Monopoly, the End Game

So this analogy seemed to work for some of my fellow American peasants over the weekend, as we ate breakfast and kicked around the extraordinary specter of America's financial collapse. Indeed, these particular serfs are related to me by blood, brothers not of another mother but of the same mother.  Beyond that, I will retreat into the mysteriousness which seems so much in vogue these days, such as when Henry Paulson describes, in dark and somber tones, the reason we need an immediate infusion of a sum representing about 25% of the entire annual federal budget in a mass give-away exercise. And he needs it this week.  Odd, considering how often, and how recently, Bush has mentioned that the "fundamentals of the economy are sound," except, I guess, for all the fundamental parts.  You'd think, when you're talking about that kind of money, and raising the debt ceiling over $11 trillion while you're at it, that you could risk a little candor.  Just spell it out.  Not a five-minute, vague overview full of the same cliches we keep hearing.  "Liquidity," "credit crisis," "financial markets."  Just tell us, Colonel Klink: what gives? Ist Amerika kaput oder nicht?  Without $700 billion, or $1 trillion, sprayed around Wall Street, is the system really going to collapse?  So far you've put American "taxpayer" money (as if any of it is ever going to be repaid!) behind the Bear Stearns buyout for $30 billion, AIG for $85 billion and backed up Fannie Mae and Freddie Mac's obligations in the American mortgage market to the tune of about $5 trillion.  Now you want to throw another trillion at the problem, whatever it is.  Do you see a pattern here?  I think I do.  The palpable sense of complete failure is so great that it's driving a desperate need to believe the United States has the wherewithal to keep the game going, that we have not bankrupted the financial system while at the very same moment experiencing the first gut-clutching premonitions that our foreign creditors have had it with us. And without them, there is no money, there is no ability to do any of this. Isn't there some rational upper limit to the capacity of the United States government to bail out private enterprise, and haven't we already passed it?  Is George W. Bush's emotional security so important that we all have to pretend that his deregulatory madness and his insistence on grotesque military spending is not part and parcel of this calamity and that we can't allow Great Depression II, The Sequel to begin during his final four months in office?

It seems we won't get any greater clarity, in part because our learned solons are no better than Paulson at explaining any of this.  I loved that moment yesterday when the Democrats gathered around the microphone in the halls of Congress, in that Standard Photo-Op, and after Barney Frank talked tough for a moment, Nancy Pelosi leaned in and said, "We're not signing a blank check."  No, Madama Diva, you would never do that, not again, not after all the blank checks you've signed for that crazy war over in Iraq.  Maybe we could get Nouri al-Maliki to fund this bail-out.

Back to the metaphor.  You played Monopoly as a kid, I'm sure.  My boyhood friends and I never played strictly by the rules, of course.  When Parker Brothers invented this game during the Great Depression as fantasy relief from hard times, they designed the rules so the game would, in fact, end at some point.  Not one of those two-day marathons more typical of a bunch of kids playing with their improvised rule book.  In the early stages you acquired deeds to property. You collected rent, maybe you passed Go without going to jail, maybe you hit a couple of scores on Chance and Community Chest.  You were clever and made some good trades for monopolies, maybe on some of those squares where real estate wasn't too expensive but people coming out of jail had to run your gamut.  You know, like the orange properties, or the dreaded reds.  You bought plastic green houses, then traded them in for the monolithic terror of a Hotel.  Later in the game, when Marvin Gardens, the greens and the awe-inspiring Park Place and Boardwalk were developed, you knew it was crunch time.  It was just a matter of one bad roll of the dice.

If you ran out of cash because of some unlucky rolls, because of misjudgment in staying at hotels on Pennsylvania Avenue you couldn't really afford, you could resort to placing your properties in hock.  This had a double whammy effect.  If you really played by the rules, you were entitled only to half the value of a hotel, house or deed mortgaged to the bank.  Plus, when a deed was mortgaged and turned face down, rent was no longer collectible.  You could not borrow money from other players, at least by the rules.  You could, of course, sell your properties, but you were up against a group of 9-year old boys (like vulture funds) with no real interest in your survival.

We're in the End Game of the Great American Game of Monopoly.  That was the true meaning of the "mortgage-backed security" phase of the national meltdown.  It's true that high rollers on Wall Street seized on a scheme of turning huge bundles of ordinary home mortgages into bonds that could be sliced, diced, tranched and parted out in a secondary market, and this was a great boon to the investment banks, like the aggressively sleazy Bear Stearns.  They had a new bubble to inflate to maximum surface tension.  The air blown into the bubble was cheap money, and that was pumped in from recycled dollars around the world.  Greenspan & Co. kept domestic interest rates unrealistically low, so that from the viewpoint of foreign sovereign wealth funds, the return was less than nothing when devaluation of the dollar was considered.  China, Saudi Arabia, many other countries sat still for that, because the run-up in real estate prices permitted an orgy of borrow and spend consumerism during the early years of the 21st century, and we shipped a lot of that money overseas for oil, cars, plasma TVs and poison dog food.

So for a while there we owned everything from Baltic to Boardwalk.  Mortgaged to the hilt, it's true, but it looked good on paper.  And then the mortgages began to fail.  The problem was that, in America, real wages, the standard of living for the majority of the population, have not really progressed since about 1973.  Lots of Americans couldn't afford those overpriced houses; they were trying to develop Park Place on a Mediterranean Avenue budget.  Once the foreclosed houses flooded the market, prices nosedived, and the housing stock hemorraghed equity.  Thus, no more lines of credit or re-fi to prime the consumer pump.  The Chinese, the Saudis, so many others began to wonder: if they don't buy our crap, what's in it for us?  

Partial failure of a tranched bond tended to drastically reduce the face value of a mortgage-backed security.  The underwriters and purchasers of these exotic instruments were reinsured against failure by a complex and completely unregulated web of derivatives such as credit default swaps, so that mass failures of the bonds reverberated through the whole financial community, entailing investment banks, commercial banks, insurance companies and government sponsored enterprises.  All hell broke loose and the big investment houses were burned to the ground.  

The federal government would like to believe, at this point, that it is the guarantor and banker of last resort.  This is not quite accurate.  There have been some other observers watching our immature President and his gang of childish enablers play this silly, fatuous and fatal game of Monopoly.  Some of these observers wear burnooses as their daily attire, others business suits of a Western style, although the wearers speak Mandarin or Japanese.  The standards of living of many of the citizens in the countries ruled by these observers are not quite as lavish or self-indulgent as their American counterparts, to say the least.  As they watch the American lifestyle implode, they do so with equanimity and not a little satisfaction.  While America, at least for a while yet, might fancy itself as the financial capital of the world, that kid who lived up the street from you who always wanted to be the Banker in the Monopoly game has been replaced by Chou and Faisal, who are not nearly so easygoing.  They sit a little back from the card table, watching. One can detect the faintest hint of a smirk as they watch the last two players fight it out.  Should they dole out any more money or not?  The kids are begging for a bailout but maybe this game has gone on too long.  Oops, Sonny just hit Park Place with a hotel and he's busted.  Now Rusty has the dice and he tosses them on to the board...oh no.  Did he just throw a nine?