Fractals of Change

How Elders Protect Themselves from Young’uns

"For the first two years," the young architecture student told us, "we're not allowed to use computers or CAD. We have to learn to do all our drawing by hand. That's the way Miis [van der Rohe] would have wanted it. That's how we learn the basics."

Sounds good but it's bullshit.

Do we do physics with a slide rule and log tables anymore? Would that make us more like Einstein? Do young programmers have to learn to keypunch because that's what I had to do a million years ago to prepare my programs for execution? Do stone cutters have to practice chipping a softer stone with a harder stone because that's what their predecessors did? Of course not!

I know why generation x doesn't want generation x+1 to use the latest technology; it's because the kids are better at the new technology than their elders. And the elders don't want to be bested. The great fear of the greybeards whose skill was tedious drafting of commonplace designs is that a young genius with a computer'll output a masterpiece that breaks the old rules without even serving a decent humble apprenticeship.

The rules favor the incumbents, no surprise. You can't get your degree without following some of the rules and it's hard to be a practicing architect (or many other things) without a degree. What a waste.

The Right Way to Stop Piracy

The crews of both the container ship Alabama and the USS Bainbridge just gave a good practical antipiracy course. The crew of the merchant ship fought back and avoided leaving the pirates in possession of a big ship full of hostages; Captain Phillips was apparently especially brave but did end up hostage. Navy snipers ended the danger to the Captain by killing the pirates – the opposite of paying ransom which would have encouraged further piracy.

Ironically an op-ed in today's New York Times, written before the rescue, says:

"So we end up with the spectacle of an American destroyer, the Bainbridge, with enough Tomahawk missiles and other weaponry to destroy a small city, facing off against a handful of Somali pirates in a tiny lifeboat. This is not an efficient use of American resources. It indicates how pirates, like terrorists, can attack us asymmetrically. The challenge ahead for the United States is not only dealing with the rise of Chinese naval power, but also in handling more unconventional risks that will require a more scrappy, street-fighting Navy."

Apparently we do have a "scrappy, street fighting navy". All three pirates were shot in the head while bouncing on a choppy sea. The one with the AK-47 pointed at the back of the American captain never got to shoot.

Not every attempt to fight back will end as well; we have to be prepared for that. But fighting back discourages piracy and saves lives; paying ransom to pirates finances extortion and murder. Thank you to both American crews for the sailors whose lives they've just made safer.

The Stimulus Czar Summit – Part 2

Most of the summit the Vice President sponsored in Washington last week consisted of half hour presentations from the agencies which will be awarding the money to us state "stimulus czars". These ranged from a boring reading of a list of numbers we could already find on a website to dynamic presentations with new information. There was never a case when the recovery czars didn't have a lot of questions over how a program would work; sometimes the agency people had answers and often they didn't.

Clearly a lot of thought has gone into how to get money out quickly. Often agencies are waiving complex requirements for the first tranche of money in a particular program and then requiring a lot more information for the second tranche when the recipients have had more time. This makes sense.

In many cases money is being distributed through existing programs using existing formulas. This is a fast process and it explains why we already know how much Vermont will receive for programs like home weatherization grants to low-income (200% of the poverty level) people. However, we in the states still have to be creative in these cases. Some programs are receiving ten times more money than they ever did before. Can we spend it as quickly as we were supposed to under the old rules? Should we broaden eligibility since there's more money? If we do, what happens when the money stops flowing from DC in a few years? Do we have enough people trained to do the work that the particular category of stimulus money supports? Not much guidance from Washington on these questions but we can work them out at the state level.

The most serious problem we saw was that there has been very little coordination between most of the federal agencies who are giving out money. Their definitions are not aligned. There is no clear way for us to make a request that spans multiple agencies even when that may make sense to do. Here in Vermont we want to assure that we build something lasting with this money by focusing many of the different stimulus streams on relatively few goals. We would expect preference to be given to applications which use the stimulus money well. But what if each of the agencies involved when we ask for a competitive grant for something like smart grid or broadband says "how can you be shovel-ready when you need approval from multiple agencies? What if the other agencies turn you down? Sorry, no money for you." We can't let lack of coordination in Washington (which the agencies say, with some justification, they haven't had time for) prevent us from coordination and smart use of the money.

