Breaking it Down

Two good articles from The New York Times this week on the intricacies within the world's financial crisis; how they all worked indirectly, some more malicious and ill-advised than others, but all interwoven, unable to escape this globalized economic downturn:

The first is from Paul Krugman , equating what happened in the Madoff scheme to what happened in the financial services sector as a whole. Money quote:

Consider the hypothetical example of a money manager who leverages up his clients' money with lots of debt, then invests the bulked-up total in high-yielding but risky assets, such as dubious mortgage-backed securities. For a while — say, as long as a housing bubble continues to inflate — he (it's almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big — but he'll keep those bonuses. O.K., maybe my example wasn't hypothetical after all. So, how different is what Wall Street in general did from the Madoff affair?

The second is from Tom Friedman on U.S. China trade and how the downturn in the U.S. housing sector is effecting China exports related to new home-buying. Money quote:

This division of labor not only nourished our respective economies, but also shaped our politics. It enabled China's ruling Communist Party to say to its people: "We will guarantee you ever-higher standards of living and in return you will stay out of politics and let us rule." So China's leaders could enjoy double-digit growth without political reform. And it enabled successive U.S. administrations, particularly the current one, to tell Americans: "You can have guns and butter — subprime mortgages with nothing down and nothing to pay for two years, ever-higher consumption and two wars, without tax increases!" It all worked — until it didn't.

Telling Us What We Don't Want to Hear

This has been something that I have thought about quite a bit and used to defend my case for Barack Obama. These 'conservatives' that ran on fiscal responsibility and foreign policy prudence, and have lead us into this insurmountable budget deficit the last 8 years never challenged the American public to do anything, or to sacrifice anything. Coming from a generation that doesn't know what this experience feels like, but hearing stories of the sacrifices of the greatest generation (WWI-II) makes me wonder if we are a nation that could be told what we don't want to hear anymore. The politicians love preaching to the toughness of the American people, but are we really? Joe Biden hinted at this last week saying that it was a patriotic duty to pay taxes, that caused uproar, but it was a hint at the challenge. The challenge we have begun to shoulder under the Bush administration is a budget deficit that has swollen to $10.6 Trillion. If that seems hard to grasp it looks like this:

$10,600,000,000,000.00 

With all that has gone on within the credit markets and the proposed bailout plan from the government, that will ratchet up to approximately $11.3 Trillion.

$11,300,000,000,000.00

Someone needs to tell us what we don't want to hear. Someone, preferably a politician, that holds, or will hold the power to do something about it, needs to tell us we have to start paying for this. Someone has to tell us that if we don't start paying for it and restoring the confidence in our government's financial standing and worthiness of our economy in the view of the rest of the world (i.e. international investors), it will continue to decay. Except it won't decay quickly, it will slowly decline and diminish, like a small leak in a tire, while different economic sectors/industries eat away at each other (retail, energy, housing, auto, health care). Only then, when the Gaps, Home Depots, and Chilis, become a lot harder to find, will we be told that something is wrong and a lifestyle change may be coming. As Allen Greenspan said last week, our nation absolutely cannot afford John McCain's tax policy (continuing Bush tax cuts without any significant cuts in spending) We have to start paying soon. Its hard to understand how anyone could logically come to the conclusion that a country could spend $410 Million a day on a war and somehow think that it could cut taxes, while letting a deficit balloon out of control. Maybe this is a start, Tom Friedman goes further, he knows its no laughing matter.

100,000 Garages

A great piece from Tom Friedman this weekend. 

Right now, we feel like a country in a very slow decline — in infrastructure, basic research and education — just slow enough to lull us into thinking that we have all the time and money to play around in Tbilisi, Georgia, more than Atlanta, Georgia...

Our competitiveness... is based on having a broadly educated work force, superb research universities, innovation-supportive taxes, immigration and regulatory policies, a productive physical and virtual infrastructure, and a culture that embraces hard work and the creation of new opportunities.

Alas, though, the Republicans just had a convention where abortion got vastly more attention than innovation, calls to buttress Tbilisi, Georgia, swamped any for Atlanta, Georgia, and “drill, baby, drill” was chanted instead of “innovate, baby, innovate.”

I think what is echoed here is the power of a renewed commitment to the middle class of America. To giving them the access and resources to break into to our creative class. We will always have innovation and technology flowing from the Ivy league schools, from big corporations, from the top talent in government agencies. But what if, instead of going on the path of the Manhattan Project, we invested and stimulated the path of the Apple and Microsoft project. The power of 100,000 innovators starting in 100,000 small garages across the country to generate new ideas and new technology to solve new problems and find a new way to fix old problems. The world needs more Dean Kamens, and his ideas