America's Financial Samson Option

I highly recommend Michael Lewis's "The End" currently running in Portfolio.com, even if I did first encounter the reference in Thomas Friedman's column, noted pretentious hysteric for the New York Times.  To say that Friedman "cited" the piece underplays the contribution Lewis, author of Liar's Poker, made to Tom's column.  Essentially, Lewis lays out the entire history of the "mortgage-backed security" scam which has brought the country to its financial knees.  The "end" to which Lewis refers is the end of Wall Street: all of the investment casinos, now in ruins, every stocks-and-bonds house either gone entirely or on its last legs, begging for sustenance from the U.S. Treasury to stay afloat long enough to assure the plutocrats who run them of an easy retirement.  How lucky they are that George Bush and Hank Paulson believe it is America's first duty to take care of the very, very rich and to save them from the direct, foreseeable consequences of their own chicanery!  What a country.

Mr. Lewis tells his story mainly from the perspective of the short-sellers who figured out fairly early that the "tranching" of shitty mortgages into great, steaming piles of "investment grade bonds" and sold willy-nilly to pension fund managers, hedge funds, banks and others was all a giant con game, in which the major conspirators were the Wall Street investment houses, the ratings agencies and an indifferent federal regulatory regime. And gee, why did they do it? Because they were greedy as hell.  When the housing bubble burst and the defaults began, the entire financial structure of the United States began to wobble and collapse.  The increasingly worthless mortgage-backed securities, in the hundreds of billions of dollars, potentiated by credit default swaps and other derivatives built upon them, reaching into the trillions, have wreaked utter havoc.  The problem is so much worse than it appeared when the story first broke in the summer of 2007.  As George W. Bush so sagaciously and recently said, "this sucker really could go down."

Lewis relies heavily on the exploits of one Steve Eisman, an irreverent "financial analyst" who had the foresight and the heretical inclinations to begin shorting the MBS market before it was fashionable to do so.  It was only a matter of trusting his instincts - to see what was obvious but which the scam artists getting rich selling bonds systematically denied.  I feel encouraged by his iconoclasm - empowered, you could say, to mention the unmentionable: namely, the United States cannot possibly have all this money we are pledging in all directions to bail ourselves out of everything through the federal government's purchase of the entire U.S. economy.

Reflect for a moment on those halcyon days when we used to obsess about explosions in the streets of Baghdad.  Remember?  It seems like only yesterday, doesn't it?  And the big argument then was whether Congress really should appropriate those vast sums necessary to keep the war effort afloat.  You know, like $80 billion, or $50 billion, maybe sometimes $100 billion.  It all sounds like pocket change now, doesn't it?  Yet how can that be?  At the time the budget hawks remonstrated about the utter impossibility of continuing to pile onto the "national credit card" the ruinous costs of continuing with the occupation.  Virtually on an everyday basis now, however, the federal government talks about a $700 billion TARP for troubled assets, or another $700 billion for an infrastructure program, or $25 billion for the Big 3 automakers, or $300 billion to recapitalize the banks so they'll begin lending again...

Where is this money coming from?  The tax revenues for the federal government are in decline because unemployment is soaring (John Williams at ShadowStats claims that the actual unemployment rate, calculated on the basis of the pre-Clinton method, is about 16%).  Isn't it obvious that the United States is simply declaring itself to be in possession of such wealth? While the world holds its breath.  For we remain, for the nonce, until other arrangements are made, the Samson of the financial temple.  If we go down, we pull the pillars down with us.  So sure, say all the nations of the Earth -- you've got the money, Samson.  Now just take it easy. Keep printing dollars and we'll say it's money, if that's what it takes.  For surely we don't want a repeat of this:

And Samson grasped the two middle pillars upon which the house rested, and he leaned his weight upon them, his right hand on the one and his left hand on the other. And Samson said, "Let me die with the Philistines." Then he bowed with all his might; and the house fell upon the lords and upon all the people that were in it. So the dead whom he slew at his death were more than those whom he had slain during his life.