Many states objected to the fact that, although the act is generous in allocating money for inspectors general at the federal level to audit how the money is spent, in most cases it allocates no administrative money to the states. This came to a head when Earl Delvaney, Chairman of the Recovery Act Transparency and Accountability, told us that they really expected the states to do the primary auditing for monies granted to or though them and Washington would just audit the auditors. "How come you have the money and we have the work?" the stimulus czar from somewhere asked. Delvaney was frank is saying that, if he had known he was going to have the job he has, he would have lobbied for some different provisions – presumably money for state administration or at least audits. Here in Vermont we're absorbing the extra administrative expense at the state level by "borrowing" skilled people from various agencies.

The word "transparency" was used more than the word "jobs". Problem is that there isn't yet any guidance on some basic transparency questions. For example, we're supposed to report on a per program basis the number of jobs created or retained and these numbers need to hold up in an audit. But what counts as a job? It's not as simple a question as it seems. Suppose you're building a building and you hire some people to build trusses onsite; probably those are jobs. But what if you buy pre-built trusses? Do you count the jobs in the factory that went into making the trusses? The question has some urgency because we'll need to require contractors and sub-contractors to comply with reporting requirements so we can report accurately but we're signing contracts today before we know what it is we're reporting.

Feel free to ignore the whining above; we'll figure a way to make all this work. It's our job.

The first post on the stimulus czar summit is at http://blog.tomevslin.com/2009/03/the-stimulus-czar-summit-part-1.html.

 

The Stimulus Czar Summit – Part 1

Vice President Joe Biden invited the state "stimulus czars" to a Washington conference on the American Recovery and Reinvestment Act (The stimulus bill); according to the organizers, representatives from 49 states showed up (they didn't say which state didn't show). We really do want to find out as much as we can about this huge, unwieldy program including both what we can and can't do. We did learn some but not as much as we would've liked; we also made contacts with some of the federal agency people we'll be dealing with in the months to come.

"Transparency" was the mantra of the conference; every speaker used the word at least once; many coupled it with "accountability". In that spirit I'll post both the good and bad things about the conference on this blog. I also twittered some of my notes from the conference (it was open to press so not confidential); if you're interested, you can read them (in reverse order) at twitter.com/tevslin. In Vermont we will figure out how to use modern technology, including social media tools like twitter, to get information out.

Energy Secretary and Nobel laureate Steven Chu opened the conference. Chu said that the stimulus money which the Department of Energy awards will "create jobs which can't be outsourced, promote alternative energy, reduce our dependence on foreign oil and… oh, yes save the planet." He pledged that he agency would move quickly to get money out the door and they did, in fact, announce the almost immediate availability of the first $780 million installment of a total program of nearly $8 billion dollars for weatherization and state energy programs. Vermont's total receipts from these programs will be $38.8 million assuming that we demonstrate suitable progress in using the funds as intended (which we will). The weatherization program, which is administered through the states, provides assistance to low income families earning up to 200% of the poverty level for weatherizing their homes; the state energy program can be used for a variety of different energy efficiency projects. The current (pre-stimulus) Vermont weatherization program is described at http://www.helpforvt.org/weatherization. Information on the expanded program will be available soon.

Chu then introduced Vice President Biden. Biden has been positioned as the enforcer for transparency and accountability in the administration of the stimulus bill – "don't mess with Joe". He was suitably stern. Not only will no swimming pools be funded (it says that in the law), but he and the President will soon announce a whole bunch more things along the same line that cannot be paid for with stimulus funds. "Just because it's legal [not forbidden by the law itself], doesn't mean you can do it," he said. He continued that Congress has given the states a huge opportunity to administer large parts of this very ambitious program; if you [stimulus czars] don't do a good job, it'll be a long time before Congress entrusts the states with much responsibility again.

My personal guess is that if we don't all do a very good job on this – feds and state people alike – it'll be a long time before the taxpayers trust any of us with so much of their money again and, when they do, there'll be a new set of people who earn that trust.

We should have known something was up when the television cameras started to cluster around the edges of the small stage; there were more of them appearing every minute. Somebody came and whispered in the ear of Matt Rogers, Senior Adviser to the Secretary of Energy, who was then presenting. "I have a surprise guest to introduce: the President of the United States Barack Obama." We all stood, of course. The President came in quickly from the back of the room and took the podium. He only spoke for about five minutes but we got the message: he thinks this is important; there will be transparency; people will know where there money has gone and what results have been achieved.

