This Is Not a Test. This Is Not a Test.
 

March 11, 2009

By THOMAS L. FRIEDMAN

It’s always great to see the stock market come back from the dead. But I am deeply worried that our political system doesn’t grasp how much our financial crisis can still undermine everything we want to be as a country. Friends, this is not a test. Economically, this is the big one. This is August 1914. This is the morning after Pearl Harbor. This is 9/12. Yet, in too many ways, we seem to be playing politics as usual.

Our country has congestive heart failure. Our heart, our banking system that pumps blood to our industrial muscles, is clogged and functioning far below capacity. Nothing else remotely compares in importance to the urgent need to heal our banks.

Yet I read that we’re actually holding up dozens of key appointments at the Treasury Department because we are worried whether someone paid Social Security taxes on a nanny hired 20 years ago at $5 an hour. That’s insane. It’s as if our financial house is burning down but we won’t let the Fire Department open the hydrant until it assures us that there isn’t too much chlorine in the water. Hello?

Meanwhile, the Republican Party behaves as if it would rather see the country fail than Barack Obama succeed. Rush Limbaugh, the de facto G.O.P. boss, said so explicitly, prompting John McCain to declare about President Obama to Politico: “I don’t want him to fail in his mission of restoring our economy.” The G.O.P. is actually debating whether it wants our president to fail. Rather than help the president make the hard calls, the G.O.P. has opted for cat calls. It would be as if on the morning after 9/11, Democrats said they wanted no part of any war against Al Qaeda — “George Bush, you’re on your own.”

As for President Obama, I like his coolness under fire, yet sometimes it feels as if he is deliberately keeping his distance from the banking crisis, while pressing ahead on other popular initiatives. I understand that he doesn’t want his presidency to be held hostage to the ups and downs of bank stocks, but a hostage he is. We all are.

Great and difficult crises are what produce great presidents, so one thing we know for sure: Mr. Obama’s going to have his shot at greatness. This crisis is uniquely difficult in four respects.

First, to get out of a crisis like this you need to let markets clear. You need to let failed companies, or homeowners, go bankrupt, unlock their dead capital and reapply it to thriving entities. That is how the dot-com bust ended, and out of that carnage emerged a whole new set of companies. The problem with this crisis is that A.I.G., Citigroup and General Motors — and your neighbor’s subprime mortgage — are not Dogfood.com. You let the market clear them away, and we could all be wiped out with them. Therefore, the president has to find a way to punish bad financial actors without setting off another Lehman Brothers domino effect.

Second, we need to get a market going that would bring fair value and clarity to the “toxic mortgages” crippling the balance sheets of our major banks. This will likely require some degree of government subsidy to private equity groups and hedge funds to get them to make the first bids for these toxic assets by guaranteeing they will not lose. This could make great policy sense, but be a nightmare to sell politically. It will strike many as another unfair giveaway to Wall Street.

Unfortunately, the president may have to look the American people in the eye and explain that “fairness is not on the menu anymore.” All that’s on the menu now is whether or not we avoid a system meltdown — and this will require rewarding some new investors.

Third, the president may have to make some trillion-dollar decisions — like nationalizing major banks or doubling the economic stimulus — with no real precedent and without knowing all the long-term ramifications.

Finally, to do all this, the president has to make us realize how dangerous a moment we’re in, without creating a panic that will prompt Americans to put every dime in their mattresses and undermine the economy even more.

All this will require leadership of the highest order — bold decisions, persistence and persuasion. There is a huge amount of money on the sidelines eager to bet again on America. But right now, there is too much uncertainty; no one knows what will be the new rules governing investments in our biggest financial institutions. If President Obama can produce and sell that plan, private investors, big and small, will give us a stimulus like you’ve never seen.

