An end to failure seems to be the new American creed of the twentieth-first century. If you were on Wall Street, and bought and sold subprime mortgage paper, gambled on derivatives, garnered spectacular bonuses as you piled up debt—and then helped to bankrupt your investment company—the government was often there to ensure that your past profits were your own, and your present failures everyone else’s. In our brave new world, no one took too many millions he didn’t earn, or was a fool who squandered someone else’s 401(k)s. Instead, nebulous forces, not real people, did this, and so an equally nebulous “government” must set things right.
If you were a federal banking bureaucrat at Fannie Mae and Freddie Mac, and enriched yourself by cooking the books under the politically-correct cover of putting the poor and unprivileged in homes of their own—at the cost of ruining hallowed institutions— then no problem: you failed; others cleaned up your mess; while you sought refuge in victimhood with millions in past bonuses.
For much of the 1990s, the Big Three auto companies preached the gospel of let the market adjudicate popular tastes in automobiles, when warned that their big-profit Tahoes, Yukons, Hummers, and Escalades might make both America more vulnerable to foreign oil spikes and themselves at the mercy of a sudden radical shift to small cars should gas prices ever rise.
Then energy prices spiked. Consumers did not want any more 15-mpg behemoths. Cars went unsold—and Detroit then asked for, and received, a bailout guarantee to cover their own failures. We never heard that the CEOs, the marketers, the advertisers, and the designers failed—only that union health care costs, or market forces, or consumer choices did the automakers in, and thus the government had to intercede to save automakers from themselves
But at the other end of the spectrum, failure is becoming just as obsolete. We are told hourly that millions of Americans have lost their homes, rarely that 94% of home debtors continue to pay their monthly mortgages. And there is almost no information given on how or why those who defaulted walked away? Did at least a few buy a house who had no business taking on a mortgage? Did at least some wish to speculate, buy property, flip it, and profit in a perceived permanently bullish housing market? Did some others take out second and third mortgages to expand their consumer spending and hope to make it deductible on their income taxes? Did others still simply make a business decision to walk away from a freely incurred debt that proved larger than the falling equity in their homes?
Yet it seems to matter little how these mortgages failed, since both political parties are now outbidding each other to offer some sort of debt relief, mortgage reduction, or suspension on foreclosures. Indeed, no one failed at all—“they” (fill in the blanks with “the banks”, “the economy” or “George Bush”) caused the defaults, and so “they” should make it right.
Listen to almost any Congressman, or tune in to radio ads, and rather quickly you will hear a plan to bail out those with onerous credit card debt. No one dares to ask anymore what was charged on the Visa or Mastercharge. Were such debts always heart operations or food purchases to stave off hunger, rather than an occasional plasma television, video game, or vacation? Instead, the failure to pay one’s debts is assumed again to be the fault of someone else.
The message in all of these cases is now becoming unmistakable: if you are hyper-wealthy, gamble with someone else’s money, and lose big-time, then the government will cover your losses. Or better yet, work for a quasi-government agency where the bonuses are yours, while the losses belong to the public. If you build the wrong car, and bet wrongly on the future price on gas, then your successful gambles make you rich, and in times of miscalculation your government covers your losses. And if you buy a house beyond your means, or decide it makes no sense to pay off the mortgage, then someone or something, not you, failed to honor your debt.
But what happens if you are not enormously rich and not rather poor—and, worse still, made the ethical, but old-fashioned decision to pay your debts and not default on what you owe others?
Let us hope that you do not make over $250,000 like many family physicians, small business owners, or restaurateurs. You are way too big to be part of the fifty percent of wage owners who would, under the Obama tax plan, not only be excused from income taxes, but in many cases receive a check from the government.
You are also way too small to be a corporation in need of a bailout, or a megafarm that needs more agricultural subsidies. Instead, as a reward for belonging to the 4% who pay 60% of the nation’s income taxes, and working industriously to achieve an enviable income, you may well soon pay between 60% and 65%—or more— of your gross income in state income, federal income, Medicare, and social security payroll, taxes. And you will be considered the suspect “rich” and then told it is “patriotic” to “spread the [rather than your] wealth around.” Nor can you sigh that your tax liability will ensure that the deficit disappears—not when another trillion dollars in federal entitlements are promised by would-be President Obama.
