Frank Rich hits it out of the park in his column in this Sunday's
New York Times. His own observations, combined with references to the under-acknowledged prescience of Nouriel Roubini and the steeped-in-history thinking of Richard Florida, are nothing short of spot-on poignancy in: "
What We Don't Know Will Hurt Us ."
I can't tell you how many times and how many ways I've tried (not always successfully) on these blogs to communicate what Rich so eloquently succeeds at today, but it is gospel, at least to me. So, with Mr. Rich's wonderful template in today's NY Times, here goes...
As Rich so concisely tells us, the truth is, it's not what we don't know, it's: "Do we really want to know?"
...a bigger question may be whether we really want to know. One of the most persistent cultural tics of the early 21st century is Americans' reluctance to absorb, let alone prepare for, bad news. We are plugged into more information sources than anyone could have imagined even 15 years ago. The cruel ambush of 9/11 supposedly "changed everything," slapping us back to reality. Yet we are constantly shocked, shocked by the foreseeable. Obama's toughest political problem may not be coping with the increasingly marginalized G.O.P. but with an America-in-denial that must hear warning signs repeatedly, for months and sometimes years, before believing the wolf is actually at the door.
Rich tells us: We can't handle the truth.
He's right.
Because if we could handle the truth, we'd acknowledge a few things upfront:
1.) Most of the major banks in the U.S. are insolvent. And, as Joseph Stiglitz has been saying for the past few days, it may be a negative sum game, as opposed to a zero sum game. A few words from Stiglitz this week from both his NPR interview from this past Wednesday, and similar statements made on Bloomberg Media, tonight:
...they're going to use private hedge funds and others to buy off the assets from the banks. So they're going to lend money...to the hedge funds to buy the bad assets off the banks, but the hedge funds won't do this unless there are some reduction in risk, which means the taxpayers are going to wind up paying doubly.
One, you have to compensate the hedge funds for their money and for the risk, and then we wind up bearing the majority of the risk in any case.
--SNIP--
You have these bad assets, and what we're doing is moving them around from one place in our society, in our economy, to another. It doesn't change the nature of the losses. The banks lent money in a bubble. The bubble is broken. Collateral value of the assets is limited, and these are bad assets now. Now, it's not quite a zero row sum game, because if we have bad incentives, which result when you have a misalignment between ownership and control, when you provide insurance, you can have a negative sum game.
And I think that's the real worry that we are about to wind up in a negative sum game.
2.) We're locked in a cultural pattern of denial, that extends far beyond the economic crisis and that's in large part due to a passive media. Rich, again, from "What We Don't Know Will Hurt Us:"
...This cultural pattern of denial is hardly limited to the economic crisis. Anyone with eyes could have seen that Sammy Sosa and Mark McGwire resembled Macy's parade balloons in their 1998 home-run derby, but it took years for many fans (not to mention Major League Baseball) to accept the sorry truth. It wasn't until the Joseph Wilson-Valerie Plame saga caught fire in summer 2003, months after "Mission Accomplished," that we began to confront the reality that we had gone to war in Iraq over imaginary W.M.D. Weapons inspectors and even some journalists (especially at Knight-Ridder newspapers) had been telling us exactly that for almost a year.
The writer Mark Danner, who early on chronicled the Bush administration's practice of torture for The New York Review of Books, reminded me last week that that story first began to emerge in December 2002. That's when The Washington Post reported on the "stress and duress" tactics used to interrogate terrorism suspects. But while similar reports followed, the notion that torture was official American policy didn't start to sink in until after the Abu Ghraib photos emerged in April 2004. Torture wasn't routinely called "torture" in Beltway debate until late 2005, when John McCain began to press for legislation banning it.
Steroids, torture, lies from the White House, civil war in Iraq, even recession: that's just a partial glossary of the bad-news vocabulary that some of the country, sometimes in tandem with a passive news media, resisted for months on end before bowing to the obvious or the inevitable...
3.) Perhaps moreso than anything, as Rich notes, President Obama's main job throughout his first four years in office will be to 'manage America's future shock,' because it will be "...a task that will call for every last ounce of Obama's brains, temperament and oratorical gifts."
4.) Euphemisms, by not just President Obama, but many others, seem to be the misdirected rule of the day. It eases the pain. And, as Rich also points it out:
...If he (President Obama) tells the whole story of what might be around the corner, he risks instilling fear itself among Americans who are already panicked. (Half the country, according to a new Associated Press poll, now fears unemployment.) But if the president airbrushes the picture too much, the country could be as angry about ensuing calamities as it was when the Bush administration's repeated assertion of "success" in Iraq proved a sham.
