Posts Tagged ‘automobile czar’

SUGGESTION NO. 6: APPOINT A BUBBLE CZAR

Sunday, December 14th, 2008

I started out my last blog, “Fear, Damage, and Big Ben Rothlisberger”, with the intention of pointing out that the natural human reaction to a severe economic downturn is fear — -that the inclination is to pull our money out of the market and then run to the bank and turn our cyberspace dollars into real greenbacks.  I wanted to note that when one person acts like that, it’s called fear.  When everybody acts that way, it’s called a panic.  In pursuing that end, I did some mild research into the historic “Panics” that have reared their  ugly heads over the past century and a half.  I was quite stunned by what I found.

First and foremost, the panics seemed to come with regularity, like some sort of a viral financial flu.  1819, 1837, 1857, 1873, 1893, 1907, 1929….not exactly clockwork, but regular enough to recognize that they seem to be an unwelcome fact of life in a free-market reality.

But what struck me nearly speechless was the repeating pattern in the causes of the panics, and the extreme similarity to what is taking place in our present dilemma.  Every single one of them was brought about by undue speculation of one sort or another, most of them by speculation in real estate fed by a willing flow of capital to feed the frenzy.  Speculation lights an ember, excessive profit blows the ember into a flame, and eventually a stampede of greed whips the flame into a raging forest fire.  When the bubble finally bursts, houses are burned up in foreclosures and people are left to stand in unemployment lines and food kitchens.  Untolled damage is done.  But eventually people start to rebuild their lives until a new ember appears just beyond the conscious memory of those who lived through the last one.

As I reviewed the history of the panics, I kept asking myself why a supposedly intelligent species would allow such a thing to keep happening.  Do people get so blinded by the lure of profit that they can’t see a bubble when it’s staring them in the face?  I have to say that that is precisely the case.

Think back to our own experience over the past decade.  Remember the “Dot.com Bubble”?  There was a time when I probably could have created a company called Bubble.com and made a killing off it.  It was crazy!  Then, “Pop!”

Then came the real estate bubble.  I have to say that I was a participant in this one — -at least I was on the winning side of the equation.  While others were salting away their retirement cash in stocks, I was buying cheap rental units.  My plan was to fix them up, one at a time, and sell them off as needed to meet my needs in my “golden years”.  I started the fix-up stage just about the time the remnants of the dot.com cash started looking for another place to land — -and land was the place to land.  Infomercials began to extol the virtues of buying cheap houses, tossing on some paint and “flipping” them for massive profit. 

I recall clearly my first rental to be harvested:  I had paid $37,000 for it in the 80’s.  When I started the repair phase, I intended to put about $20,000 into it (plus a lot of free labor on my part).  I had visions of putting it out at $85,000.  That’s when the trash heap down the block sold for $110,000.  With a smile on my face, I began to think of a “For Sale” sign in front of my gem in the $125,000 range. While I labored diligently over a six month period, I saw houses exploding in value like popcorn all around the neighborhood.  I was only vaguely aware that the Federal Government was flooding the market with an ocean of cash that made it possible for anyone without a needle in his arm to buy a house.  All I knew was that my humble rental unit was taking off like a NASA shuttle.  I eventually sold it for $165,000.  I was ecstatic!  I couldn’t wait to get the other rental units going.

This went on for years!  I was able to pay off all my mortgages, tear up the credit cards,  buy a badly-needed dump truck for all my projects, and stash away a stack of bubble bills.  I even started looking for more of those dirt-cheap fixer-uppers.  And so was everyone else.  They didn’t exist any more.  The bubble popped some time in late spring of 2007, I think.  I was lucky — -I had a seat when the music stopped.

The rest is history.  We are all now standing in the middle of the bubble rubble.  And, of course, when the real estate bubble popped, the remnants of the money rushed over to the new gold rush: oil.  $60/barrel, $75/barrel, $100/barrel…$145!  “It’s gunna hit $250 by years end!”

Pop!

I ask again: Why can’t we see a bubble coming?  And I answer again: We get totally blinded by the profit of the moment.  There’s just something about having more money — -after all, we’re the species that puts melamine in baby formula. 

So this brings me (at last) to my simple point.  The new Administration and the new Congress are poised to appoint czars to govern everything from energy to the automotive industry.  I think what we really need is a Bubble Czar.  We should appoint some well-educated guy to the post and put him in an isolated room with a computer that feeds him information about where all the money’s going.  He can’t be allowed to buy anything himself — -just watch what’s going on.  A bubble can’t be that hard to spot.  I’m not saying that he should be ready to do anything about it — -that should be up to the policy makers.  His sole task should be a blow a whistle or sound an alarm or something.  Whatever it is, it should be an “Official Alarm”, requiring the policy people to do something — -like put a bubble tax on the transactions in the alarm zone. 

The point is that bubbles are bad for humanity.  Bubbles lead to bubble rubble.  It’s time we stop them before they grow.  I am particularly concerned about an “alternative energy” bubble laying waste to our very real need to accomplish a global transition in this critical arena.

Richard