Friday, September 19, 2008

Say What You Mean

In our time, political speech and writing are largely the defense of the indefensible.

--- George Orwell, "Politics and the English Language"
The genius of George Orwell is again illustrated by today's words from Mr. Henry Paulson, Secretary of the Treasury and one of the Chief Thiefs in Washington. (Yes, I know it's "thieves," but then you lose that nice internal rhyme.) Let's just listen to him talk:
The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off the flow of credit that is so vitally important to our economy. When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs. As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to have significant effects on our financial system and our economy.
Well, that certainly paints a vivid picture: both money and debt are fluids (liquids or gases, we know not, but fluids in any case) that are supposed to flow through "the system" (plumbing, maybe?). But there's good debt and then there's bad debt: this latter is those pesky "illiquid mortgage assets," meaning loans that no sane person would ever make with his own money, nor would any honest person ever make with anyone else's money. These are assets only in the sense that the borrower's going to pay them back, which he's not -- so, they are really assets in the same way that the pile of fragrant turds that your neighbor's dog left in your yard are assets. They're the sort of assets bought voluntarily only by lunatics. So, anyway, these block and clog the system, so we're supposed to think of them as hairballs in the drain pipe, and be grateful to Plumber Paulson for removing them, or even heroically trying to remove them, so that your system flows again. Let's try translating Mr. Paulson into clear English:

It's very important that many people who have a lots of money be able and willing to lend it to both you, the American people, and to the U.S. government. This is very important because the American people consume many goods and produce very little, and thus their continued consumption requires that they borrow; and the same is true of the government, which produces absolutely nothing that anyone would willingly buy, and spends money at unbelievable rates; it must, then, either tax you at rates that you cannot and will not pay, or borrow, or print counterfeit money. Many of these people with money don't have it any more, because they lent it to many of you, whose declining real incomes (see the parts about "produce very little" and "print counterfeit money") make it impossible for you to pay it back. This is very bad. If the lenders don't have money, they can't lend it; and in an economy that runs on debt, there has to be lots and lots of lending going on.

Returning to Mr. Paulson:
As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford. We are seeing the impact on homeowners and neighborhoods, with 5 million homeowners now delinquent or in foreclosure. What began as a sub-prime lending problem has spread to other, less-risky mortgages, and contributed to excess home inventories that have pushed down home prices for responsible homeowners.

A similar scenario is playing out among the lenders who made those mortgages, the securitizers who bought, repackaged and resold them, and the investors who bought them. These troubled loans are now parked, or frozen, on the balance sheets of banks and other financial institutions, preventing them from financing productive loans. The inability to determine their worth has fostered uncertainty about mortgage assets, and even about the financial condition of the institutions that own them. The normal buying and selling of nearly all types of mortgage assets has become challenged.

These illiquid assets are clogging up our financial system, and undermining the strength of our otherwise sound financial institutions. As a result, Americans' personal savings are threatened, and the ability of consumers and businesses to borrow and finance spending, investment, and job creation has been disrupted.
Again, we see money being metaphorically turned into other things in order to put a picture in our minds, so we won't notice what's really going on because we're mesmerized by the picture. Again, our system is being blocked and clogged by illiquid assets that are also somehow frozen and parked on balance sheets, and those poor banksters have a problem: they don't know what these assets are worth! I have a simple suggestion that can be useful to anyone with such a problem. If you don't know what something is worth, sell it. What the buyer will pay is what it's "worth." If no one will buy it ... guess what? It's worth nothing. Of course, that's not really acceptable information, is it?

And how is it that Americans' personal savings are threatened? Well, gee ... I wonder if maybe the banksters used other people's money -- yours, maybe -- to buy all these worthless loans? Bingo.

Moving along:
The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy. This troubled asset relief program must be properly designed and sufficiently large to have maximum impact, while including features that protect the taxpayer to the maximum extent possible. The ultimate taxpayer protection will be the stability this troubled asset relief program provides to our financial system, even as it will involve a significant investment of taxpayer dollars. I am convinced that this bold approach will cost American families far less than the alternative -- a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion.
Ah, yes, remove these illiquid assets: another stupid metaphor (a spatial one this time). But actually, there will indeed be some removal going on. Your gub'mint is going to reach into your pocket and remove the swag necessary to make good the banksters' losses. Or, wait a minute: you don't have that swag in your pocket, do you? So they can't simply tax you for it. What they'll do, then, is to borrow some more from the rest of the world, meaning that it'll theoretically be your children's children's problem; or they'll fire up the printing presses and debase the currency still more (there goes even more of your real income, and here comes $5 or $6 gasoline).

I can't take any more of Mr. Paulson. Let's go back to Orwell:
Things like the continuance of British rule in India, the Russian purges and deportations, the dropping of the atom bombs on Japan, can indeed be defended, but only by arguments which are too brutal for most people to face, and which do not square with the professed aims of the political parties. Thus political language has to consist largely of euphemism, question-begging and sheer cloudy vagueness. Defenseless villages are bombarded from the air, the inhabitants driven out into the countryside, the cattle machine-gunned, the huts set on fire with incendiary bullets: this is called pacification. Millions of peasants are robbed of their farms and sent trudging along the roads with no more than they can carry: this is called transfer of population or rectification of frontiers. People are imprisoned for years without trial, or shot in the back of the neck or sent to die of scurvy in Arctic lumber camps: this is called elimination of unreliable elements. Such phraseology is needed if one wants to name things without calling up mental pictures of them.
As my old Dad used to say, "The more things change, the more they stay the same."


Mimi said...

I just finished re-reading "1984" and my blood ran cold. I believe the U.S. is going down the tubes, what with killing people in other countries, torturing, allowing the most unfortunate to languish--and all the while, we proles daze ourselves with electronic idiocy. We deserve our eclipse, I'm afraid.

Jim Wetzel said...

Hi, Mimi!

There's never a bad time to read Orwell, but this time is even better than most.

I've been saying for a while that the American Empire's doom would be an economic collapse of some flavor or other -- but when the thing begins to happen, finally, it's still hard to accept. We all know that water runs downhill, but we still don't really think, deep down inside, that it'll ever reach the bottom.

We do richly deserve our destiny, I think. Not that we aren't misgoverned by criminals -- we are -- but we've been complicit in the process. If any significant fraction of us had ever decided that tyranny was unacceptable, it would've ended. I'm certainly as guilty as anyone.