"Use these precious dollars [which] taxpayers gave up to deliver short and long term results," the President said. "You've got a wonderful mission; seize this opportunity to put your shoulders to the wheel of history."

More about what we learned (and didn't learn) from the agencies is at http://blog.tomevslin.com/2009/03/the-stimulus-czar-summit-part-2.html.

A Free Press Frightened

"Gruesome killing poses another test for US Muslims" is the headline in an AP story about the praiseworthy reaction of many American Muslims to the recent beheading of a woman by her husband in Buffalo. Domestic violence is all too wide spread among all ethnicities and religions but this post is about shoddy and perhaps fearful reporting, not about either violence or Islam.

Here's a quote from the story. But there's something missing:

Asra Nomani, a Muslim journalist, author and activist from Morgantown, W.Va., challenged Muslims who say the murder has no link to Islamic teachings. While Islam does not sanction domestic violence or murder, a literal reading of a controversial verse in the Quran taught in some mosques can lead to honor killings and murder, she said.

"It's sort of like the typical reaction to terrorism in the community, where people want to say, 'This had nothing to do with Islam,'" Nomani said. "Well, it doesn't have anything to do with your interpretation of Islam that teaches you can't kill innocent people. But terrorism, violence, honor killing — they are all part of ideological problems we have in the community we need to eradicate."

The passage — Chapter 4, Verse 34 — has been widely translated to sanction physical discipline against disobedient wives. There is disagreement about to what degree and whether it's punitive or symbolic.

The verse is cited "all the time" to justify domestic violence, just as people of other faiths cite scriptures to support oppression of women, said Salma Abugideri of the Peaceful Families Project, which offers training and workshops to combat domestic violence in Muslim communities.

What's missing is Chapter 4, Verse 34 of the Quran itself. How could that possibly not be relevant as part of the third paragraph above? Here it is:

"Men are the maintainers of women because Allah has made some of them to excel others and because they spend out of their property; the good women are therefore obedient, guarding the unseen as Allah has guarded; and (as to) those on whose part you fear desertion, admonish them, and leave them alone in the sleeping-places and beat them; then if they obey you, do not seek a way against them; surely Allah is High, Great."

I have no idea whether it should be taken literally or symbolically. It is less blood-thirsty than much of the old testament sacred to Jews, Christians, and Muslims alike. It certainly doesn't say anything about beheading. But the point is that it belonged in the AP story and was either left out by a reporter (who already knew the chapter and verse) or deleted by an editor. This is similar to the stories about the Danish cartoons of the prophet which somehow never managed to show the cartoons themselves.

We can't afford not to have a free press. We won't bridge the gaps between religions, ideologies, and ethnicities unless we can talk about them. Self-censorship is condescension, not consideration.

 

 

 

Bailing out Investors Threatens Savers

Dow at five-and-a-half year low! That's the 4PM headline which inspired this post. Actually, of course, that's no reason for general panic in itself. No one ever said the Dow was supposed to go straight up. However, if you put a substantial part of your "savings" into stocks directly or indirectly, you may have a very good reason for individual panic.

If the government continues to insist on baling out investors, however, savers will be exposed to a risk they don't deserve.

Saving means protecting your principal while earning a very low return (zero in some cases). Investing means risking at least some of your principal in the hope that you'll make a better return than you will by saving. Once of the great innovations since the Great Depression is FDIC insurance. You can SAVE a reasonable amount of money without risk to the principal assuming that inflation isn't greater than your interest after taxes (hold onto that thought). If we don't have a rerun of the 1930s (and I don't think we will), we will be spared to a large degree because we had no reason to panic and take our savings out of banks (assuming that we didn't have more than $250,000 in any one account name in any one insured institution).

Unless you're a rock star, an athlete, or a vastly over-paid executive, it's hard to get rich just based on savings. Most of us don't earn enough to be able to put aside enough to build what we would consider wealth even with the miracle of compound interest. So we're tempted to invest some of what we were saving so that we can get a better return and live or retire in a grander style then we would have been able to based on savings alone. Nothing wrong with that so long as we remember that investing means taking a chance on losing the principal AND we're prepared to deal with that loss. Of course it's easy to forget the risk when you invest in a stock market that seems headed for the sky or when you "invest" in real estate by buying a house that costs more than you can justify paying EXCEPT for the fact that it is "sure to" appreciate. But it really hurts when you realize that your retirement will be much more Spartan than you planned because luck went against you, especially you're near the end of your working life and/or have no opportunity to restore the savings you lost. If we weren't out-an-out swindled, we make these choice and we live with the consequences – MAYBE.

