Saturday, October 11, 2008

Psalm 146

While working on the laptop, I unplugged it and carried it to another room. The system popped up a message that I had never seen before. It read "The battery can recharge normally, but it is reaching the end of its life." This is only the second laptop I have owned and this is the first one to ever inform me of imminent collapse. It is rather like a doddering old chap who's only conversation point is which of his 2000 chronic conditions is flaring up.

As you know from a previous post, I have been anxious to get a new MacBook. I could certainly swing the cost but it would leave me a bit tight for the next month. The reasonable thing would be to continue saving money from each monthly check for, say, the next 6 months, and then replace it with cash in hand. Of course, the REALLY reasonable thing to do would be to buy a new battery. That should only set me back a couple hundred. Add on to this that I need to be worried about replacing my car (A Toyota at 181,000 miles has some life left in it, but it can't last) and potential surgery issues related to my weight loss (will probably need to have some skin removed which is both major surgery and major expense) along with niggling things like my taxes, I really need to put the new MacBook on the back burner -- unless the book hits big. Then all bets are off.

This moment of reflection though brought me to a topic that I have meant to comment on and haven't had the cheek to do so. The financial crisis the U.S. and the World markets are experiencing reminds me of my efforts for a new 'puter. I don't claim any sort of comprehensive understanding of all the ins and outs of the problem but I think this is correct.

Effectively, corporations shored up investment opportunities by creating a new bond formed from mortages which in turn represented the strength of the mortaging agency. This makes some sense; if a company is known for crappy policies and high number of defaults then the bond formed from their mortages would be less valuable than those of a more stable organization. These mortage securities then began making enormous dividends because the housing market really started to take off. Mortages, like Orange Juice or any commodity, is a finite resource; you are going to run out of them. If you have investors clamoring for the pot of gold generated by these mortage backed securities, but don't have any more mortages to form these securities, what are you going to do? Why make more mortages, of course! So, now that the top, great investment grade stuff is gone, who is left but the folks whose credit and income level is a bit dodgy.

The shell game happens in this step: because the companies who floated these bonds were top rated nobody really stopped and examined the next round of dodgier mortages because they came into the system swathed in the AAA rating of the original bonds. The problem is, the mortages were tripe. People were already financially overextended and realistically couldn't cover the spread on the mortage. It was a literally house of cards - principally Visa and Discover. The strength of the mortage backed security rested on the strength of the homeowner, and here is where the problem began to reveal itself.

As foreclosures, inevitable foreclosures, began to sweep the country starting the Countrywide, the rug was pulled out from underneath the investment banks who had floated a lot of their investments. Here's where the Fed has to get involved. Because these investment firms were also banks, they were entitled to the same protections as a regular bank. The complication is that my branch of Bank of America does more than investments; Goldman Sachs et al. only do investments and therefore had no cushion against this collapse. Suddenly then these investment banks were treated with the same footing as other stablizing banks (that's my conception of it; one kind of bank makes money: another type of bank defends it). Even those who were heavily involved, such as WaMu, who are kind of a hybrid in this example, they were thrown under the bus.

So to those who say, the Fed should have just let them collapse, they simply were stuck. If I were Lehman Brothers, I would have filed an injunction and forced the Fed to bail me out too. However, there is worse yet to this story.

Credit drives our economy now. Because most businesses are pushed to be as big as possible to survive, it generally means being pushed to one's cashflow limit. It is not unheard of for a small company to get a one-day, two-day loan to cover payroll and supplies which the company then pays back the next couple of day's business. I don't know if it has always been this way, but my gut check says no. What do you think happens when banks suddenly don't have money to lend or don't want to lend money for fear that they will never see it again? Very good, you puzzled it out; they stop lending. If they stop lending what happens to businesses large and small? They lose capital that they need for both major expansions and for daily operations. They freeze solid. And if employers decide that they can't cover staff and operation expenses, what do you suppose will happen next? The rounds of firings begin. That's why inflation and unemployment rates are key econ indicators. They gauge how well businesses are bringing in resources and profit which strangely enough translates down to the street level as jobs and security.

(Side note: This is why unfettered capitalism has as many problems as unfettered communism. Something greater than the system must guide its ways, means, and morals.)

Lots of bloggers have called this the conquest of mammon, but I am not sure. The whole scenario doesn't strike me as greedy as much as it is hubris. There is a hubris here in which the powerful say, "we can control the wealth of nations; just don't look at the man behind the curtain." Maybe it's better to think of Mammon and Hubris as kissing cousins. One feeds the plans of the other. But in essence, this global conversation is not different than my desire for a computer. I have to decide can I afford this expansion. If I can I do it; if I can't I wait. And if someone comes up to me and says, "Oh, go on, you'll like it," I get to laugh derisively at them because they don't know what they are talking about.

Small is beautiful I am coming to see. While I enjoy the relative luxury of stores like Wal-Mart, and acknowledge that given the size of global markets a few of these giant stores might be necessary, I am more at home in the small restaurant, the local butchers, the neighborhood coffee shop. I am happier walking into a book store where I am recognized for my fascination with early 20th c. British authors and mystery fiction, than the chain where I can find any book I want, but not myself amongst its shelves.

God ultimately is small though. Not in the sense of not being omnipotent or omniscient, but in the sense that if I want to find Him, I am much more likely to find him in the small places of the world before I catch Him out in the large majestic vistas. I am more astounded by DNA and submolecular interactions than I am by cosmological functions. I am more astounded by the small because I can sorta see them; the other is too big for a wee little lad like myself.

And rulers, financial and otherwise, must learn to be small. That's why I do come back to the conclusion that his whole financial mess is a lesson about hubris before it is about greed. Greed stoked the fire; hubris lit the match. In the experience of God's people, they were forced to learn this lesson over and over again. During the time of the Divided Kingdom, Isaiah warned the king not to make an alliance with Egypt; rather the prophet directed the king to trust in the Lord and lead the people to trust in the Lord through the medium of his trust. The king, Ahaz, didn't learn. The Southern Kingdom is led into exile soon afterward. They didn't learn the lesson from the psalmist: " Put no trust in princes, in mere mortals powerless to save. When they breathe their last, they return to the earth; that day all their planning comes to nothing."

It's a lesson worth learning, and I hope we have finally learnt it.

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