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Unjam the Sources of Credit? Or Build Workers' Wealth?
Strengthen Investors? or Strengthen Ordinary Folks? Maybe a Little of All That?
At the Least, A New Mix
California State University, Dominguez Hills
University of Wisconsin, Parkside
Created: October 7, 2008
Latest Update: October 8, 2008
jeannecurran@habermas.org
takata@uwp.edu
patriciaacone@yahoo.com
- Introduction
I am writing this on the morning after the Town Hall debate, Wednesday, October 8, 2008. It's hard to separate out all the sources that went into my thinking on this issue of how we should handle this financial crisis, so in this Level 1 piece, I'll leave most of my references to sources for later. (See, for example, Level 2: Trickle Down or Sprinkle Around? Some Sources.)
The primary choice at this point is the approach, as we can pull it together from all sources, that each of our presidential candidates, John McCain and Barack Obama, would take to putting our financial system back on its feet.
First, this is an unprecedented occurrence, unlike anything we've ever seen before. That's because all our markets, across the globe, are interdependent to some extent. What affects one affects the others also. This was clear this morning in Thomas Friedman's comumn in the New York Times, at p. A 25, in which he said:
"We are in the middle of an economic perfect storm, and we don’t know how much worse it’s going to get. People all over the world are hoarding cash, and no bank feels that it can fully trust anyone it is doing business with anywhere in the world. Did you notice that the government of Iceland just seized the country’s second-largest bank and today is begging Russia for a $5 billion loan to stave off “national bankruptcy.” What does that say? It tells you that financial globalization has gone so much farther and faster than regulatory institutions could govern it. Our crisis could bankrupt Iceland! Who knew?"From Palin's Kind of Patriotism. By Thomas L. Friedman, New York Times, Opinion Section, October 8, 2008. Consulted by jeanne on October 8, 2008.
"Who knew?" indeed, that what our Congress did and didn't do about deregulation threatened markets and economies other than our own? Globalized efforts on the part of our financial specialists have outstripped our understanding of the global community in its more human aspects. And that applies to our U.S. community as much as to impoverished warring communities on far-away continents. Human empathy understands the horror of genocide, of wars, of inadequate health care when one we love is seriously ill, when one we love loses a precious life in defense of freedom, democracy, the pursuit of happiness. Fixing this mess is going to take more than financial genius and Nobel Prizes. It's going to take a holistic understanding of who we are and what we value, as humans.
Now that we're beginning to get a sense of how important the governance decisions of one country are to all others, perhaps we can pull together to make good governance decisions. One of the most important of these is how to deal with the financial mess: the "credit crunch." We've heard for days now that there is a credit freeze. Banks are not lending. And our infrastructure operates on borrowing short term to cover payrolls and production operations. Without credit, production could falter, jobs be lost, and the recession deepen and spread.
So we have to get credit flowing again. Now think about how many times you've heard in the last few days that you must get your personal debt under control. You must save, not buy on credit. But our production operation must operate on credit. The family that can't buy food or shelter because it can't make ends meet on its budget, should not rely on credit. But the production or distribution (sales) unit, must rely on credit when it can't make ends meet on its budget. AT WHAT POINT DO WE CROSS OVER FROM "CREDIT IS BAD" TO "CREDIT IS GOOD" for the individual business and/or the individual family?
What's the basic value here about debt and savings? That's what the REGULATION, DEREGULATION issue is about. Should we have rules about how much you can borrow? How much you have to save or have available to guarantee the repayment of what you DO borrow?
As I understand this crisis, the basic questions we need to be asking of our candidates for president right now are:
- Since so much "wealth" has been lost, at least on paper, by Americans in the present crisis, no one is going to have an easy job making ends meet in their budget. How will each candidate address the needs of both families and businesses to establish some guidelines within which families and businesses must save and may borrow
- as we pull together to get the economy back on track?
- once we are back on track?
- Guidelines are just that, guides. How will each candidate react when guidelines are not met?
- Consider why the guidelines are failing, where, with whom, and to what extent?
- Consider whether government should also be included in this debt/savings ratio.
- Adjust the guidelines to get more realistic compliance?
- Adjust for and consult with families?
- Adjust for and consult with businesses?
- Adjust for and consult with governments?
- Consider the extent to which greater wealth makes it easier to comply with guidelines for both families and businesses, because the wealthier they are, the more they can afford to meet their needs.
- Offer support, especially as new rules take effect.
- Offer support, especially for those who have already been harmed, as for example, bankruptcy, loss of home, outrageous credit card and mortgage fees.
- ORDER that the guidelines BE MET. Consider how often each candidate leads by fiat, ordering people to follow the guidelines, by being the DECIDER, and how often your candidate leads by exploring alternatives with expert advisers (from all perspectives of the issue), with those who are affected by the ORDER, and by considering failure to meet the guidelines as information we could use to improve our efforts. (FEEDBACK).
Consider how often each candidate encourages coming together in crisis to work for the whole community.
Consider how often each candidate demands sacrifice of
- everyone
- specific groups.
Consider each candidate's history of getting people to work together for the greater good of the whole community.
Consider also each candidate's history of using the "carrot and stick" approach with individuals and with the corporate infrastructure.
- Does the candidate prefer to provide incentives and have confidence that people will work best under least restraint? (carrot)
- or Does the candidate prefer to make everyone take the same route? (stick)
I developed these questions, based on William A. Scott's Values and Organizations, Chicago, Ill. Rand McNally, 1965, in which Mr. Scott suggests that when considering whether someone shares our values, we can determine those values we're interested in by looking to organizations, like the Boy Scouts, that represent those values. His focus was on fraternities and sororities, but the methodological technique serves many purposes. jeanne
Discussion Questions
- What is a derivative? TRANSFER TO DERIVATIVES FILE. Later. jeanne
My first attempt to answer this question is that it is a tool? a financial instrument? an agreement? a thingamajig? for dividing up the risk attached to a given transaction. What I mean by that is that if some transaction is riskier than I want, speculators or arbitrageurs (people who speculate on the price differences in different markets) will trade in some of that risk. Trouble is, we've entered here into an area where measurement is at best murky. I'll come back to this as I learn more. Maybe I'll find a clear, simple definition somewhere. But when they're giving out Nobel prizes for it, maybe not. jeanne
References:
- Values and Organizations by William A. Scott. Chicago, Ill. Rand McNally, 1965.
- The Dismal Questions New York Times, Opinion Section, at p. A27, October 7, 2008. Questions for the presidential debates tonight by three noted economists.
- Explanation of Derivatives.
- The Government Accounting Standards Board This is one of the pieces I'll try to summarize in Level 3. Trickle Down or Sprinkle Around. jeanne
Farlex Free Online Dictionary:
