"Business? In this business, you're always one step away from bankruptcy. Funny money, credit, speculation... Somewhere in this country there's a little old lady with seventy-nine dollars and twenty-five cents. And the five cents is a Buffalo nickel... If she cashes in her investment, the whole thing'll collapse -- General Motors, the Pentagon, the DuPont Sisters and the whole shebang... We're all runnin' downhill. Gotta keep runnin' faster all the time or it'll all fall down..."
— the late character actor, Dub Taylor, as disgruntled gas station operator in 1974 film, Thunderbolt and Lightfoot
This article first appeared in the St. Louis Beacon: October 1, 2008 - Given recent news from the financial front, I gather that the little old lady mentioned above finally cashed in her Buffalo nickel. The repercussions have been both severe and widespread because, like all ponzie schemes, the U.S. economy has to continuously expand to remain viable.
When congressional negotiations over a government bail-out of biblical proportions faltered, President Bush remarked, "...this sucker could go down." The "sucker" in question here is the banking system. Say what you will about Mr. Bush's allocution -- or lack thereof -- at least he didn't try to obfuscate the issue with abstract, technical terms.
In response to the crisis, John McCain suspended his presidential campaign and called upon his opponent to do the same. McCain seems strangely obsessed with managing Obama's campaign. First, he demanded that Obama to go on tour with him for a series of town hall meetings. Then, sounding a bit like the anxious student who neglected to study for an important exam, he urged Obama to agree to a snow day by canceling their scheduled debate. Not surprisingly, Obama declined both invitations.
At any rate, McCain flew to Washington and took command of the budget situation by declining to take a stand on the bail-out package. Then, apparently reconsidering the wisdom of giving Obama two hours of air time for a personal infomercial, he reversed himself and flew to Mississippi to take part in the debate.
Political posturing aside, the economics of the situation are alarming. The complete collapse of the global credit market is at stake and nobody's quite sure what to do about it. The plan to have the government (aka "us") buy bad debt from banks may be the only viable option left, but it's not without problems of its own, the most salient of which is that we don't have any money.
The government will borrow well over $400 billion this year just to pay its bills. That's the deficit. When you're borrowing money to pay your own bills, how can you issue someone else a line of credit?
A related difficulty is that no one knows what all this will cost. Because of the complexities of the holdings involved, it's impossible to calculate exactly how much bad debt is at issue. Trying to determine the value of a security backed by an option on a derivative based on an asset of dubious value is like trying to weigh a phantom. Current estimates place the program's cost at $700 billion, though Treasury Secretary Hank Paulson has been rather vague about how he arrived at that figure.
However the sum was calculated, the Bush administration has now managed to grow the national debt from the significant $4.9 trillion it inherited to a staggering $11.3 trillion -- an increase of about 130 percent in less than eight years.
With economic apocalypse looming, I tuned in to last Friday's debate to learn what our would-be leaders plan to do about this unfortunate development. The answer seems to be "not much."
Obama contended that Republican efforts to deregulate the banking industry made the current mess possible. In this, he has a point. Right-wing politicians have waged a concerted campaign for decades to undo the New Deal on behalf of "free markets" while ignoring the fact that the last time markets were this free, they spawned the Great Depression, which is why the regulations were developed in the first place.
But neither man could name one program -- not one -- that he would cut or curtail in order to pay for the bailout. Obama's vision of fiscal responsibility includes cutting taxes for 95% of the country, ending poverty, extending college education to every American, providing universal health care and rebuilding the infrastructure. He did not mention whether he intends to colonize Mars.
McCain, being a maverick, intends to fire people and generally kick ass while lowering taxes and razing the entrenched Washington power structure that he's been a fixture of for the past several decades.
As the debate concluded, I thought of an e-mail that a viewer identified only as "John" recently sent to Jack Cafferty on CNN:
"...We are having this fierce debate over which one of the village idiots will save us from the dragon. Meanwhile, the money-changers are burning down the house."
Find that John and he's got my vote.
M.W. Guzy is a retired St. Louis cop who currently works for the city Sheriff's Department. His column appears weekly in the Beacon.