Tuesday, September 30, 2008

The Bailout

Forgive me for saying this, but thank the Lord for the bailout. Finally, after two interminable years, something has pushed the election to the backburner. Just in time, too. I was beginning to run short of incredulity, cynicism, and contempt. But rather than get into any sort of substantive discussion of the bailout, let’s take a moment to examine the term itself.

Depending on your reference, the origins of the term can go back as far as the 14th century. Spellings vary depending on what side of the pond you hail from, but the meanings are similar. Originally derived from the French word for bucket, to bail out (or bale out) is to ladle water, as from a boat. Later meanings include buying a person’s liberty from incarceration, and leaping from an airplane (ideally with a parachute, itself seemingly the bale). According to Webster, it’s not until the 1950s that the term, now consolidated into a single word, is used to describe a financial rescue.

My motivation behind a close examination of the term, besides my desire to establish myself as a would be William Safire, derives from my basic discomfort with its use in the current context.

In my previous life as a teacher, I spent many hours explaining the difference between denotative and connotative definitions. Briefly, a word’s denotative meaning is its actual, dictionary definition. Its connotative meaning encompasses all the subtleties of use, interpretation and, perhaps most importantly in our current political and social climate, spin. As I explained it to my students, in a world where fewer and fewer people actually know the denotative meanings of many of the words they use on a regular basis, the connotative meanings take on added significance. ( By way of example, consider the word ignorant, which denotatively means without knowledge, but whose connotation is so negative as to make the word an insult.)

In the early days of the current economic downturn, there was much discussion, and an equal amount of hand wringing, over whether or not we were actually in a recession. Pundits pontificated on both sides of the debate, and we were treated to a parade of alternate terms that were not quite so depressing: correction, downturn, slowdown, and of course, stagflation. Finally, realizing the time had come for him to face our financial flaccidity head on, our illustrious leader, in a valiant effort to stiffen our economic resolve, proposed a stimulus package. Just listen to it: stimulus. It evokes feelings of activity, stimulation, even virility. It is unquestionably a positive term, and I’m sure the presidential spin doctors had every hope that the positive connotations alone would be the cure for our economic impotence. Sadly it was not to be.

Interestingly enough, like someone who had “never had this happen before,” he kept waiting for the stimulus to work, seemingly saying, “just give it a minute – it’ll come back.” Of course, as we all know, it only got worse (not that I’ve ever had that happen before). Which brings us to our current predicament.

Yes, times are tough, tougher than most anyone alive can remember. Yet with all of Congress, the Treasury, and the Federal Reserve on the case, I felt sure somebody would come up with something. Not a solution (because you can’t really solve a problem you don’t understand) but at the very least a proposal, a platform, a word whose connotation would be at least as inspiring as the stimulus. I thought long and hard on our current deficiencies and assumed that at the very least we would be in line for an enhancement. Perhaps, given the dire nature of things, the do or die situation we find ourselves in, it might be serious enough for Paulson to call for an augmentation. But no, faced with the specter of a calamitous collapse, when what he needed to do was choose a word whose connotation would inspire confidence and determination, Paulson gave us the bailout.

Just listen to it: bailout. Not exactly inspirational, is it? No matter which meaning you choose, we’re fucked.

We’re in jail. We’re facing the gallows or worse. Our bail is a paltry 700 billion. But check it out. Lucky US. Our doddering old Uncle Sam comes along to bail us out. But we still have to face the charges, or go on the lam and lose the bail money.

We’re in a plane. The pilots are dead. We’re on autopilot and running out of fuel. We’re going down. Nothing to do but bail out. But even if the chute opens and even if we don’t land in a tree or in shark-infested waters or in a fucking volcano we’re still in the middle of nowhere without a way home.

Finally, the one that I truly think is the most apropos: we’re in a boat in the middle of the ocean. We’re taking on water. There’s only one certainty and it’s that we’re going to sink. What to do? Let’s start bailing out, not because it will save us, but because it beats sitting here doing nothing, and at least gives the illusion of taking meaningful action.

So there you have it, and it ain’t pretty. We’re in a world of hurt, that sound you hear is shit hitting the fan, and the best all the assembled minds of our elected and appointed representatives can come up with is to try to save the sinking ship with a bucket. We’re going down and all we’ve got going for us is the bailout. It’s the financial equivalent of an ultimate team naming itself after an ocean liner that sank in the worst maritime disaster in history.

