March 24, 2009--Goods & Services & . . . ?
The A.I.G. situation continues to rankle. Not so much the financial collapse of the insurance giant, which is serious enough, but the issue of the bonuses. Even though some of the largest ones have been returned. (See NY Times article linked below.)
When something of this sort so galvanizes the public at all levels it is worth deconstructing. Not to drain the justifiable outrage from the reaction but to figure out why it is causing all this fury.
It is because these bonuses are a genuine, maddening, and metaphoric national disaster.
The genuine part is that A.I.G.’s so-called Financial Products Unit is the one that invented credit default swaps which in turn created (and I use that word advisedly) various forms of easy money and then when that bubble collapsed--and a bubble it was--the economy nearly imploded with it.
It is maddening because the "bonuses" rewarded the very same people who inhabited the FP unit which brought us down. These executives got paid exorbitantly for failing while most Americans worked hard for less and played by the rules, investing their money in IRAs, their homes, and the stock market. And then as a consequence of the felonious shenanigans of financial manipulators such as these got smashed.
No wonder so many feel like it's time to get out the torches and pitchforks.
And the A.I.G. situation is metaphoric because the world in which they worked was the epicenter for the pseudo-economy—creating fictive wealth out of nothing but air. Thus it stands for all that has gone wrong, is wrong with our economy and come-easy culture. Like the most potent of metaphors, it rings true and hits us viscerally, at a level that runs deeper than thought.
Thus we have to come up with a new macro-economic term for this sector of the economy--it didn't produce goods, except things such as $2,000 pocketbooks, McMansion, and mega-yachts; and it doesn't offer services as do nurses, doctors, waiters, cops, and teachers. Maybe we should call it the virtual part of the economy—as in the rest of the virtual world, it seems "real" but in fact is more made up of smoke and mirrors.
Even the Mafia does a more honest, more effective job. Loan sharking provides real cash, private carting removes the garbage, drugs get you high, and prostitutes are an ancient part of the traditional service sector of the economy.
This air-pumped virtual part of our economy is huge. Conservative estimates suggest that by as early as 2006 profits from these sorts of "financial services" constituted a full 40 percent of all corporate profits.
And to make matters worse all the parts of our government don't yet understand this. Congress when it comes to the bonuses is grandstanding, passing confiscatory tax legislation which is patently unconstitutional, while substantially ignoring the underlying issues; Tim Geithner may be smart but is about as politically tone deaf as anyone in recent governmental memory—an out-of-touchness that may doom him even after a 500 point Dow rally; and even Barack Obama is at times too cool, as if this part of the problem is marginal, that it is barely worth paying attention to—it’s a distraction. He may be right about that, but he is missing the political point, which is a huge problem because the politics, the emotion of this is carrying the argument. When expressing "outrage" it appears as if he is reading from a script. A good script, but the performance is generally dispassionate and will further, and ironically, distract us from understanding and dealing with the underlying systemic issues.
If it is a distraction it is a very effective one because everyone is in a rage. From the people I talk to down here--over coffee and in bars--though they understand that the amount of money involved in the A.I.G. bonuses is a blip on the screen when it comes to the total tab for the mess we're in, it rankles them more than anything else that's happened thus far.
It's worse to them than bailing out Wall Street; it's worse than what Bernie Madoff pulled ("That hurt the rich so who cares--they probably deserved it"); it's worse than home foreclosures (that effects still relatively few and "Maybe the people in default got themselves in trouble"); but the bonuses make almost everyone crazy.
If Obama doesn't manage it right, the politics and emotions of it, it could turn out to be the beginning of the political end of his presidency.
Having gotten this off my chest, I am nonetheless feeling confident that the programs Obama and, yes, Geithner, have announced--for mortgages; small businesses; job creation; investments in education, health, energy, the environment, and yesterday toxic assets (all interrelated)—will, if given a chance, be effective in both the short and long run.
Obama's right--we have to fix the immediate problems but also, even more, have to build strong foundations to assure a vibrant future. Part of that requires a fresh look at the true nature of our economy—the goods and services sectors, and the virtual--and in doing find ways to better understand and manage all three.
