President of United States of America said he is angry. An angry Congress passed a constitutionally questionable retroactive and punitive tax bill as a response to massive public anger over AIG bonuses paid out to same executives who brought AIG to ground. John Stewart is angry at CNBC and Jim Cramer, understandably so. Rush Limbaugh is angry at Obama and want him to fail.Alan Greenspan's fall from grace has been painful to watch. Bill Clinton's push on Fannie and Freddie to underwrite subprime mortgages looks thoughtless at best. Phil Gramm's 1999 Gramm-Leach-Bliley bank deregulation bill is identified as ground zero of the financial implosion by Obama. Quantitative Analysts (once fondly called Quants) are blamed for fusing quantum mechanics and human behavioral dynamics to mystic levels while predicting the risk of subprime derivatives. People those who lost their jobs are angry. Those who lost their retiremnent savings are angry. I lost more than 50% of my 401K. I lost 150K of my home value. I am young and I have time to recover most of what I lost. Fortunately I still have a job. But I am also angry. Very angry.
Not at the wizards and Quants at AIG and Lehman any more. Not at Alan Greenspan. Not at Gramm-Clinton-Summers. Not at Jim Cramer and CNBC. I am angry at any one who is instigating anger and fear in American People. That includes media screaming 'worst since.......' fear mongering. I am angry at Congress for getting angry at their own omission and commission and for not being unable to contain and channel their anger into anything productive and constructive. I am angry at the president who keeps warning American people 'it will get a lot worse before getting better'. I am angry at American people for getting angry. Because every passing minute of anger is costing a job, retirement and a home some where in this great land.
Dont get me wrong. I am not writing this to defend legal but questionable operations pulled off by a select few in Wall Street that is now holding the entire world hostage. They deserve blame to the highest order but not anger. In America, people don't like anger. Or that is what was told as a reason why Obama professionally managed his anger during his campaign.
Coming from a country where credit was hard to come by, I saw with starry eyes how US created credit out of thin air. The prosperity of US, compared to any other developed world, is largely due to the so called 'greed' of bankers and investors and, to some extent, 'stupidity' of American people chasing American dream. You might be thinking how irresponsible is to say such a thing at a time bankers and investors are the most hated people in the world.
I dont have a PhD in economics but I will give it a try :)
US has seen many booms and busts. Each boom brings a level of prosperity that was not seen before. Each bust erodes some portion of the wealth that was created during the boom. But after every bust, we have more jobs, more homes, better cars, better infrastructure, longer life, better technology than what we had before the boom. We lost about 6 trillion in home values since its peak in 2006. But we added twice that much in the years leading upto 2006. So we still have a long way to go before we hit pre-bubble prices. Median net worth of American households is still higher than that in 2004 even after falling 13% in 2008.
What we as a society fail to see is the "macro economic tectonics" that happens during the 'irrational exuberance' years leading up to a crash. For economic activity to thrive, we need credit. And we need credit available to all classes of people including the so called "sub-prime" borrowers. This does not happen in many parts of the world. First, it is extremely difficult to get credit. Second, credits are the privilege of the few. But in the US, credit is freely available. It is available to all classes of people albeit with higher interests and fees to "sub-prime" borrowers. Sure some people will default and foreclose. Some will file for bankruptcy. But increased credit provides a mechanism of shifting massive amount of money from those who can invest to those who need money. In the process both the investor and invested prosper and living standard of the society improves dramatically. If you tell the rich to donate money for a housing project in inner city, they will do a little. But if you tell them to buy a sub prime mortgage security insured by AIG, they will invest a lot. It takes mass hysteria and hype to create capital flow. And almost always, the market over shoots. It comes up with mind bending complex derivatives in a frenzy to push more mortgages and securities only to realize that it made gigantic blunders.
Almost always it is impossible to see a bubble when we are in one except if you are Greenspan. Even he decided to let the market bubble over by itself than trying to pop it. Once the credit has flown so much so that it over shoots the capacity of people to borrow money, everything comes to a grinding halt and then follows a high speed retracting. The investors loose money in toxic securities. People loose their home values, retirements. Then market corrects. The correction also over shoots. It corrects more than necessary since we are in a reverse bubble. After a while a sense of normalcy prevails and market and asset values corrects to a normal valuation. Not so strangely, the valuation of assets are higher than what was before the hysteria started. After all, all the new homes built, new streets paved, new water and sewage lines laid, new cable and phone lines connected, new parks and play grounds built will continue to serve American people for decades with only periodic maintenance. These are hard assets and no one can take those away from America. Not even the foreign treasuries whom we owe trillions.
We built 73 million homes between 1950 and 1979 and only 45 million since then. We thought we had the biggest housing boom in the history between 2000-2005! Brace for the next housing boom in 10-15 years and a quadrillion dollars bust a few years after that!! So much for the recently acquired national resolution to end "boom and bust cycle".
Apologies if I sounded overly insensitive to people lost their jobs, homes and retirements. But US would not have had that many jobs, homes, retirement savings and net worth if we did not have the greed of the investors and stupidity of American people. Also having a money printing press at Federal Reserve helps too :)
This may give socially minded readers a reason to calm. Roughly 3 trillion dollar of sub prime mortgages were funded since 2000 to low income people. At least 8 in 10 of the sub prime borrowers are still living in their homes. Only 2 in 10 are foreclosed. Without the now hated subprime loans, 8 out of the 10 may never have owned homes. Rick Santelli can scream on live TV that those are losers but that is precisely what anger can do to a great country's psyche. They are American heroes working hard and paying off their mortgages and raising their family in a place they call home. Anger blinds the mind and it is the easiest route to destruction. And I think it is time for Americans to redeem their country devoid of anger but full of excitement and optimism that always defined and redefined America. So no more anger please.
ABC News: The Middle Class Is Doing Just Fine, Thank You