In the mid-nineteenth century, young people of industry and vision were advised “Go West, Young Man!” Today we might instead suggest “Just Fail!”
PJM Home
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18 Comments
1. Minerva:And Doc, you know land. When crops fail, will Obama put us on starvation rations?
Oct 26, 2008 - 9:15 pm 2. DougW:Didn’t one of the Founding Fathers say in effect that blood had to be shred every so often in order for a democracy to thrive? Not truly certain of the validity of my paraphrase but I’m certain the sentiment hold true.
What I take Prof. VDH to be saying is that our country has lost its vitality and cannot continue without that sense of risk or the possible failure of an enterprise. Which means “what” for our present course of how we govern this country?
I believe fervently in democracy and that capitalism is the best means to support that form of government. Yet, we are no longer governing this country in a rational matter. So, how do we proceed from this point without radical changes? And, how violent will future social unrest become?
Oct 26, 2008 - 9:27 pm 3. Jimmy J.:You have summed things up rather well.
The liquidity crisis is the result of fear that lead to a loss of confidence in financial instruments. The primary reason that confidence was lost can, IMO, be laid at the feet of the “mark to market” accounting rule imposed by the SEC and FASB. The ruling was made to prevent financial companies from cooking their books, but had unintended comsequences.
An analogy would be if a house in a subdivison of $350,000 houses sold for $250,000 because the owner was desperate to sell. In such a case it would not make sese for all the mortgage lenders to demand more money for equity from everyone in the subdivision because that sale had set the new lower price for all the other houses. That is, however, exactly what happened in the case of of the MBSs (Mortgage Backed Securities) because there was no real auction market for them. When a few holders tried to sell some MBSs they were offered 20 cents on the dollar, which was a ridiculously low price. The mark to market rule required that all MBS holder revalue their paper to this so called “market” value. This lead to big write downs that required the raising of new capital. But new capital became difficult to impossible to raise and then the shorts jumped on the common stocks and the race to the bottom was on. Fear pervaded the market as trillions in capital were destroyed. The rest, of course, is history. All this because of an accounting rule and a rise in defaults/foreclosures, which, had reason and calm prevailed, could have been worked out over a period of two or three years.
It became absolutely necessary to reliquify the system because we were rushing toward deflation at a breakneck speed. It was, however, not necessary to add all the pork to the bill. Nor is it necessary for the Feds to try to save all the foreclosures. That process could be done in an orderly way without federal meddling. However, the real estate and banking interests are only too eager for federal money to cut their losses. Now Congress is going to save everybody because it makes them feel like saviours.
What I would like to see coming out of this is a serious approach to reforming corporate governance. At some point we are going to have to put boards of directors back in the position of keeping corporate managements honest and ethical. I suggest that a new vocation of independent board member be established. These people would be trained in business skills, but they would limit themselves to sitting on boards of directors and representing only the owners (stockholders) as was intended. Today we have too many boards that are rubber stamps for managements.
Oct 26, 2008 - 10:41 pm 4. Joe Marino:It’s true nobody ever asks the details. I saw a report on a young couple that went bankrupt due to unexpected medical expenses. They had a big house, 2 nice cars and no children. The reporter never asked them why they didn’t buy medical insurance. They were simply portrayed as victims of Americas terrible health care system.
Oct 27, 2008 - 1:22 am 5. RJ:The individual versus the crowd. Aggregate thinking. Faceless leaders. Societal malaise comes in many forms.
The nagging wife who berates her husband just once too often: What happens?
Mutiny on the high seas. At some point the ship has to come to a port of call: What then?
Perhaps the real question is how much we will lose before the bottom is hit and whether or not we can rise up afterward?
I always thought that kid who was so quick to point out others faults was someone who was never to be trusted with power.
Boy, has my generation done a number on itself and those who must follow!
So much for narcissism! Mommy will come, mommy will come!