But if a large constituency (recent home-buyers and refinancers) or politically powerful constituencies (bankers, automakers, for example) are feeling the pain of bad investments, then a democratic (small "d" deliberate) government is tempted to offer a bailout even though the investors were never promised nor did they pay for any insurance against failure. If there happens to be a recession going on at the same there's lots of clamor for bailout (and that's likely, of course), then tax revenues are also down. The only way a sympathetic government can bailout the unfortunate investors is by borrowing or printing money.

But borrowing or printing money eventually leads to inflation which erodes the value of what the savers saved. That's NOT FAIR. The savers made the choice to forgo large possible gains in return for safety. It's simply wrong as well as very bad policy to use inflation as a way to tax away their savings to provide a bailout to investors who decided to take a risk.

Note that a "stimulus" bill is not necessarily a bailout and can be very good policy. If the government spends money now on infrastructure or anything else which it would eventually pay for anyway but is cheaper now, then the spending helps flatten out the economic cycle and can naturally decelerate when many needs have been met for the next few years. The government can recoup this spending by not competing as much with the private sector for scarce resources doing boom periods.

The TARPs, aid to AIG, the "loans" to the automakers, and many plans which have been floated to help homeowners with mortgage payments are bailouts. They protect investors against losses. Since they don't create demand, they don't create jobs – just shuffle them around from one sector to another. These are the bailouts which rob savers to pay investors. They are a bad idea.

Mortgage Cramdown Key to Banking Crisis Unwinding

Democrats want Federal bankruptcy judges to have the authority to reduce the balances outstanding and/or rates on residential first mortgages in the same way that these judges can already reduce outstanding payments and balances on almost all other forms of debt; Republicans are opposing the legislation required to make this change. In my humble (and usually Republican) opinion, the Democrats are right and actually aren't going far enough. This strange treatment of these mortgages, first legislated in 1979 as one of many often misguided attempts to making housing more affordable even for those who couldn't afford a house, is a key cause of the logjam which is preventing the home mortgage toxic security mess from working itself out.

Banks already can negotiate reduction in principal with home owners and sometime do. Chances of repayment go up when the equity isn't underwater. An owner can make a rational decision to sell if he or she doesn't owe more on the mortgage than the house'll bring on the market. But financial experts say that many current mortgages can't be renegotiated because the creditors are split into mind-bewildering tranches of differently securitized investors who have no way or desire to reach agreement. Bankruptcy can cut this Gordian knot and let the mortgages be "marked to market" not only on the books of the banks but also on the books of the homeowners.

It may be that some banks are reluctant to mark mortgages to market because they haven't yet reflected the full loss of value of the underlying assets on their books. If this is the case, the sooner the true value is known, the sooner we know, for better or worse, which banks need to be liquidated.

As with other debts, the debtors and creditors are more likely to reach agreement if they know that a judge will eventually resolve any disagreements in a way neither of them may like. Many more voluntary agreements between mortgagors and mortgagees will be reached if the bankruptcy court is a known option – this is how almost all other situations where a debtor can't pay are resolved. With bankruptcy as a possibility, I'll bet the same Wall Street rocket scientists who figured out the maze of securitizations will get to work and figure a path out of the maze for many of their clients.

The Wall Street Journal, which was very right about the dangerous doings of Fannie Mae and Freddie Mac, is adamantly AGAINST the proposed amendment to the bankruptcy law. Below from an op-ed by George Mason University law professor Todd J. Zywicki:

"Mortgage modification would indeed provide a windfall for some troubled homeowners -- but its costs will be borne by aspiring future homeowners…

"In the first place, mortgage costs will rise. If bankruptcy judges can rewrite mortgage loans after they are made, it will increase the risk of mortgage lending at the time they are made. Increased risk increases the overall cost of lending, which in turn will require future borrowers to pay higher interest rates and upfront costs, such as higher down payments and point…"

Let's dispense with the rhetoric first. Bankruptcy always results in a "windfall" to a distressed debtor. When credit card and car loans are written down in bankruptcy, when the principal of a second home loan is written down, all of these writedowns result in "windfalls". More accurately, the pain is distributed between the creditor and the debtors. The idea is that this court-enforced sharing of pain results in better recovery for everyone overall than simple collapse. One reason the court has to get involved is to enforce requirements for future payments, make the appropriate garnishments, etc. Another reason is that it's often impossible to get 100% agreement from creditors so the final Solomonic decision on pain-sharing needs to be made by a judge.

