the fact that there is a plan on the table is something to calm the markets. Many of the reforms put in place after the crash of 1929 are still working our favor today. That's why there hasn't been a run on the banks.

President Franklin D. Roosevelt launched the New Deal to lift Americans out of the Depression -- with a little "d" as well as the upper-case one. The launching of those programs accomplished that goal -- even though as time went on, the programs' effectiveness was questioned. But just the fact that someone grabbed the wheel and started steering made the difference.

Let's hope they come together on a plan quickly in Washington -- that needs to happen. But let's give everyone credit for tryihng.

There, now I've said it.

Feel the Pain

This financial crisis can get you thinking what things cost and what they're really worth -- and how we've been insulated from having to deal with pain.

Let's take housing. In California, it's very expensive in some markets, thought not what it used to be. The price of a home was driven up in the Bay Area by a lot of factors  -- fear being one of them. Prices got bid up because folks felt that if they didn't get into something ASAP, the price would go even higher, and they'd be out of luck. Plus, the dot-commers out there, many of whom made their money on products just as ephemeral as today's investmnent bankers, had money to burn. The rest couldn't afford to compete unless they got a banker to give them a loan they weren't qualified for to buy a house that probably wasn't worth the zillions being charged -- or shouldn't have been -- but that was what the market bore. You find out what something is really worth when the market collapses  -- but we're insulated from those things, most of the time.

Take insurance. No one living could afford to pay the out-of-pocket costs for health care these days, so you have to have insurance to insulate you from that level of pain. So the hospital charge for a toohbrush is $40. Your insurance company pays it because it's "reasonable and customary." OK, so maybe they only pay $25, and you get the bill for the rest. Then you get angry, because you wonder why they're charing that much for a toothbrush in the first place. If you -- and everyone else --  had to pay for it totally out of your pocket, would the hospital be able to charge that much for it? 

There's another thing about insurance. It's like one of those bulletproof vests the cops wear. They're great as long as you don't get shot in the legs or the head. That would hurt! Folks are finding out that they're really not insured against all that much.

Take the Iraq War. Lots of people thought that was a good idea -- a lot more people than those getting blamed for it now. Most Americans were insulated from sacrifice. The cost of the war wasn't really part of the federal budget. There were no war bond rallies, like during World War II, to raise money for it. And instead of a draft, the government just called up National Guard and reserve units to take on multiple tours of duty. Many of these have been some of the top prfofessionals in oucr communities, not kids just out of college. But unless you are part of a family that lost a loved one, you probably haven't felt very much, because your daily life hasn't been interfered with at all. If there were a draft, do you think there would have been an Iraq War?

Sometimes it's better to feel the pain, to have to pay the real cost of something.  Feeling pain often protects us from real harm. Maybe this financial crisis will strip off the insulation and make us sit up and pay attention.

There, now I've said it.

Other People's Messes

It seems unfair that we have to clean up other people's messes  -- but we do.

Why should we bail out Wall Street? These are the guys that got us into trouble, right? But we're all in the same boat,  and the boat is sinking. So everybody has to do the bailing, When we get back to shore,  we can fire the captain -- but first we have to get back.

And while there's a lot of pain to go around, it isn't  just the fincincial whiz kids who deserve to feel it. A lot of people benefited from the air in the bubble. Remember, just about everyone's property values have gone up. A lot of stockholders have done very well. Families are living in houses thanks to loans they shouldn't have qualified for. The shame is that they needed to get loans they couldn't qualify for to pay the outrageous prices in the first place --but that's water under the bridge, just co continue with our nautical theme here.

The Iraq war is a very similar situation.  President Bush will leave office with a mess that others have to clean up. We all want to walk away from it, because we didn't create it. But it wasn't just Bush that made the mess -- he had lots of help. From most of us, in fact. Barack Obama can boast all he wants to that he didn't contribute to it,  but even he recognizes we have to clean it up.

