If you suspect that Joe won't pay his debts, you're not going to loan him some money; If you think Ralph is cooking the books, you won't want to invest in his company; If you have reason to believe Peter sells defective merchandise as new, you won't go to his store - A market cannot function without trust. No one will risk parting with what they possess for fear of being cheated, swindled, or defrauded.
This was the core problem faced by the financial guru's last week. The market was approaching such a point of paralysis where all commerce would halt for the lack of trust. Let me illustrate how this works. The most recent report from the Fed (click here and go to page 30) indicates that 46% percent of those with a credit card carry a balance that averages $2,100. (The mean, or middle number, is $5,100.) This report is for 2004 and the 2007 version has not yet been released, so I suspect my numbers are a little low. But it will still work fine for our illustration.
What would be the result if all the credit card companies became concerned about being paid back? What if they folded their arms and said, "No more Mr. Nice-Guy? Pay off your balance in the next 10 days or we will be by to pick up enough stuff to cover the balance." The distressed credit card account holder might attempt to come up with the money by getting a loan. Let's assume for purposes of our illustration that all the banks in town have heard about "Operation: No More Mr. Nice Guy" and have closed their credit windows, too. No new loans are available. So what's a person to do now? How many of those 46% of all US households are about to go bankrupt because someone else won't trust them to pay?
Looking through their crystal ball, the Fed and Treasury discerned that just such a scenario was only a few transactions away but on a much larger scale. Here's a current article from MarketWatch that summarizes the current discussion that is in full swing. Henry Paulson gave testimony before the Senate Banking Committee, today, and I came across this curious line in his transcript: The ultimate taxpayer protection will be the market stability provided as we remove the troubled assets from our financial system. There are LOTS of references to "restoring confidence" in his remarks, but this line captures one of the key mechanisms for doing so that leaves my confidence less than restored.
Here's my translation of his statement: "You, the taxpayer, will receive a stupendous benefit as we purchase, on your behalf, all the worst possible loans we can find. We will take off anyone's hands the loans that should never have been made in the first place. Now those companies can get along just fine because they won't have the toxic loans messing up their balance sheets. The tax payers will own them and we can all have our confidence restored in these fine financial institutions."
Do you feel like this is the "ultimate taxpayer protection?" Or perhaps you have another name for it?
No question it is a taxpayer bailout. But do you know where there is an even bigger bail out and greater risk? The U S Treasury. That's right, the same entity that is bailing out those who have been slammed by this sub prime problem has it's own sub prime mess. It's called the national debt; nine trillion and growing every day. It's like having a mortgage where the outstanding principal gets larger every month and you must either earn more income or borrow more money to remain current on your payments. So it is pretty clear to me, a bailout, however repugnant it is to just about everybody, is a last ditch lifeline to prevent future unemployment (tax receipts) and restore confidence with investors (i.e. more lending.) Otherwise, the economy and the government tanks. That means everything that the government currently provides is seriously compromised.
Will the plan work? Probably not well. But it's too late to undo twenty years of fiscal irresponsibility facing a week of reckoning. Certainly, it seems like we all could learn some valuable biblical principles on money management from the current crisis. I know it has been a sobering lesson for me with respect to some of my own past spending patterns!
Posted by: randy | September 23, 2008 at 02:47 PM
Way to Randy!!. when i hear about the debt that "MANY" of our brothers and sisters (in our church) are incurring or have acccrued,then i have to wonder which Bible they are reading!Worse yet, they are enabling and setting a poor example for their children as they go forward and into debt themselves. I know Jim does'nt preach that!!Also i wonder what "value" the Lord puts on our evangelizing/witnessing when he sees that we are in hock up to our knees.I am not referring to honorable debt(helping a close hard working / poor relative with essential medical treatments ,as an example)...i'm talking about having all the "coolest stuff" etc..........In this country, what a company decides to pay a ceo (etc) is their business but if they are going to use my tax payments to pay for those type of things in this so called bailout ,then i'll take exception. Additionally, i hear a lot of "we'll borrow for this and for that" but i dont hear we'll cut the billions we spent in support of illegal alliens...I thought this was going to be a fiscally responsible administration! why dont we cut back on something....anything!! It would be nice to see some legal action from the justice dept. for those that violated the plethora of laws already in place..
Posted by: don | September 24, 2008 at 11:30 AM
So where, exactly, does it say in the Bible that consumers are being sinful by borrowing money or buying cool stuff? And frankly, there's a far less ridiculous explanation for why people have become over-leveraged than saying "they're not reading their Bibles."
Posted by: AC | September 24, 2008 at 09:57 PM
If one reads the above comments carefully, the word "SIN" is not mentioned...more on this later.