We have commercial bankruptcies all the time (which the WSJ doesn't rail against) . Here's a description from the NY Times of the bankruptcy of Charter Communications: "Charter, one of the nation's largest cable television operations, said on Thursday that it would file for bankruptcy by April 1 as part of an effort to handle $21 billion in debt. Under the plan it has worked out with some of its creditors, Charter will be able to shave about $8 billion from that amount." $8 billion is quite a "windfall"; note that only "some" of the creditors agree. The purpose of bankruptcy in this case is to reach a settlement which determines the status of all debt and all creditors.

The second assertion in Zywicki's op-ed is that the cost of mortgage credit will go up in the future if banks have to take the risk that a bankruptcy judge will reduce the mortgage at some time in the future. Even if that's true, all that it means is that mortgages rates will fairly price in the ability of the debtor to repay just as other loans do already. That's good and not bad. If it forces the banks to think more about the credit-worthiness of the applicant and not just rely on the value of real estate (which we now know can down as well as up), that's a good thing. This mess was partly caused by giving loans to people who shouldn't have gotten them, remember.

Many of the proposals for making first mortgages on residences subject to bankruptcy deliberately only do this for EXISTING mortgages. This is a misguided attempt to make future mortgages cheaper by eliminating the threat of bankruptcy. We got into the mortgage part of the current mess by deliberately mispricing mortgages compared to other debt. It would be really dumb to sow the same seeds and not expect the same disastrous crop. There shouldn't be an exemption for mortgages or any other kind of private debt in the bankruptcy law.

Buy Local, Sell Global

It doesn't scale. We can't all buy locally and sell globally. The less politically correct sounding version is "beggar thy neighbor".

Last week when we were vacationing in very friendly Apalachicola, I was mildly offended by a banner one block off the tourist street advising everyone to buy local. "What, no Vermont maple syrup? No ski vacations?"

This Thursday the front page of the "what's happening"" supplement of the usually excellent Stowe Reporter , the section tourists presumably read to see what to do with the rest of their money when the ski day is over, is all about taking a "Stay-CATION" – that's a vacation taken from the convenience of your own home. I doubt if people'll just pack up and go home because the skiing's still pretty good. But Stowe'd be in a pretty pickle if all our visitors had decided to take stay-cations instead.

In Vermont neither our university nor our state colleges would be economically or educationally viable if they took only in-state students. We would be a very insular place if all our own kids were educated here in the State (and stayed). But there's constant pressure to limit State financial assistance to Vermonters who attend college in Vermont.

On a larger scale, undeterred by the example of the Smoot-Hawley tariff (a Republican idea) which some economists believe greatly deepened the great depression, pandering legislators are trying to sneak protectionists measures into almost every piece of bailout legislation.

Labor leaders are pushing to restrict immigrant visas. "We don't have enough jobs for our own people." If an immigrant does a job, she spends most of the money she earns here. If a job is outsourced, the money is really gone. Someone in India suggested, only partly tongue in cheek, that the US should expand the number of visas for foreign workers because the Indians who come here to work will buy houses and stabilize the housing market. They may also know how to spend without massive consumer credit.

But, people argue, if US taxpayer money is going to a company, should it then be used to pay foreign workers? Good question. The answer is in the premise of the question, however. US taxpayer money shouldn't be going to corporations as aid unless it's meant to help in the orderly dismembering of a corporation that's too big to fail on its own.

We are spending fortunes in US taxpayer dollars to bail out US corporations. Other countries are doing the same for their corporations. The bailouts preserve capacity but don't increase demand. To a large extent the bailouts by different countries to their own industries cancel each other out leaving taxpayers poorer and erasing current or future demand. Failure to recognize that the economy is global was catastrophic in 1930. It would be really dumb to double down on that mistake.

"Buy Local, Sell Global" makes no sense at all. In the context of a recession which could easily be deepened by a panic, it's a dangerous idea.

