29 September 2008

Bailing and the problem

Bailing a boat out is the process of taking water that has gotten past the hull and into the part of the vessel that allows it to do this thing known as 'float'.  Now large ships do have some areas where such water is kept for ship stability and trim, so that the mass of water can counteract wave action.  That isn't bad for a large ship.  Once the ship starts to take on more water past that, you need bilge pumps and other pumps and if you are at the point of having to bail water out of the areas that give the ship propulsion, you have a serious problem on your hands.

A 'bailout' is also the process of stepping from an aircraft and into the unknown with a parachute.  With all luck the parachute has been properly packed, you are at enough altitude to deploy said parachute and you have someplace to land that you are prepared to land *in*.  Bailing out of an aircraft that is on fire, lost an engine and is suffering structural problems is a process of stepping from certain disaster into an unknown future.

When we refer to a financial 'bailout' we normally think of the former, the ship based analogy, and only does the latter get invoked with the 'golden parachute' for executives seeking to get away from responsibilities and get a bonus and guarantees as they leave the disaster they caused.  In modern times the former is more appropriate as even the Great Depression did not encompass the latter.  For that we can look to the fall of the Roman Empire, Persian Empires, Chinese Empires, and Egyptian Empires where entire economies go belly-up, usually as no one is getting paid enough to defend them.  That is a huge 'credit crunch' problem, to say the least.  Unfortunately they had no place to bail out *to* and when the places cratered their civilizations went into steep and rapid decline for decades, some never to recover.

In the modern era we think more of the 'bail out the ship' idea, and it is a bit more appropriate.  We can think of the bilge areas as the legislative 'correctives' to rampant capitalism: those necessary labor laws to protect minors and enforce humane working conditions.  Then someone gets the very bright idea that they can actually 'control' the economy via regulation!  This is a formulation of the outgrowth of those things Nations can do under the Law of Nations, and governments can and must seek to protect their economies, establish trade, and seek reciprocity in those trade relationships when possible.  Indeed, dictatorial control over an economy is perfectly allowable under the Law of Nations.

Not wise, perhaps, but perfectly valid as an internal schema for a Nation.

The problem is that 'regulation', that function of making sure things keep in working trim, is not indicative of 'control': regulations set guidelines and workable agreements to operate under while control systems give absolute guidance on direction, speed and course.  Somewhere we have slipped from government 'regulating' the economy to those wanting government to 'control' aspects of the economy.  Unfortunately those that have chosen their ideas for 'control' are now faced with the problem of the Captain of the Titanic.

Their course has gotten them a disaster and they want to bail the ship out, calling for more regulation of how much water can come into the ship.

They are ignoring the gaping hole in the ship that they caused.

As the economy is *not* a ship, but a structure of accounting for resources and their utilization, that means we don't have to actually abandon the ship.  It does mean that we have to patch the holes and pump out some of the water, much of it through the old fashioned bilge pumps.  That will mean a slightly unstable vessel, but the ship, itself, is huge and the seas around it, while rough, are not a full-fledged tropical storm.  When this is applied, and it is an imperfect analogy, of course, to the Nation, then the course becomes one of what is right and proper to actually address the problem of legislators being unable to fathom the world of finance they have unwisely meddled in.

First - Patch the holes.  This will mean some diving under the water to get to the things.  Those higher up come first to stop the influx at those levels... and really, going around and having folks open up the portholes for the healthy storm breeze is not a good idea, so future legislation on the expenditure side should damned well get STOPPED... and then start to pump the bad credit out through the market process.  No new 'big ticket' expenditures for the housing, medical, social welfare or earmarks.  Expend money to demonstrate that the National government is willing to hold itself accountable for those that made such asinine loans, but to not give anyone a single, red cent for cooperating in stepping away from common sense and fiscal responsibility.

Second - Fix the big holes. Some sections of the hull are so badly riddled they need to be cut out and jettisoned with new hull put in their place.  Get rid of Fannie and Freddie.  Also get rid of the 'Community Reinvestment Act' which allows Congress to think it can CONTROL home ownership LEVELS for those without sufficient jobs, income or assets to do so.  Repeal all such legislation.  For now plug those holes, let the pumps do the pumping and get those section to where new hull can be put in its place.  An extremely good patch job will last for awhile, but the hull itself is riddled with corrosion.

Third - Examine the old, leaky patches.  This is the Federal Reserve and SEC, along with a slew of smaller government agencies in the Treasury/Commerce side of things.  Requirements to show current 'book sale value' means that long-term expenditures that look like losses due to the need for a company to expand cannot be properly examined.  A multi-year average showing how the company has done by its valuation is a good thing and will allow for some liquidity on the private side without losing 'regulation'.  Since the failed housing projects of the 1960's have taught us that demolishing housing that people can invest in and replacing it with housing they can't invest in is a very, very, very bad idea, the concept of low cost yet durable and sustainable housing  that can be OWNED is a good one and can be prudently backed by the tax code.  Not by loan guarantees.  The 'entitlement' structure is ill suited to our population and economy, and no one paying social security taxes, today, expects the program to be around when they retire.  Medical help is distorting the market, bowing to pressures from companies to raise prices, and causing massive inflation in that part of the market.  These things must go sooner or later as a new era of finance, medicine and how we apply the former to the latter must come into play without 'regulation'.

Fourth - Trust the crew to do its job.  The crew, in this case, is you and me and every other citizen.  We are the ones who saw the leaks in the ship expanding and water rushing in YEARS AGO and Congress did NOTHING.  Worse, Congress made the holes larger.  That means that the crew has not been doing ITS job of keeping the folks regulating the trim of the ship under close scrutiny.  We also set the course, amongst all of us, in what we do and how we act.  That voice has been disenfranchised by those doing the 'regulating' as they have determined that we don't need a larger voice in government.  They have set the size of the House of Representatives and an expanding population means you get LESS say in how things are run at the National level.  Someone has locked a tiny rudder in place while the ship has undergone major expansions in size, volume and mass.  That rudder looked very nice on a small coaling vessel of the 1910's.  It is asinine to keep it for the huge mega-cargo vessel we are today.  A large economy requires MORE say by the people, not LESS.  It is time to point this out to the Congress, and that in regulating itself it is trying to control each and every one of us and ruin our democracy.

We don't need a bucket brigade.

Patch the holes and let the pumps do their jobs.

Remove the bad and corroded portions of the hull and fit with new and strong members that will NOT have holes easily put into them.   And let the pumps do their jobs.

It is time to see if we can actually 'regulate' at ALL via those old patches put in in the 1910's and 1930's.  They might have been a good idea, then, but we are placing a different type and form of stress on them today that could have been projected for, but not easily imagined.  Some of those need to go and we need to ensure that those promised what has been promised can still get it, while offering full repayments with INTEREST to those who want nothing to do with government trying to secure their economic future can GET IT.

Instead we have the bucket brigade in Washington now seeing how nicely they can re-arrange the deck chairs.

And no one knows exactly how large the hole in the ship IS.

Worse they don't want to patch the leaks... which means that the bucket brigade will be overwhelmed and the electrical system will go down and the pumps will stop.

Then we will be in *real* trouble.

The bucket brigade is the symptom of that.

Our job as citizens is to point this out, demand accountability, keep our wallets closed, and tell Congress that it is time to fix the holes FIRST.  And let the pumps do their job so that we can do ours.

And if executives are really worth their weight in gold, then lets give them a real 'golden parachute' at 5,000'.  We can recover the gold, at least...

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