400

When I began writing this blog in November, 2005, the economic infrastructure of the United States had already begun to go south. It’s just that relatively few of us recognized it. We were in an economic boom period. Residential real estate prices were rocking upward at 20-plus percent a year. Seminars offered advice for those who wanted to get rich quick by flipping houses and condos with no money down. The stock market trajectory shouted “invest, invest, invest” to everyone with a few extra dollars, and unemployment was virtually non-existent.

My son purchased a condo in Los Angeles during that time, and I remember distinctly that he was offered a very large mortgage with no money down, a very low temporary APR that ballooned dramatically at the end of three years, and the option of interest-only payments. I recall a feeling of unease as he told me about the mortgage deal and knew then, at a level that I couldn’t verbalize, that things weren’t right.

At the risk of being a dinosaur, I suggested that he put some money down (20 percent), get a conventional mortgage, and buy the condo using “old school” rules. Luckily, he listened.

I only wish that I had acted on my own feelings of unease during 2005 and 2006, but like millions of others, I couldn’t see the real trouble that was festering within our economic infrastructure. Worse, I never believed that the “masters of the universe”—our national political leaders and the CEOs of major investment banks, commercial banks, investment houses, and insurance companies would act with such breathtaking irresponsibility.

As I write this 400th post for OnCenter, my outlook for the near term future has dimmed considerably. Domestically, we’re faced with an economic downturn that is unprecedented in my lifetime. But even worse, we’re faced with a crisis of confidence that has infected even those of us who believed that our country and our economic system could occasionally be bowed, but would never be broken.

Jim Kunstler (hat tip: The Belmont Club) provides some dark commentary:

The tipping point seems to be the Bernie Madoff $50 billion Ponzi scandal, which represents the grossest failure of authority and hence legitimacy in finance to date in as much as Mr. Madoff was a former chairman of the NASDAQ, for godsake. It's like discovering that Ben Bernanke is running a meth lab inside the Federal Reserve. And out in the heartland, of course, there is the spectacle of Illinois governor Rod Blagojevich trying to desperately dodge a racketeering rap behind an implausible hairdo.

What seems to spook people now is the possibility that everybody in charge of everything is a fraud or a crook. Legitimacy has left the system. Not even the the legions of Obama are immune as his reliance on Wall Street capos Robert Rubin, Tim Geithner, and Larry Summers seem tainted by the same reckless thinking that brought on the fiasco. His pick last week for chief of the SEC, Mary Shapiro, is already being dissed as a shill for the Big Bank status quo. In a few days we'll discover what kind of bonuses are being ladled out by the remaining Wall Street banks with TARP money and a new chorus of howls will ring out.

This is very dangerous territory. In dollar terms, the numbers being applied to the various problems are so colossal -- trillions! -- that the death of our currency seems assured. And in defiance of congress's express intentions, none of the TARP "money" has been applied to its targeted purpose of buying up "toxic" (i.e. fraudulent) securities hidden in the vaults of banks, pension funds, and municipal portfolios.

Assuredly, we are “in very dangerous territory.” It appears that we are now willing to accept a country in which moral hazard is inadvertently encouraged for irresponsible individuals, incompetent CEOs, and uncompetitive corporations. Bail ‘em all out and everything will be just fine!

Will it?