It seems the recession is bringing out the worse in people. Not only do they expect miracles, quick fixes from their leaders, they also have this holier than thou attitude about the problem being the fault of the other guy. Unless we all get together and view it as something we are all responsible to make things better, the economic downturn will hound us for a longer time.
I was appalled while watching a number of people bellyache on CNN last Thursday evening that the mortgage rescue plan of President Obama was unfair to good people like themselves (and my own family) who paid their mortgages on time. They felt so bad that the government plan is rewarding some irresponsible people. I thought that not having problems with one’s mortgage at a time when a lot of people are in trouble should be blessing enough. Not only should I encourage government to help those in trouble, Christian values tell me I should probably see what I can do to ease the pain.
In the first place, they are jumping the gun. The details on who are eligible are still to be revealed. But more basic than that, people have to realize that we all live in one neighborhood, so to speak. Many houses in that neighborhood are on fire. Government firefighters have to train their hoses on those houses not just to save those possibly careless owners who smoke in bed or overload their circuits but to save the careful owners from losing their homes if the conflagration spreads.
It is the same thing with the economic and financial crisis we are experiencing today. Many, but concededly not all, of those in trouble with their mortgages have to be helped or the economy itself may not recover as quickly. The mortgage rescue plan of President Obama is essentially a confidence building measure. Even as it helps some nine million families out of their predicament, also brings us some steps closer to a more normally functioning economy where people will have enough confidence to start spending again.
Of course we should also let the system cleanse itself of the abuse and the abusers. Those who took out housing loans they know they cannot afford or did so to speculate on a second or a third house, should be allowed to fry. So should lenders who carelessly gave out loans without the usual due diligence.
But there are innocent bystanders who suffer collateral damage and should be assisted. And when people see that the government program is starting to work, confidence will start to develop even among those who did not get a cent from the program. Saving mortgages from foreclosures will also raise property values in a community and benefit even the good mortgage payers whose property values declined because of the crisis.
It is the same thing in the matter of saving the financial system… getting the banks to start lending again should be good for everybody, the good and bad amongst us. The equities market voiced their disappointment with the new Treasury Secretary’s rescue plan that lacked details. What did they expect? The complexity and enormity of the problem demands careful deliberation. Barely a fortnight in his post, people shouldn’t really be expecting more than brush strokes on the general plan.
We should try to avoid complicating the problem with ideological considerations. A number of economists, including free market believer Alan Greenspan, already concede that some of the weaker big banks may have to be nationalized first as part of a solution. That was how Sweden solved a similar problem not too long ago. But that’s unthinkable to many Americans and it may be politically untenable. Too socialist!
And while everyone is agreed on the need to get toxic assets out of the books of the banks so they can start lending again, there is no agreement on how this is to be done. The key problem is how to value those assets so that the taxpayers don’t get too screwed in the process. The solution must also be affordable.
Of course we have to allow for people being very angry at banks, greedy bankers, poor people who borrowed beyond their means, Allan Greenspan for allowing cheap credit for so long and regulators who slept at the switch. It is alright to demand some retribution… like caps on salaries of bankers and a ban on bonuses. But we have to avoid hurting ourselves in the process of punishing them. There will be necessary solutions to get the system right again that may seem to or even actually help some of those who are culpable for the crisis. We have to allow these solutions to be taken to revive the system. We can punish more severely and institute reforms later.
The way it looks, the crisis is not something that will go away quickly because its complexity ensures there are no quick fixes. We didn’t get into this hole overnight and we shouldn’t expect to get out any time soon. The recession requires a multitude of cures, and also demands a lot of patience on everyone’s part. Like it or not, we are all in this together… if the economy gets flushed down the toilet, we, the good and the bad, all go down with it…
It should be good enough that the current leaders are technically competent, open minded and pragmatic about possible solutions. They may be leading blindly at some points because the fog of crisis is just so thick. But the world has a better hold of the situation now than it did in the 1930s. How fast we get out of it largely depends on how willing everyone is to put egos behind and focus on the task at hand.
Hedges
Speaking of the crisis… volatile commodity prices are causing an epidemic of high blood pressure in corporate executive suites these days. In the airline industry, for instance, Philippine Airlines reported to the SEC last week a huge loss of $219.86 million for the period October to December 2008, including actual and mark-to-market losses from fuel hedging contracts.
PAL is in good company. Southwest Airlines in the US always managed to turn a profit even when the larger airlines filed for bankruptcy because they made what turned out to be good fuel hedges. But this time, Southwest also reported losses because its fuel hedging contracts worked against them.
Singapore Airlines reportedly sidelined 17 of its planes because of lower passenger traffic due to the recession. It is also hurting financially because it lost a bundle on wrong fuel hedges. A news item on the CNBC website pointed out that energy costs have dropped sharply with jet fuel prices down 70 percent from its peak in July last year. That should have been good news to airlines in these tough business times… but it isn’t making a difference for the larger airlines because of wrong fuel hedges.
“Oil is our biggest single cost and it’s gone down by two thirds,” Tiger Airways’ CEO Tony Davis told CNBC. According to Davis , low cost carriers like Tiger has the advantage of not facing the hedging losses their full-service counterparts are burdened with. In fact, LCCs like Europe ‘s Ryanair, aren’t hedged at all and are reaping in the benefits of $40 a barrel oil, CNBC reports.
Hedging losses are also plaguing the local property sector. Some of the biggest local names have lost fortunes by hedging wrong on the price of steel. That means higher construction costs for their condo projects at a time when the market is starting to thin. But unlike PAL I haven’t heard about any of these property firms making proper disclosures of their hedging losses to the SEC or the PSE.
As far as I know, the executives who made the wrong hedging decisions still have their jobs even if their mistake cost their principals dearly. But the pressure on them must be so great that they are probably wondering if being jobless may be more of a blessing.
Lifesavers
From Robin Tong.
A teacher was doing a study testing the senses (taste) of first-graders using a bowl of lifesavers. The children began to identify the flavors by their color: Red.....Cherry; Yellow......Lemon; Green....Lime; Orange .....Orange.
Finally the teacher gave them all HONEY lifesavers. After eating them, none of the children could identify the taste.
“Well,” she said, “I will give you all a clue. It’s what your mother may sometimes call your father.”
One little girl looked up in horror, spit her lifesaver out and yelled, “Oh my God!! They’re ass-holes!”
Boo Chanco’s e-mail address is bchanco@gmail.com