Bill Sepmeier: From Vail, bailouts look foolhardy
By my count, the federal government has injected, committed and/or guaranteed the bad investments of nine major financial institutions and what should be one bankrupt insurance company to the tune of more than $3 trillion in the past 90 days. This doesnt include the FDIC takeovers of a couple of dozen smaller regional banks. Three-hundred -thousand-million dollars committed by our government alone to try to stop the bleeding from a self-inflicted wound. Its more money than the human mind can visualize. For example, it is only 1.32 trillion feet from the earth to the moon. In the past three months, weve effectively printed enough new bailout money to line up one dollar bills end to end all the way to the sun, 93 million miles away. This staggering obligation is a small fraction of the amount of money that was created by the banks were keeping afloat an accounting asset that is now worthless. The best analogy Ive seen for the reason why compares the past few years of new securitized debt to lining up eight bottles of water, one of which is known to contain deadly poison, but which one is lethal is unknown to anyone. Its really tough to find a buyer for any of them. Yes, I understand that a global financial collapse is not good. But it has already happened. It is ongoing, right now. A global population of 6.5 billion people going on 9 billion isnt all that great when we all live on a finite world of limited natural resources surrounded by deadly radiation and a hard vacuum, either. But I have to wonder: Is there anyone else out here having trouble with the supposed cure for the financial industrys suicide, which is the effectively the same as controlling the planets burgeoning population by giving away Viagra? Borrowing mountains of money to buy bad debt, debt that will not become less bad, and propping up the failed institutions and people who created the problem by paying double the market value for stock in their banks makes no more sense than mandating every couple have six children to reduce population. It might work, since most people will starve eventually, but why bother? The United States has produced nothing of real value compared to our consumption for a couple of decades. We export a few Hollywood movies per year, we sell a lot of computer software (thats now mostly written in India) as we export a lot of our actual employment base these days, and we make a lot of trouble around the world worse by selling weapons to anyone who has cash. We will go down in history for producing the biggest bank-sponsored Ponzi scheme in history. Unfortunately, like all Ponzi schemes, only the scammers who thought it up made any money. Our solution to date? Print more money as our governments try hopelessly to keep the scheme going a little longer. Bailout Nation Syndrome is perhaps a form of mental illness, perhaps comparable to whatever motivated now-convicted fraudster Alberto Vilar, an affliction that drove him to keep donating millions to the arts and music when he had no more money left to give. Hed probably have printed it too, if it had been legal, like it is for Mssrs. Paulson and Bernanke and whoever takes over when the watch bells sound. Our worlds modern, bailout-afflicted governments, led by the good old USA, wont stop until we all are in the same position as Mr. Vilar, until were all facing uncertain futures. At least Vilar can appeal his judgment. So, you ask, whats your big idea to solve the problem, Mr. Smarty?Well, the first thing you do when all the waters boiled out of a pot is to turn off the stove. You dont turn up the heat the pot melts and its a heck of a mess then. We should all take a few deep breaths and accept that the hyper-leveraged banking system has boiled dry. Turn off the heat now and at least there will be a pot left to refill after things cool down. If we keep adding heat when theres nothing left to cook, well not only lose the pot, well likely burn the house down around it. Eckhart Tolle (and a fellow named Sidartha Gotama 2,500 years before him) said that in any situation there are but three choices: 1. Work to change the situation if it can be changed. 2. Accept the situation as if it was your own creation. Or 3. Leave the situation. All else is madness, Tolle says. Given that the financial industry has sold and repackaged and resold itself some $500 trillion of worthless paper, far more than the total production output capability of the entire world and, given everyone knows that the stuff is worthless, option one, attempted re-inflation of lost value, doesnt seem a logical choice. (Which is too bad, since thats the present course.) You simply cannot unpop a bubble. Likewise, were all stuck on the same planet and weve all been caught up in what was a global get-rich-fest, so option 3, leaving, probably isnt viable either. Theres nowhere to run.That leaves option 2: Acceptance. Weve all gone through a lot of money, some a lot more than others. Weve partied like it was 1999 for a long time. Now, were either mired in debt of, if we own it, then most of it is bad debt, the partys over and the collective hangovers going to be inevitable and worse than our generation thought possible. But hangovers do pass. If we accept the situation and the fact were going to all have to get through it, that it will pass, itll pass a lot easier if we help each other get through it. A little civil cooperation thats what makes a real economy. Banking and credit are relatively new when comes to economics, when you think about it. Global banking in real time isnt even as old as you are.Buying more guns wont help unless you make guns for a living, since whatevers left of government will always have more than you do. Learning a few actual life skills that can be used to improve your lot, rather than hoping someone will pay you to do what they tell you to might be a good start, though. Working together to provide for our own needs, within our means with the resources and skills we have available is how the species has survived for the past 100,000 years or so. We can do this. Within a few weeks we will probably wake up to the news that Moodys and S&P have downgraded the U.S. national debt and federal credit rating from AAA to … well, it doesnt really matter. Anything lower will be the end of Americas short pre-eminence in world affairs. Well all be sub-prime risks when that day arrives, thanks to those who now borrow, print and flush trillions of dollars in our collective name, praying that while it wont stop population growth, maybe more financial Viagra might re-inflate the old bubble. At least long enough for them to cash out one last time. A few million well-baked potatoes and some clean, cold water would be a better investment of our remaining good faith and credit. They always settle the stomach when ones dealing with a hangover, once the worst has passed.Bill Sepmeier is the son of a German Ph.D. economist who lived through World War I, post-war Weimar Republic hyperinflation, an American depression, World War II and mans landing on the moon and who, as a result, imparted upon his children a profound sense of mans folly where money is concerned but also the hope that there might be something new under the sun.