Posted by: don | September 25, 2008 at 08:23 AM
"One" doesn't have to read carefully at all to catch the sentiment: sanctimonious censure. Sure, the word "sin" isn't in there. But the latent accusation definitely still is.
The parents who're in debt are "bad" examples, and haven't read their Bibles--that's as clear an indictment as any. The sheer hubris that incites "one" to use people's mortgage as a platform to condemn their parenting is repulsive.
Of course, Job's friends knew all about how to use material consequences to bolster their credentials as spiritual hatchet men. So I guess I'm wondering, when "one" emulates their example, which Bible can "one" claim to have been reading?
Oh, and how many of those "bad parents" within "one's" fellowship should "one" have confronted personally before scolding them on this website? It might behoove "one" to think before dragging his fellow congregants' collective reputation through the muck.
And forgive me if the brand of piety that use every opportunity to construe other people's economic posture as unspiritual or stupid ain't my cup of putrid tea. Economics is economics. And there are plenty of explanations for pervasive over-leveraging that don't stoop to stomping on others' spiritual maturity.
Posted by: AC | September 25, 2008 at 10:39 AM
You know, I heard a financial analyst likening the proposed deal to this scenario: someone puts five cocktails in front of you, but one of them has arsenic in it.
The idea is, no one will drink any of the cocktails because the risk is so high of death. So, the analyst's take on this is: the government is, in essence, taking the five cocktails on the assumption that one will be toxic, but the other four will more than compensate for the loss of the one bad loan package.
In theory, I guess that's not a bad plan. There are two reasons, though, why I don't think it's going to turn out well for taxpayers.
First, I doubt the other four cocktails don't have alot more arsenic in them than we currently think.
Second, even if they don't, and the value of these assets skyrockets, do you really think the federal government will issue a rebate or a dividend on the investment that taxpayers financed? I doubt it. Any government surplus will likely by spent. So, the taxpayer can be conscripted as a financier, but receives no benefit back.
Of course, all of this assumes that a lending scheme to generate liquidity will pull us out of the hole. I don't think it will.
Posted by: Austin | September 25, 2008 at 10:53 AM
Well AC, you put me in my place.I sincerely apologize to any and all that i might have offended...you too...It was not meant as a sanctimonious attack, but it sure came across that way...i will now go away and lick my well deserved wounds...i've been more than humbled..
Posted by: don | September 25, 2008 at 02:51 PM
Some "wins" prove hollow just as soon as the bell rings. Don, I owe YOU an apology. Rather than engage you in a constructive discussion, I went for a punchline. Your gracious response to my diatribe only throws my reckless aspersions into sharper relief. I was mean. Please accept my humble apologies. Will you forgive me?
Posted by: AC | September 25, 2008 at 09:22 PM
Don & AC,
I don't recall seeing this kind of interchange on a blog site. Usually, the rancor just keeps ramping up. You both have taken things in the opposite direction. Who among us has not said things we wish we hadn't? But less common are those who can admit it and seek to put things right. Even more rare are those who are willing to do so in a public forum with genuine humility. Well done to you both.
Posted by: Jim Fleming | September 25, 2008 at 11:57 PM
AC,i am inept with email typing so i'm sorry about all the dots as i dont know how to make paragraphs on the key board. Also my written english is'nt the strongest. Your note gave me such a lift..it was gracious and encouraging to do that as i rode the bottom all day.You did not need to apologize ,but offcourse i'll accept it. I have been doing business with God all day about this..and i did not realize it earlier in the am, but have since concluded after much prayer and reflection that i LIED to you and all the readers about not trying to be "intentionally" superior..I now suspect that indeed i was lashing out at my bro's and sisters in Christ...Now i'll proceed to demo to you how i failed here..Here's the deal, my spiritual bag has nothing in it to speak of but by the grace of God he has managed to allow me to be debt free for many years; but make no mistake, i must have been jelous that everybody else's spiritual bag was much/much fuller (like its a contest) than mine and i think i found a way to poke a hole in theirs...God has dealt with my pride and lie through you and i'm thankful for the conviction and ashamed of my sin.Satan was in control and the Lord decided to use AC to whip me back into shape. Not to belabor this issue,but my bigger concern was a visitor "misjudging" the wonderful caliber of christians that attend CBC and particapate in this forum because of what i said ...To the readers, please consider the source before you judge this great church. I am ACE the angry man in the web...that's a glimpse of my spiritual bag!!........You mentioned Job's "friends" , i would add the pharisees... In John 15 Christ talks about the greatness of a friend his life for a friend as Christ did for us.I had an opportunity to be a friend today by showing a little empathy,love,understanding and tolerance because that's what Christ wants us to do for each other and i missed an opportunity...Once again, i'm contrite and i guess i should move on...Thanks AC for your follow-up...it meant a lot and i need it. don
Posted by: don | September 26, 2008 at 02:09 AM