Saddam Hussein was largely our mess -- we armed him in the early days as a defense against Iran. Osma bin Laden was once the darling of the West when he was fighting the Russians in Afghanistan.You can't just demonize one or two people. Devils tend to travel in packs, which is why they said their name was Legion in the Bible.

I've always been of the opinion that the bad guys always get what's coming to them, though it's usually not as soon as I'd like. I may not even be around to see it. In the meantime, we all just have to get out our bailing cans and keep dipping. That's the only way we're going to keep from being shark (or barracuda?) food.

There, now I've said it.

Net Worth

The federal government has come up with a plan whereby it -- meaning we -- will assume the bad debts of the financial institutions in trouble. Now you're probably really mad. Why should we be on the hook for a situation we didn't create? Why don't the bad guys take the fall?

Why were there no whistle-blowers out there? Because everyone was in cahoots? Partly, but it's mostly that these new financial instruments like "credit default swaps" appeared on the scene so stealthily -- and the results were so good -- that most of the experts didn't know how or when to blow the whistle. When it comes to regulation, it would be great if there were a financial FDA that could give these things some kind of test on a limited scale before they're actually put into widespread use.

You can lock up all the bad guys you want and deprive all the evil CEOs of their assets and turn these miscreants into the nation's newest homeless. But that's not a fix. These institutions are really too big to fail. It would be one thing if we had just screwed ourselves, but it's not that way. The United States economy is largely owned by foreigners. When AIG was poised to go down, for example, it was going to take hundreds of billions of dollars in Japanese investment with it. And if foreigners lose confidence in their U.S. investments and pull out, this week's calamities will seem like minor foreshocks of the Really Big One.

It all goes back to the question of what has value. Value comes from whatever people have confidence in. The value is in the confidence itself, not the investment object. A lot of people lost confidence in stocks this week and put their money into gold. Why is gold valuable? OK, it's pretty, it's resistant to corrosion, and it's a wonderful electrical conductor, but it really doesn't have much else to recommend it. You can't eat it, drink it or power anything with it. You don't have to think about it or understand it, but you know that a lot of people have confidence in it, and there's where the value is.

So what our leaders have to do is restore the confidence -- the trust -- in the American economy, which really is too big to fail. When the airplane loses power and starts to go down, the pilot pointing a finger at the co-pilot and saying, "It was your job to check the fuel before takeoff today" doesn't solve the problem.

There, now I've said it.

It's a Good Thing

The great national nightmare, to paraphrase the late Gerald Ford, isn't over, but I think we're past the really hard part.

You don't have to be a Harvard-educated economist (full disclosure: I went to Princeton) to figure out what is happening to our financial structure. It was all about lending money to those who couldn't pay it back, and then insuring the financial institutions against the consequences. And at least some of the poor unfortunate victims have to shoulder some of the blame: They lied on their loan applications. But no one bothered to try to catch them at it. They were just having too much fun.

So it's all collapsing in a heap, and everyone is feeling the pain. Good! That's what pyramids and bubbles are supposed to do -- collapse. This was like a giant Ponzi scheme. The only unanswered questions involve whether those in charge of it all should be in jail; but the jails have too many people in them now as it is.

We will likely enter into a period of regulation. It's necessary, because neither socialism nor the free market work in their purest forms. Socialism doesn't work because people don't want to give up what they feel they have earned -- that's human nature. And free markets don't work because people can't be trusted when the money is sitting right in front of them, waiting to be collected. Again, human nature.

What we will find to fix this is a mix of government regulation, and yes, self-regulation. The bankers probably won't put themselves into this situation again, at least for another 30 years or so.

The great thing about hitting bottom is that the only direction to go is up -- and you can bet that the rebuilding will be done on much more solid ground. There are some very spiritual lessons to be learned here. It gets you thinking about what really has value, and what doesn't.

When we're done with home loans, maybe the next collapse will come in the credit card industry -- and then maybe the HMO system, and who knows? Maybe even the tax code. It would involve learning the hard way -- but if we had to rebuild all of these things from scratch, maybe it wouldn't be so bad after all. We sure wouldn't be making the same mistakes anytime soon.

There, now I've said it.