When something of this sort so galvanizes the public at all levels it is worth deconstructing. Not to drain the justifiable outrage from the reaction but to figure out why it is causing all this fury.
It is because these bonuses are a genuine, maddening, and metaphoric national disaster.
The genuine part is that A.I.G.’s so-called Financial Products Unit is the one that invented credit default swaps which in turn created (and I use that word advisedly) various forms of easy money and then when that bubble collapsed--and a bubble it was--the economy nearly imploded with it.
It is maddening because the "bonuses" rewarded the very same people who inhabited the FP unit which brought us down. These executives got paid exorbitantly for failing while most Americans worked hard for less and played by the rules, investing their money in IRAs, their homes, and the stock market. And then as a consequence of the felonious shenanigans of financial manipulators such as these got smashed.
No wonder so many feel like it's time to get out the torches and pitchforks.
And the A.I.G. situation is metaphoric because the world in which they worked was the epicenter for the pseudo-economy—creating fictive wealth out of nothing but air. Thus it stands for all that has gone wrong, is wrong with our economy and come-easy culture. Like the most potent of metaphors, it rings true and hits us viscerally, at a level that runs deeper than thought.
Thus we have to come up with a new macro-economic term for this sector of the economy--it didn't produce goods, except things such as $2,000 pocketbooks, McMansion, and mega-yachts; and it doesn't offer services as do nurses, doctors, waiters, cops, and teachers. Maybe we should call it the virtual part of the economy—as in the rest of the virtual world, it seems "real" but in fact is more made up of smoke and mirrors.
Even the Mafia does a more honest, more effective job. Loan sharking provides real cash, private carting removes the garbage, drugs get you high, and prostitutes are an ancient part of the traditional service sector of the economy.
This air-pumped virtual part of our economy is huge. Conservative estimates suggest that by as early as 2006 profits from these sorts of "financial services" constituted a full 40 percent of all corporate profits.
And to make matters worse all the parts of our government don't yet understand this. Congress when it comes to the bonuses is grandstanding, passing confiscatory tax legislation which is patently unconstitutional, while substantially ignoring the underlying issues; Tim Geithner may be smart but is about as politically tone deaf as anyone in recent governmental memory—an out-of-touchness that may doom him even after a 500 point Dow rally; and even Barack Obama is at times too cool, as if this part of the problem is marginal, that it is barely worth paying attention to—it’s a distraction. He may be right about that, but he is missing the political point, which is a huge problem because the politics, the emotion of this is carrying the argument. When expressing "outrage" it appears as if he is reading from a script. A good script, but the performance is generally dispassionate and will further, and ironically, distract us from understanding and dealing with the underlying systemic issues.
If it is a distraction it is a very effective one because everyone is in a rage. From the people I talk to down here--over coffee and in bars--though they understand that the amount of money involved in the A.I.G. bonuses is a blip on the screen when it comes to the total tab for the mess we're in, it rankles them more than anything else that's happened thus far.
It's worse to them than bailing out Wall Street; it's worse than what Bernie Madoff pulled ("That hurt the rich so who cares--they probably deserved it"); it's worse than home foreclosures (that effects still relatively few and "Maybe the people in default got themselves in trouble"); but the bonuses make almost everyone crazy.
If Obama doesn't manage it right, the politics and emotions of it, it could turn out to be the beginning of the political end of his presidency.
Having gotten this off my chest, I am nonetheless feeling confident that the programs Obama and, yes, Geithner, have announced--for mortgages; small businesses; job creation; investments in education, health, energy, the environment, and yesterday toxic assets (all interrelated)—will, if given a chance, be effective in both the short and long run.
Obama's right--we have to fix the immediate problems but also, even more, have to build strong foundations to assure a vibrant future. Part of that requires a fresh look at the true nature of our economy—the goods and services sectors, and the virtual--and in doing find ways to better understand and manage all three.
posted by Steven Zwerling at
5:25 AM
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