After I picked my son up from football practice yesterday, he asked me how things were. I let him know that the stock market had dropped 777 points. “Wow, Mom,” he replied, “that’s God’s number.” I had to chuckle – at least he’s paid attention to a few things he’s heard me explain – but that’s about the only chuckle I had yesterday. If God is using this economic crisis to get our attention, he certainly has mine. I’ve been studying Zephaniah, and his words are reverberating: “Neither their silver nor their gold will be able to save them on the day of Yahweh’s fury.” (1:18) It’s a stern warning.
In the context of the risen Christ, however, it’s not only a call to repentance and reevaluation, it’s also a call to do what we can to alleviate looming human suffering. I’m deeply concerned about our immediate future, and the failure of our legislature to have acted in our best interest yesterday. The no-voters are flirting with the disaster of all Americans - and indeed, all citizens of the interconnected world. Here’s why:
The primary provision of the economic rescue legislation is to permit the government to purchase the written down mortgage assets now creating such weight on bank portfolios. That’s purchase assets, not hand over cash. The problem is not that there is no value in the assets, but that it is impossible to determine with accuracy how much value there is. As mortgages were bundled, sliced, and sold off as CDOs (collateralized debt obligations), they were traded, and when the music stopped, landed as assets on the balance sheets of banks and investment houses many steps removed from the original real estate and the mortgage borrowers that gave rise to them. The problem now is a combination of uncertainty about their real underlying value and conservative accounting regulations requiring “marking to market.” Since today’s holders don’t have a quick, reliable way to accurately determine what they’re worth, “market value” is a very low number. But note: there are properties and mortgage cash flow behind these assets. Not knowing what they’re worth is very different from worthlessness.
So if the government, which won’t be trying to make money on trades as the private sector had been doing, purchases these very marked down mortgages at fire sale prices with tax dollars and holds them, there are plenty of scenarios which have not only most of its investment money coming back, but even a substantial profit if and as the economy settles down.
Why is this necessary for what many believe is properly a free market economy? That’s for another post – or better – another blog. The conditions that have given rise to this particular moment are unique, but the problem is that we are here. As trust evaporates from the financial system, no one is willing to lend money. That means businesses can’t get their working capital loans to smooth out cash flow. That means that educational institutions will not be able to borrow to cover cash flow needs between tuition and gift inflows. That means that banks can’t do their normal business because they are unwilling to work with one another for fear of another failure. In short, that means that the economy has seized.
What are the implications? It’s like a set of dominoes. Let’s assume a trucking company is responsible for moving produce from the farms to the local grocery chain. It gets paid monthly. The grocer borrows mid cycle to pay the trucker, but this month, it can’t get the working capital loan it always gets because the bank isn’t lending. The trucking company doesn’t get paid. It can’t buy gas and give out paychecks, so it lays off drivers, and its business halts. The produce doesn’t move. It rots in the warehouse, and the farmers don’t get paid . . . You can see where this is going. It’s a small example, but when capital can’t move, things collapse in very short order. It’s the 21st century version of massive destruction.
This bill is essential for restoring some order to the markets so that they can move. The more days that go by without a bill, the more urgent the situation will become.
This isn’t about politics and theoretical free markets. It’s about keeping our country from falling apart to the extent that we could be looking at riots, food shortages, massive unemployment, and a collapse of our savings and investments (which has already begun; $1.2 TRILLION of market capital was wiped out yesterday). To borrow from Zephaniah again, we ought to be very concerned about our streets being laid to waste.
I’m a Republican. I learned yesterday that my Democratic congressman voted for the bill. For that reason alone, I’m voting for him in November; he gets it. This goes way beyond the things that concerned me last week.
It is true that silver and gold won’t save us. As Christians, we must grab hold of the righteousness of Christ, and remember that our trust is not in the assets of this world, but in him. He and he alone is our salvation. That said, as those called to speak and work redemptively in a sin-cursed world, doing we must do what we can to head off the kind of suffering we might never have imagined possible.