Indeed, as Rich lays it out, economist Roubini's devastating numbers, referenced in "Nationalize the Banks! We're all Swedes Now," are more reliable than not, despite the fact that they are belied by the spin control of a White House that's shying away from words like "nationalization" and "depression."
But, the reality that at least a temporary receivership of some of our largest financial services institutions is more likely than not, along with the reality that we're in a global depression that could last for up to a decade (or more) here in the U.S., are certainly front and center topics of discussion behind closed doors at 1600 Pennsylvania Avenue.
And, urban theorist Richard Florida's overview of things to come in the March edition of the Atlantic: "How the Crash Will Reshape America," forewarns of much, much more upheaval ahead for us all, but particularly for residents of cities such as Detroit, Phoenix, Las Vegas, Cleveland and St. Louis, among many of the regions that will bear the brunt of the economic and social realities that comprise the change yet to come.
While Rich doesn't come out and say it, he notes that Roubini and Florida hit us head-on--
Nouriel Roubini, saying "it is what it is:"
The subprime mortgage mess alone does not force our hand; the $1.2 trillion it involves is just the beginning of the problem. Another $7 trillion -- including commercial real estate loans, consumer credit-card debt and high-yield bonds and leveraged loans -- is at risk of losing much of its value. Then there are trillions more in high-grade corporate bonds and loans and jumbo prime mortgages, whose worth will also drop precipitously as the recession deepens and more firms and households default on their loans and mortgages.
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--SNIP--
Two important parts of Geithner's plan are "stress testing" banks by poring over their books to separate viable institutions from bankrupt ones and establishing an investment fund with private and public money to purchase bad assets. These are necessary steps toward a healthy financial sector.
But unfortunately, the plan won't solve our financial woes, because it assumes that the system is solvent. If implemented fairly for current taxpayers (i.e., no more freebies in the form of underpriced equity, preferred shares, loan guarantees or insurance on assets), it will just confirm how bad things really are.
Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume. Of course, the economy would still stink, but the death spiral we are in would end.
Richard Florida, includes an innovative solution to the mortgage crisis:
The foreclosure crisis creates a real opportunity here. Instead of resisting foreclosures, the government should seek to facilitate them in ways that can minimize pain and disruption. Banks that take back homes, for instance, could be required to offer to rent each home to the previous homeowner, at market rates--which are typically lower than mortgage payments--for some number of years. (At the end of that period, the former homeowner could be given the option to repurchase the home at the prevailing market price.) A bigger, healthier rental market, with more choices, would make renting a more attractive option for many people; it would also make the economy as a whole more flexible and responsive.
Next, we need to encourage growth in the regions and cities that are best positioned to compete in the coming decades: the great mega-regions that already power the economy, and the smaller, talent-attracting innovation centers inside them--places like Silicon Valley, Boulder, Austin, and the North Carolina Research Triangle.
--SNIP--
The Stanford economist Paul Romer famously said, "A crisis is a terrible thing to waste." The United States, whatever its flaws, has seldom wasted its crises in the past. On the contrary, it has used them, time and again, to reinvent itself, clearing away the old and making way for the new. Throughout U.S. history, adaptability has been perhaps the best and most quintessential of American attributes. Over the course of the 19th century's Long Depression, the country remade itself from an agricultural power into an industrial one. After the Great Depression, it discovered a new way of living, working, and producing, which contributed to an unprecedented period of mass prosperity. At critical moments, Americans have always looked forward, not back, and surprised the world with our resilience. Can we do it again?
Yes, it is time to confront our deepest fears and deal with our epic, brutal, national and global realities, staring it right in the eyes. And, that starts with acknowledging these problems, in public, for what they are, and telling it like it is (using words like "receivership," and "nationalization," and "depression"), despite the negative political ramifications that are sure to arise concurrent with pulling the tarp away to expose the true extent of the devastation that lies underneath.
It is only then that we'll be able to deal with this for what it is. Because from those truths--and nothing less than that--will come the true change and redirection that this country desperately needs.
In Rich's words:
...We are now waiting to learn if Obama's economic team, much of it drawn from the Wonderful World of Citi and Goldman Sachs, will have the will to make its own former cohort face the truth. But at a certain point, as in every other turn of our culture of denial, outside events will force the recognition of harsh realities. Nationalization, unmentionable only yesterday, has entered common usage not least because an even scarier word -- depression -- is next on America's list to avoid...
This is going to take a lot of time and it is going to be much more painful (than it has been to date--and it's already unbearable for many) than most Americans realize.
There are many "ensuing calamities" ahead. It is time to brace the American public for impact, not give them false hopes that someone's going to wave a wand and make this all go away in a few months or even a year.