And we all know how that story ended.


ben h. said...


luke said...


but, semantics aside, we're fucked.

i want the economics of it all:
what's the value of buying out wallstreet's bad investments? what's the value if we bought out bad mortgages on the demand (homeowner side). what if we do nothing.

i teach religions, and while I have no particular religious beliefs, it seems that peoples mindset is kind of a new testament (love and charity blah blah) when it affects themselves and their friends, and old testament (eye for an eye) when it's the neighbors...

i am willing to spend 2400 dollars to save myself 2401 dollars: i'm not willing to spend 2400 dollars to save myself nothing, and save someone else a dollar.

if i pay for the bailout, does it save MY job? if I express some altruism, does it save 3% of job loss (8 percent vs 11% unemployment)? or does it just save some dude's bentley? some overly ambitious middle class dude's beach house? or does it protect the house of a person who made a modest risk in getting a 30 year mortgage, but is now being dragged down by a douche bag who either took an Adjustable rate mortgage they had no business taking, or a bank that funded said mortgage... answer is, I don't know.

I'm a historian by education, a teacher by trade, and a fairly diligent researcher... and the more i research the bailout, all i can find is that the revised form will protect up to 250000 dollars by the FDIC (thank god. the 3000 dollar check that was just deposited is safe. oh wait.), and that executives of bailed out banks will be limited to 500000 annual checks... whew. poor bastards.

my brother in law worked for bear stearns selling pretty highly valued financial instruments. great guy plenty smart... i like him. my mom's question (mom's a pHD, MBA, passed the CPA exam all 4 parts the first time, which is a pretty big deal)is this: hey, andy is a smart kid. just because he made more money, how much smarter is he than me, or the guy who sold me my car?

if you are andy, you say lots. the reality is more complicated than that...

politically, especially socially, i tend to disagree with a lot of the people who voted against the bailout. economically, if i can avoid it, i prefer not to incent horrific investment decisions. personally, i just want a range of numbers.

no bailout: can unemployment be expected to remain under 10-12 percent? can we expect a period of pain of 1-5 years? (these are just starting points. 9 percent is a historically high unemployment number. the 1-5 years is arbitrary, but since we've had 8 years of 'growth' with no real income growth, i'm willing to accept some pain.)

bailout: same questions. and macro, will my dollar devalue to such an extent that i can't travel? that our balance of payments turns us into a debtor nation?

personally, in 2000, i decided i wanted to be a teacher, so i took my retirement fund, accruing at something like 26% per annum, and put it into bonds (4%). I was viewed as a fool... 1 year later, I was having to negotiate with 'smarter' people, people with 'name brand educations', who had decided that the tech boom would continue forever, and they would pay for their houses by monthly sales of stocks: it got awkward, at best... and meanwhile, as the market fell, I was earning some small amount. like a teacher at school, who put everything into t-bills 2 years ago: because he is retiring next year... it's called fiscal responsibility.

i'm going to stop, and go make my own post. ken, i hope that the shithole we're in doesn't unduly affect your startup. good metaphors, grammar and syntax.

Anonymous said...

how it ended was that they used the #1 rule in marketing......they changed their name(quite a few times,right?). And then they, although only due to their main competitor "closing up shop", went on to dominate the market and become just a succesful as that previous competitor.

i was really hoping that, in your analogous brilliance, the ship you were talking about going down would be the upa ship.....but, to my disappointment, it was just the boston ultimate ship.

and luke, why bother, your blog is lame and will undoubtedly get goose egged.

Anonymous said...

My wife and I have recently
found ourselves without money.
The fault is ours, there is no doubt
but from our debt we need an out.

The banks that were so generous
now all claim they're penniless.
No money in their sparkling towers
(though for a long time they had ours).

The life (our boat) that we've enjoyed
is sinking now and can't be buoyed.
With money lenders we've no clout,
they won't give US a bailout.

Reform ourselves? You must be mad!
We've got a house, so why be sad?
It's just that we must refinance
our lifelong extravagance.

Our path, the tack that we have taken
must not veer, or be forsaken,
simply 'cause we're out of money.
We're still buying! Don't be funny!

It's just that we now have a need
to fill the sails of our greed.
And to the rescue with a plan
our loyal friend, our Uncle Sam!

Now everything is crystal clear.
I see a road that leads from here.
Our Senate showed me how to deal
with the crunch my family feels.

I'll print my own! Your what? You say.
I'll print my own money, today!
The boat, which in my life I've floated,
will continue, full and bloated.

The leaks are stopped up for today
and 'til the feds lead me away
my currency will float worldwide
and in my boat you'll all soon ride.

Phil said...

There was an Ultimate team called "Sultana"?

Phil said...

D'oh, I'm an idiot, what was I thinking with that "Sultana" comment. Of course the worst maritime disaster was the "Wilhelm Gustloff".

I've never heard of that team either, but I guess if they were that bad, I wouldn't have expected to.