Oct 27, 2008 - 6:23 am 6. Jack Marcotte:Essential vdh.
Oct 27, 2008 - 8:21 am 7. frank Miller:VDH–
Another stunning essay, painful though it is to read.
I pray American Socialism serves us so poorly that another Reagan emerges to behead it.
Meanwhile, we fictioneers of independent mind will do our own guerilla works.
FM
Oct 27, 2008 - 9:38 am 8. Suzie Orman:The liquidity crisis is the result of fear that lead to a loss of confidence in financial instruments. The primary reason that confidence was lost can be laid at the feet of the “mark to market” accounting rule imposed by the SEC and FASB. The ruling was made to prevent financial companies from cooking their books, but had unintended consequences.
Oct 27, 2008 - 11:01 am 9. David Thomson:“No one dares to ask anymore what was charged on the Visa or Mastercharge.”
Close to twenty years ago, I earned a living as a bill collector. This allowed me the opportunity to legally read the credit histories of countless individuals. The vast majority of bankruptcies occurred because the debtor spent money like a drunken sailor. Rarely did I encounter someone who was plain unlucky. Most of them fully deserved to be chased down by people like myself.
I got something else you need to know: many of the credit card companies did not go after fraudulent use of their cards! Instead of prosecuting those who obviously abused their line of credit—they simply preferred to opt for a tax loss. It was unofficially deemed not worth their time to deal with the criminal justice system. I remember particularly a guy who was in deep financial trouble who used his American Express credit card to tip top-less waitresses $200-300 for a round of drinks. If memory serves, he did this around three or four times during the evening. A short time later, he likely filed for bankruptcy.
Oct 27, 2008 - 1:23 pm 10. Bobby Rush Whipped Obama:Ahhh, a nice break from the election. Although I would never equate the Fannie/Freddie criminals like Jamie Gorelick and Franklin Raines with the American Auto Industry. At the very least, car companies produced something of value. My Chevy Silverado is an utterly reliable, comfortable piece of machinery. And even at four dollars a gallon, it takes me where I need to go.
Oct 27, 2008 - 2:45 pm 11. Jeffrey S. Neher:Yes…go fail young man or woman, because we’ve now set up a nation with no consequences. Unless of course you are a conservative and actually say what you think…in that case you are to banished from the planet never to return. Unless you pull a McClellan or a Colin Powell..you know, kiss the Elite, inside the beltway ring..then you can be redeemed to an extent. Poor Colin Powell, it must have been hell for him the last five years not receiving any invitations to the finest D.C. cocktail parties. With one fail swoop, he was able to redeem himself in the eyes of the liberal/conservative elites, and “un-sell” himself out with the “poverty-pimp” industry. I still respect the man for his military service but have lost all respect for his other “careers”.
I watch daily with comtempt how truth matters no more to far too many in this nation. We are a culture of greed…and I’m not speaking about Wall street. I’m speaking to our politicians and those voters who vote themselves a living. It matters little to the the thieves what they are doing to their country or their families future. Radical Islam has competition for the destruction of this nation. The enemy within is having far more success than al-Qaeda or any other terrorist network at tearing away the fabric of this country. Politicians have become nothing but “pander” bears, willing to sell out their family and nation to the highest bidder. All the while, the cunning grifters, the extortionists, the gypsies in the palace, such as ACORN, they plan and plot their latest plunder. The most recent of course was the housing industry..which led to the collapse of the financial markets. The costs? Nothing for the criminals but everything for the model citizen. And who is there to speak for the model citizen? The Limbaughs of the world? The VDH’s of the world? Very few. It seems our Media long ago took the proverbial shower. It’s just now their ratings and subscriptions are so far in the tank, they’ve followed that lead and gone completely in the tank for the boy who would be king. The messiah, the one, the Manchurian candidate. The media knew instantly that the messiah and his band of crooks in the house and senate were to blame for this melt-down. But there was a problem. The band of crooks are all democrats and Lord Barry himself the chosen one. How could the media turn on them? How do you throw your “political lovers” under the bus? Someone might say, well, doesn’t truth matter? Isn’t journalism all about fact, and informing the public? Being the watch-dog for the citizen? Apparently that memo never reached todays journalists…no, power and influence, political agendas..that is journalism de jour. And to top it off, this election affords them the chance to make history. They can help elect the first black president. So, here we are at perhaps one of the most critical junctures in our history, and we the people have no voice and little choice.