Which is why I wake up every morning hoping to read this story: “President Obama announced today that he had invited the country’s 20 leading bankers, 20 leading industrialists, 20 top market economists and the Democratic and Republican leaders in the House and Senate to join him and his team at Camp David. ‘We will not come down from the mountain until we have forged a common, transparent strategy for getting us out of this banking crisis,’ the president said, as he boarded his helicopter.”

In regards to these huge freaking banking conglomerates that buy the congress & president, howsabout this from a private freaking citizen: "You screwed-up. Die."

i like chuck grassley's comment"resign or commit suicide".

Wholesale slaughter of EVERY PERSON that had a hand in this housing fiasco...

Bankers...all that made the loans.

Fanny and Freddy Flunkies...all that didn't have the balls to stop a bad snowball when they had the chance...

ANY POLITICIAN (Current/Past/whatever) that failed to heed warnings and pushed the Bankers and F&F Flunkies through intimidation to make the risky loans...

Then, reset the values on the houses, wipe the books clean, re-qualify EVERYONE that thinks they are entitled to those homes under the OLD CONDITIONS, then :thumbsup2: or :thumbsdow on the applications.

If you don't qualify, consider yourself fortunate to have lived the good life on someone else's dollars...now pack your chit and don't let the door slam you on the @55 on the way out...

If you do qualify, gird your loins and hold on tight for the next 15 years or so...

Then, if they miss any payments, they get handled like anyone else's would that has been paying mortgages for the past 30-40 years and defaulted...

I don't think they have any clue what they're doing. I have zero confidence in either party for developing a strategy that has a probability of actually working. Too much political interference to let actual solutions work.

God help us all.

Capitalism gone wild ...

Congress gone wild. With my checkbook.

It's difficult to say. It could very well be that simply letting all these institutions fail and let new ones spring up would put the world in a decade of funk.

For example: the NYC water system is in bad shape from what I read. Of course they've been doing upgrades recently. But suppose 10 years ago they just decided to shut it all down and start from scratch. All of NYC w/o water for a year? Naw, that wouldn't be a problem.

We've become interwoven into this complexity. Backing out of it won't be easy.

What's wrong with a decade of funk (using your technical terminology)? That's how busines and industries and technologies change -- challenge. Dont give them a challenge and they will rise to the lowest level necessary -- like where we have been since the early 1990's.

You may be right. But your quick and flippant way of dismissing them that are trying to administer this thing now leads me to think that you're operating more on stubborn delusion than on cogent insight.

It's a common human frailty and I'm certainly not immune to it. We tend to get so identified with our world view that any POV that deviates from that is dismissed out of hand.

You can tell all of that without reading my body language? Amazing!

Exhibit A. You don't miss a beat with quick and flippant dismissal. And get real bronx cheer man -- your written words are plenty.

Yeah, it's amazing how much time you spend divining my true nature.

You display plenty of it. We make the same arguments over and over and receive about the same sneering and derision from the usual suspects. Of more interest to me is the how and why of the way most all of us get stuck in our version of reality.

It's similar to the way we have many different religious cliques who are all convinced that they, and they alone are God's chosen. I hate to break it to Mormons, Jehovah Witness, Jews, etc. but either most or all of that large body of people are wrong. No way around it.

But each sect is convinced they are right. Same way you are persuaded that libertarianism is the way we should go, and the way we should have gone all along. How was it you just said elsewhere that Congress people will always say: "If only we'd followed my prescription, all these problems would have been avoided."

What we need now is good leadership, which sadly we don't have and unless O really steps his game up are not going to get.

The Rep's are to busy freaking out about this BS or that, or getting bought off, and most probably would be more than happy to see O fail at any expense to the country.

The Dem's are all giddy about being in power again and spouting some dumb crap that really shouldn't be on there agenda with the economy the way it is. O shouldn't talk about anything else but fixing the economy, all the other issues should be on the back burner until it starts to show some signs of life.

The only real leadership I have seen so far is from Warren Buffett.

Sadly when we need a good leader the most, all we get are the same turds swirling around the bowl.