The America I Miss

America:
Is the Entire Bailout Strategy Flawed? Let's Rethink This Before It's Too Late

By Joseph Stiglitz, CNN. Posted February 2, 2009.

"The financial sector is supposed to allocate capital and manage risk, and it did neither well. Our economy is paying the price for these failures -- to the tune of hundreds of billions of dollars.

Many of the problems that afflict the financial sector are more pervasive. General Motors and GE both got into the finance business, and both showed that banks had no monopoly on bad risk management

Eventually, America's economy will recover. Eventually, our financial sector will be functioning -- and profitable -- once again, though hopefully, it will focus its attention more on doing what it is supposed to do. When things turn around, we can once again privatize the now-failed banks, and the returns we get can help write down the massive increase in the national debt that has been brought upon us by our financial markets.

We are moving in unchartered waters. No one can be sure what will work. But long-standing economic principles can help guide us. Incentives matter. The long-run fiscal position of the U.S. matters. And it is important to restart prudent lending as fast as possible."
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So what do we do? I am not an economist, so I really don't know, but my instincts lead toward this ...

There is value in stepping back to reflect on how things should be. There is value in resurrecting a basic level of character, honesty and inclusion. Economic principles should find their way into, and perhaps be the cornerstone of our solutions. We can think creatively to augment these principles, to make them relevant to modern market conditions, but it is time to stop ignoring them, as the Bush administration did to accommodate the loop holes necessary to create gratuitous and harmful wealth.

What can we accomplish if we start over? Forgive the manipulation. Forgive the hypocrisy. Forgive the greed. Start over. Assess what we have, determine what we need. Think creatively and succeed globally.

This is rhetoric, I know .. we need sound strategies and practical tactics.

A personal situation may shed light on what is wrong, and perhaps an even brighter light on how far we need to go to fix the financial mess ... or at least "repair the track" to solvency.

3.6 million people have lost their jobs in the last 6 months. I am one of them. Aside from the initial feelings of panic and anger, a sense of uselessness sets in. Worse than feeling betrayed, you start to wonder if the betrayal was justified. No quantitative reason is given for your dismissal .. in my case I was quantifiably a top performer .. so you come to the conclusion that your dismissal is subjective. You show up, you do your job, you go above and beyond, you produce ... but somehow you fail. Then you begin to wonder, how it can be so easy for a corporation to suddenly pull your livelihood out from under you. The "At Will Employment" clause in your contract is "how" it is done at a legal level but that doesn't address the more critical, personal level. So now we have 3.6 million people who are suffering from artificially low self esteem, wondering how they will dig out of the hole, how they will remain in their homes, how they will continue to provide for their children, and we as a government are focused on keeping failed businesses afloat, rewarding that failure, and asking our citizens why they are not spending more or applying for credit.

Why is this not obviously wrong? Why is this not obviously ignorant? Why is this not obviously complicit? People (republicans, mostly) are running scared and causing panic over the concept of nationalization. To them, smarter governance and appropriate oversight is dangerous? Corporations should be left to self regulate, because, as we all know, they have proven their ability to do so. Not only do corporations lack this skill, they lack the desire. There is no financial incentive to regulate. It has become difficult, if not impossible to gain a competitive advantage, without stealing it..and stealing is what we have been doing. The working theories of capitalism have been abandoned. Greed has taken over. Capitalism is not broken, the American dream is. Double standards exist, in fact they prevail. Shouldn't all forms of stealing be illegal? I'd rather see Bernard Madoff be forced to use his genius to create broad scale, monetarily based wealth for underprivileged families, as his sentence, rather than throwing him in a white collar detention facility to play cards until he dies. To be frank you can't deny the financial genius of these "bad" people, so rather than tar and feather them, while they continue to live among the riches they have stolen, lets use them, like they have used us. Force them to live in an average middle class American neighborhood, and create wealth for their neighbors, while they sit on their porch as a mere spectator.

This of course will never happen, but it gives me a reason to smile to think about what might be, if we could think out of the box, and focus strictly on moving forward.

The stimulus package, should be massive and focus on Jobs, Housing, GDP stability and Credit. All of the money, and I mean ALL OF IT should be allocated to these four market movers . Incentives should be paid to employers who hire from the unemployment insurance pool. Convergence on jobs, job seekers and skill sets should be optimized so that finding an appropriate job is not impossible. Employers who fire should be required to fund outplacement services for everyone they let go. The cycle of job transition needs to be shortened and less humiliating. There are ways to do this, now, through technology. It is just not getting done. The answer is not Monster.com or "the Ladders" these are repositories for resumes. They give the job seeker a false sense of security that they are actively connecting with employers, but in fact the odds of consummating that connection are very low. If the government would pay incentives to these Internet job boards for actually placing people in new jobs, I guarantee you they would match employers with job seekers much more effectively.

In addition to aggressively supporting the worker, Unions need to work harder to acknowledge corporate grievances and put to rest the misplaced fear of unionization. If they could intelligently move as a group beyond the conflict and realign with both sides of the business environment, Unions could have a profoundly positive impact on our financial recovery. I wish I had a union to protect me from being wrongfully fired, but my employer is effective in banning unions, and the union has been ineffective in reaching a compromise to enable access to a majority of workers in America. This can be changed, too. Unions provide a very valuable service to both employers and employees. Their current approach is flawed, but it is fixable.

Home mortgages need to be reassessed to current market value. To avoid foreclosure, banks should be forced to renegotiate loans to share the risk and keep people in their homes. Interest rates should come down universally. Banks should be forced to balance their risk ratios. Profit margins on loans should be regulated, to stay within ranges. Banks like every other business should grow based on the size and stability of their profitable customer base. Credit swapping and bad debt packaging should not lead to success and leadership in the banking industry. This has nothing to do with consumer demand, in fact it critically detracts from it. Lets get back to basic and transparent business principles in the financial industry...they work.

GDP will be constricted as we move forward. We have been producing more than we need. Worse, we have been producing more than we want. Business models,whether they are basic or complex, revolve in some way around supply and demand. For awhile, we have over produced to an inflated demand. The bubble has burst. We need to go back to the baseline and produce to accommodate real demand, not an inflated forecast of it.

Finally with regard to the remaining TARP funds. I better see that the words "oversight", "accountability" and "taxpayer relief" have replaced the words, "avoid failure", "encourage lending" and "protect shareholders". If we don't see these policies written into the conditions for funding, I would hope to see public protesting, but I fear we will see public rioting...

Government is supposed to function as a facilitator. To protect its citizen base and preserve freedom. We are ready to stand with our new administration. We want to be actively involved in the solution. It is time to abandon the old sinking ship, jump overboard and swim. We will find life boats along the way. We will not arrive at the shore unscathed, but we will arrive. We will bring with us the knowledge of how to navigate through rough waters and we will regain our leadership by sharing that knowledge with the world. That is the America I know. That is the America, I miss.