We have a full-fledged socialist-radical poised to win the White House. Along with him a filibuster-proof senate and a house majority leader foaming at the mouth to shut up her critics. Of course, radical Islam has to be shaking it’s collective head. What to make of this turn to the extreme left. On the one hand, you may have a fellow willing to take America closer to your vision of things. But also, it’s so tempting to exploit his naivete and inexperience. What to do? I know they would rather have this problem than another president with W’s resolve, but it does pose an interesting dilemma…..
Well, I guess I’ll have to start watching American Idol like the rest of my idiot voting bloc………
Oct 27, 2008 - 9:48 pm 12. jp:Another firestorm yesterday in the messiah’s camp; just another one of many lately. Seems that FOX News posted a copy of a 2001 tape of Obama discussing the failure of the Supreme Court to rule on the ‘redistribution’ of wealth in its civil rights decisions. BO spokesperson Bill Burton accused Fox of ‘trumping up fake controversies’!?!?
Another ‘controversy’, mentioned by Rush Limbaugh, that is currently running under the radar; the proposal by the Senate Committee headed by George Miller (D), is to take away our 401k’s. Reportedly, the plan is to have the government buy the 401k’s at their value in August (before the crash), and incorporate them into Social Security. This would be invested in government bonds,(at 3%), and an individual, upon retirement, would receive a SS check + 401K amount, but with no tax deductibility. This would make retirement funds soley the responsibility of the government.
You don’t suppose this little windfall to the SS fund would be raided as has been done in the past to pay for other ‘plans’, do you? Naahhh .
Oct 28, 2008 - 8:35 am 13. jonathan K:Such doom and gloom on the right, it reduces everything to the old “the world is going to hell in a handbasket” Regan, the most successful conservative politician of the 20th century would never have adopted the tone that I see throughout most of the rightie blogs.
There are serious problems today, no doubt, but Americans are pretty ingenious people and have always found ways to deal with them, some good and some bad,
The chief problem today, seems to be education . We have a well educated public as far as the technical skills needed to make things work i.e. computers, engineering, medicine etc. but most people even the ones with a lot of degrees seem to ignorant of the basics of the history, literature and philosphy of our Western Civilization. The ignorance of people outside their technical and/or professional work competancies is appalling. Apparenlty you can get through even a good 4 yr college without taking what was used to Western Civ 101-102.
Critical thinking does not seem to be taught at any level of Schooling. A lot of young people, and even older ones merely spout off dogmatic opinions gleaned from Tv or the internet.
I think if we can solve this problem of education, many of the the things that are problems will be ameliorated.
Your recent colums have been to gloomy and too negative. McCain is not the last best hope and Obama is not evil incarnate. Both men are essentially, like most of our presidents, hack politicians who hav succesfully outplayed their rivals in what used to be called “the Great game of Poltics” (see Frank R. Kent, a Baltimore Political writer of the early 20 century.
Out most pressing need now is a bette educated citizenry, in the broadest sense of that word. What are your thoughts?
Oct 28, 2008 - 8:45 am 14. JA Lineberry:I couldn’t agree more until the last part about taxes. Seriously, the difference between 36 and 39 percent is what? Is the world really going to end? Also, the trillion dollars in new spending, nevermind whether that figure is accurate or not or whether it will ever actually be implemented, will be offset by promised spending cuts. At any rate, we need to invest in our homeland – infrastructure, research, alternative energy – to meet the challenges of the 21st century. At least Obama’s proposed spending will be used here at home rather than abroad. Also, you seem to imply that us low-wage earners have it made while those making 250k or more are being stretched thin – nothing could be further from the truth. I would much rather be one of those unfortunate souls being taxed at a higher rate at 250k than making 50k with no income tax burden. Wouldn’t you? Let’s be reasonable here. The doomsday language is really over-the-top.
