There was no money in the first place. This is, or rather was, the problem. We thought there was money when there was none, and we wanted what wasn’t there. Yet we bet most everything, like a dunce at the carnival. Now, that money is gone too. But don’t worry, there’s still hope - and maybe even some money. Who has it? Us dunces, of course.
We thought that the banks had the money. But if a bank sells a mortgage to someone who, by every reasonable standard, cannot pay that mortgage, and they call that debt “money”, we have a problem - especially if we keep our money in that bank. Because debt is debt and money is money. Debt is the opposite of money, and a bank should know that.
The guy who sold that mortgage retail wasn’t at fault, because he was busy making money, working hard for a living like any regular Joe pulling down 200k a year. The John to whom he sold the mortgage wasn’t making 20, but that didn’t matter. It was all legal, the dream of home ownership come true. Home ownership was now possible for every American, as The President was proud to say, though he failed to mention that debt is still debt.
Back at the bank, they had a lot of these mortgages. So they lumped them all together and sold them to bigger banks who wanted to participate in the dream of home ownership. They sold them to smaller banks as well, who were also dreaming. But the wise hardly slept. They re-sold the mortgages, wholesale, to the companies who manage our saving and retirement funds. And this debt, called money, was considered an excellent investment because it involved home ownership, shelter itself, and isn’t that what we all need? That’s why we saved our money in the first place.
Every time these mortgages were re-sold, bigger and bigger amounts of debt changed hands. These transactions involved a lot of work, and the people involved had to be paid. They were paid in real money, and some of these people became very rich. Getting rich is the next part of the dream, the happy ending. Getting rich is what it’s all about, after food and shelter. And if you’re competing with another banker or fund manager for deals in a global economy, you need every bit of real money you can get your hands on. Of course you’d need a boat, a helicopter, and an airplane to find that money.
The accounting departments for the people buying and selling these debts were charged with the daunting job of making this debt look like money when written into a ledger. Further, they had to make projections that assured the stockholders that they would continue to make debt look like money going forward, with real mathematics to bear them out. They developed some very obscure models toward that end, rendering the fundamental flaw imperceptible under a thousand veils, promising everything and concealing all.
But once they had mathematics, the bankers themselves started to believe it - and they had the boats, helicopters, and airplanes to prove it. They even went so far as to put their banks into debt, believing it to be an asset. They borrowed cash to meet their payroll (I run a small business. If we had to borrow money to meet the payroll, we would consider our demise imminent. Any banker crazy enough to approve such a loan would deserve what he got. However, if I ever applied for such a loan, I would expect to assume some personal liability, as would my fellow directors. I would put my money where my debt was. It is the logical extension of my responsibility, not to mention the banker’s), so that the accountants, clerks, secretaries, and janitors got some real money too, so they could buy into the dream. Most of these people decided to save for their retirement with this borrowed money, putting it back into the new system of calling debt, money. Some were even rewarded with company stock, debt now being its own reward.
You might think that there ought to be a law against the kind of ploy that preys on people’s desire, their belief that the pig in the poke is real, and wearing lipstick. And there were some laws. Not too long ago, banks were obliged to call a debt a debt. But the bankers were rich enough to lobby the government so that the laws could be changed. Spades were called hearts and jokers, aces. After all, there were millions of dunces left, and plenty of debt to go around, artfully obscured by incomprehensible math. And it remains legal, as the government has done everything possible to free-up the markets, which are largely pre-occupied with the business of turning debt into money. In this case, freedom is a necessity.
But now we’ve come to the end. The only deal left is the mortgage on a burning house (the lot, we are assured, has value). If we bought a mortgage on a burning house, who could be blamed? Nobody forced us, although they did point out the excellent interest rates available at the time. And who doesn’t dream of owning a home?
Tuesday, September 30, 2008
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