Mark is trying to understand what’s happened with the economy and where it’s going. He is bewildered by the pronouncements of Ben Bernanke (it’s just Ben, not Benjamin) and Tim Geithner (the “h” is just for show), who are earnest, but opaque.
Mark is convinced there is no one in the Western Hemisphere who understands the stimulus package and all the bailouts. No one knows where all those billions are coming from and, so far, no one can seem to follow the money and actually see it deposited in bank accounts. How is the money actually doled out? (“I’d like $12 billion in twenties and the rest in smaller bills, please.”) Is it being delivered in Brinks trucks? Is the government simply printing more money, or is it coming out of tax revenue? Mark has no idea, but he gets vaguely uneasy when the conversation escalates into stratospheric figures. He’s been conditioned to mentally handle the concept of billions; trillions are another thing. They make him nervous.
Calm analysis is required. Let’s look first at AIG. Mark has his insurance with AIG and is worried about whether or not it will pay off if he runs into a hydrant or the roof falls in at his Tahoe condo. He reads about bailout billions for the company and knows that the culprit is a product known as credit default swaps. (Do companies acquire those at swap meets?) As he understands it, AIG backed up mortgage packages and when those collapsed, AIG didn’t have the reserves to pay off investors. So now what happens? Does the government give AIG money to pay off those investors? What happens to all the bad mortgages? Mark’s head hurts.
Then, of course, there is the auto industry. While the rest of the world has been introducing hybrids and plug-ins, and smaller cars that get fifty miles a gallon, the lumbering American automakers have been making SUVs and muscular trucks sturdy enough to transport a dismantled neighborhood in one trip. Couple this with union contracts unmatched in generosity in the Free World, and the demise of the industry could have easily been foreseen. Mark wonders about the mentality of the auto executives. If he could see the handwriting, why couldn’t they?
So now the auto companies get their bailout. The President gravely asserts, basically, that without an auto industry, America will turn into Honduras. It’s unclear how the largest automaker, GM, will survive. It seems unlikely that the robotic arms in its factories can be reprogrammed to churn out efficient, snazzy cars that will be snapped up by American consumers. Chrysler is a lost cause, but Mark believes there is a solution for GM: change its name to Toyota.
The biggest bailout is for the banks, and here Mark gets lost. As he understands it, the banks are spooked and afraid to lend. So, the government is lending them money so they will in turn lend it out. Then people will (again) be able to get mortgages at low rates, send their kids to college, and buy iPods. The theory is that banks have been burned by their own stupidity and cupidity, and now we have to reward them for that. But, now the government is getting tough: banks are eligible for the bailout funds only if they agree that the word “bonuses” may be escorted out of the English language.
The stimulus package is something completely different. That money is supposed to infuse the economy with new energy. Much of it will go for infrastructure. It will help Sarah Palin complete her bridge to nowhere. It’s money that is intended to evoke images of FDR and the WPA (Work Projects Administration). Put people to work. Have them build bridges and highways and fix potholes and repair trolleys and pick up gum wrappers. Give the states money and the taxpayers money, and encourage people to buy Cuisinarts and chaise longues and external hard drives and petit fours and amethyst bracelets. Get the retail sector going again. The amusing aspect is that some officials, such as the governor of South Carolina, have said, in essence, “I don’t need your stinking money; my state can go down the tubes without it.”
Another arm of the stimulus is aimed at somehow reinvigorating the housing market, stopping foreclosures, and allowing qualified buyers to purchase homes or refinance. This is an area of hand wringing and confusion. So far Mark can detect no progress. Forgive defaults? Lower owners’ interest rates? Lower loan principal? No one seems to know what to do. Meanwhile, whole neighborhoods have “For Sale” signs, and vacation areas such as the Coachella Valley (Palm Springs, et cetera) have thousands of units for sale and few buyers. Mark’s solution would be to cut all mortgages in half and move on.
Mark wonders if he can somehow profit from the flood of money gushing into the economy. He would love a mini stimulus package of his own. How can he tap in? Well, maybe his bank has bailout money, and he can borrow and pick up a couple of inexpensive homes at a foreclosure sale and rent them out. Nah, too much work. In too many of these homes the prior owners have ripped out the plumbing, carried off ovens, punched holes in the walls, and let weeds reach the rooftop. And at the auction the lender would plant a bidder who would drive up the price. Even if he bought a property there would be a blizzard of paperwork. Nah, not worth it.
Unable to pinpoint how he would corner stimulus money, Mark hits on another way to profit from the economic downturn: the stock market. The market, of course, has been volatile, and his 401k is now more like a 201k, but Mark thinks this might be a buying opportunity. Surely stalwarts like General Electric and Intel and Boeing and General Dynamics will make a comeback. Mark has an account at Citibank and figures even that bank, ravaged by bad investments, might be a good play; it’s selling for about a tenth of its fifty-two-week high. It seemed to be going the way of Lehman Brothers but is still clinging to life at under $5 a share.
The fact is that the market is a crapshoot, a gamble. Mark knows that he can study price/earnings ratios and competitive position and market share—do all the research—and still something might happen to hurt a company and derail its stock. Examples abound: the asbestos disaster for Johns-Manville, the Vioxx debacle for Merck, the unending tobacco litigation.
For now, he’s going to stay in cash.
Mindful of the recession, Asher Rubin bought his wife a new car, but it was at Toys “R” Us. He buys used golf balls and does not open his monthly 401k statements.