Again, other than the last part, I couldn’t agree more.
Oct 28, 2008 - 12:04 pm 15. Ron Kean:I used to love my family’s ‘65 Impala Supersport-metallic lime green. Then I had a ‘71 Firebird-8 big cylinders. I had a 77 Chevy II Nova with a three on the tree and drove my boys to Disneyworld. Then a Plymouth Acclaim-medium price, spacious, dark.
I was stuck with $125 or so repair bills in the beginning…starter…ignition problem…pumps…silly things. Then $400 problems at about 50 or so thousand miles…then anywhere from $600 all-the-way-up from 70 to 100 thousand miles. I thought that the repairs just went with the territory. I thought that buying Japanese or German cars were disloyal and un-patriotic. I was proud.
My kids talked me into getting a Camry.
I’m sorry guys. I don’t want to pay for starters or rear ends or engine blocks or billions to pay salaries and benefits. They could have figured it out by now. They could have made the cars right. It’s sad. They failed…but keep the Jeep for old times sake.
Oct 28, 2008 - 1:13 pm 16. Jeffrey S. Neher:I direct these words, respectfully, to JA. You miss the entire point when addressing taxation. Your words indicate that you have bought into the Obama class warfare. It’s not about who and where, but about why. Why do we have taxation? It is for one reason only, to fund those things the government is constitutionally mandated to perform. Before anyone loses their minds and starts yelling at their monitors..I know, I know, that is last thing the tax code is used for today. The tax code is out-dated, I believe illegal, and no doubt used to buy votes. Again, with respect JA, it appears as if Obama may have bought yours. We know the feds have to have funds. No argument there. But why do we tax income? It makes abslutely no sense. What do we want people to do in this country? Earn money, get an income. Then we turn around and tax the hell out of it. It is an indisputable truth that taxing something means you get less of it. What possible incentive is there when you know the more you do the less you keep. We have to also start out with another undeniable truth that’s been lost..it’s not the government’s money, it’s ours. The government is there at our leisure, but this has also been turned on it’s head. Why must we have taxation? Only one reason, to fund the government. It’s not to punish, it’s not to orchestrate certain social policies, and certainly not to buy votes and influence. But this is where we are..and it’s our fault. We should adopt the Fair Tax, or at least the principle of only taxing consumption. Leave income, retirement, investment, capital gains, all of these things should be left alone. Tax consumption for everyone at the same rate. JA I would suggest you do some research on the Fair Tax and see what you think. We can’t keep borrowing, taxing, and spending…..the bill always comes due….
Oct 28, 2008 - 3:59 pm 17. TLM:jonathan K:
I couldn’t agree with your last line more. When I started college in the early 70’s, Western Civ courses had been replaced by freshman seminars. My first seminar was a Marxist history of Latin America. Guess who the bad guys were.
I personally doubt an Obama administration would have any interest in better educating the citizenry. In this election he has benefitted greatly from our current education system, one which has virtually repudiated everything we gained from our European past. Except Marx of course.
The MSM has also promoted an uneducated public by systematically offering fare that further dulls the mind. That has put them in a position to sway this election. They hope Obama and the Dems in Congress will be their salvation, by reinstating the Fairness Doctrine and quashing talk radio. Leftists disapprove of dissent, and the critical thinking that leads to it. Win-win for both: a dumb and docile public hoping for their next entertainment fix — a game show or another speech by Obama.
Oct 28, 2008 - 7:26 pm 18. Pettigrew:Does anyone remember the Seventies film “The Man” with James Earl Jones? The tagline was, “The First Black President of the United States. First They Swore Him In. Then They Swore to Get Him.” I expect it will be the opposite for Rama. The MSM/Press will report that happy days are here again until there are more newsroom cutbacks. Those allowed to stay on will have to start writing stories other than propaganda. They will then tell us what PJM alreay told us about Rama’s past and what Doc predicted about this future.
Oct 28, 2008 - 7:38 pm