Saturday, January 31, 2009

Somebody’s Got To Pay

Much has been made in recent weeks over the so-called Ponzi scheme foisted on the investing public by Bernie Madoff. The classic elements are all there: the promise of future returns that are, in reality, fueled by new investors lured by the promise of future returns that are…well, you know. Of course, the perpetrators of these schemes manage along the way to siphon off their cut from the flow of funds. Human beings fall prey to such schemes all the time, and for a variety of reasons: gullibility, greed, and sometimes a simple willingness to trust the wrong people. Madoff, whose role in worsening the current economic crisis is still surely underappreciated, managed to play on those tendencies better and for longer than most.

We’ve already seen some $350 billion worth of government bailout absorbed by the system like so much water into a thirsty sponge. And, since that didn’t work, the answer apparently is to double down—and then some. Which, IMHO, calls to mind a comment candidate Obama made during the campaign about the definition of insanity….(1)

Now, in fairness, the new spending isn’t being sent in the same direction as the last bailout (or whatever euphemism you’re most comfortable using). Of course, as far as I can tell, that first package (which by most accounts was strongly influenced, if not architected, by the new Secretary of the Treasury) didn’t wind up going in the direction(s) we were told it would—and while we were told that the government needed discretion to administer the funds where it best saw fit, most Americans probably didn’t think that meant it would wind up funding big corporate takeovers and massive golden parachutes. Ultimately—let’s face it—the bill was really about helping financial institutions stay in business, and, once that money was in hand, many proceeded to do just that.

On the other hand, if that first package was ill-approved in haste, the second wave approved by the U.S. House last week was, in almost every respect, IMHO, a slap in the face of American taxpayers. You don’t have to have (or win) the argument about whether infrastructure spending is truly stimulative to the economy or just a necessary investment to realize that much of what the members of Congress (at least the ones who voted for this monstrosity) apparently want us to pay for is—their reelection.

Something’s “Fishy”

What seems to be lost in the furor over needing to DO something—and we’re all surely anxious for things to get better—is that the federal government doesn’t have its own bank account. And for all the talk of the burden we’re leaving our grandchildren, there is a fiscal reality coming, and probably sooner than that. We all know this at some level—just as we all knew that that housing bubble was going to burst eventually, that those paper business plans couldn’t possibly justify that kind of market valuation for technology start-ups, and that there had to be something fishy about how Enron was reporting its revenues.

In sum, we all know this is wrong, if not criminally stupid. Maybe we’re not quite sure what to do, and perhaps we’ve been hopeful that wiser minds than ours can figure something out. However, if this is the best they can do—well, then, IMHO, it’s time to take away their ATM card—which, lest we forget, is wired to OUR bank accounts.

Now, in this, as in life generally, it’s relatively easy to sit on the sidelines and criticize those who don’t have that option. This is the time, even if you’ve never felt the urge before, to weigh in with those making decisions that will affect your job, your investments, your retirement….

Before it’s too late….because, sooner or later, somebody has to pay.

—Nevin E. Adams, JD

(1) He quoted Albert Einstein who noted that doing the same thing over and over again and expecting a different result was the definition of insanity.

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