Save The Economy – Legalize Drugs

Torrents of cash gush destructively through the underground economy. Liquidity is never a problem there, just violence. Piles of money are diverted from the real economy to fight the failed war on drugs. Our neighbors to the south are getting tired of paying a bloody price for our drug efforts. Our efforts in Afghanistan are undermined by the money in opium.

It's time that we end prohibition and legalize drug sales to adults. We can and should have draconian penalties for selling drugs to children but it's easier to protect minors against a legal substance than an illegal one since the legal distribution chain is out in the open and has something to lose if caught acting illegally.

It's hard to quantify the economic stimulus that would come from surfacing the drug trade; at the very least it would be a major new source of tax revenue to struggling states and greatly reduce the cost of keeping drug users – including those who commit other crimes to feed their expensive habits - and small time dealers in jail. Huge amounts of police manpower go to attempting to solve drug related crimes.

A story in today's Wall Street Journal by Jose De Cordoba reports that a commission led by three conservative Latin American former presidents - Fernando Henrique Cardoso of Brazil, Ernesto Zedillo of Mexico, and César Gaviria of Colombia "blasted the U.S.-led drug war as a failure that is pushing Latin American societies to the breaking point."

"The report warned that the U.S.-style antidrug strategy was putting the region's fragile democratic institutions at risk and corrupting "judicial systems, governments, the political system and especially the police forces.""

It's surprising that Latin American societies have put up with the cost to them of our war on drugs for as long as they have.

So legalizing drugs is a stimulus package (pun intended) that comes at a negative cost to the taxpayer, punishes the bad guys by ruining their business, creates new business opportunities for good guys and lets us treat drug problems as we do alcohol and other addictions. The only problem is that it's political dynamite and will cause a huge anti-Obama surge from the right (but not from real conservatives like me).

Probably more change than it's realistic to believe in but much better economic policy than bailing out banks or shoveling pork. And good social and foreign policy as well.

Bankers and Oak Trees

From the POV of longleaf pines, oak trees are weeds – vicious competitors. Original stands of longleaf pine have charred bark from the many fires they've survived and there are no mature oaks among the pine. Seems that the oaks burn up in the periodic blazes which pine forests are particularly prone to and which pine trees can survive. The fires also decimate the insects in the lower bark of the pines.

Florida, where we've been hiking through the swamps and forests of the panhandle, now recognizes that the former policy of zero toleration for forest fires was destroying the remaining stands of longleaf pine because the unburned oaks were taking over. Now there is a policy of controlled burns – not sure what the long term unintended consequences of that will be but seems to be better for now than no burns.

When the Fed forcibly prevented recession by super-charging the money supply following the dotcom meltdown and 9/11, we created an environment in which parasitic portions of the financial industry grew like kudzu. Many of the rest of us jumped in by grabbing all the credit we could get and "investing" in over-priced assets. Leveraged buyout firms sucked the equity out of businesses and replaced it with debt; second mortgages did the same thing for housing. Ponzi schemes flourished. State and local governments spent booming revenue on ever more dubious programs.

The long-postponed recession hit with savage fury, fueled by the under and over growth that had gone too long unburned. The lesson from the pine forest is that we don't want to stop all of the destruction, just mitigate the damage to people the best we can. We do want to deleverage; we do want houses to become affordable because their purchase prices are affordable, not because teaser rates on mortgages are available. We do want businesses to live with less credit and more creativity. We do want to burn away the ravenous super-structure of finance with its inflated salaries and unnecessary financial products. We do want government to cut back where it isn't effective; we don't want Congress to continue buying our votes with our money through earmarks.

So parts of the stimulus package are fine; extended unemployment benefits, for example, or spending on counter-cyclical job creating projects (if they're both needed and can really be done quickly). There will be more people on Medicaid. With a little more stretch you can justify tax cuts for those with the lowest incomes; that does get money moving and help counteract the panic that has cash frozen in virtual mattresses. These measures are the equivalent of evacuation from a fire zone.

We DON'T want to preserve the financial industry in its current overgrown form. Sure we need banks; but we don't need TARP to keep them all alive. TARP installment 1.0 was sold on the premise that we'd collapse without more lending. We didn't get more lending; we're still alive although hurting. Now TARP 2.0 promises more lending through more accountability (even though that isn't in the law). But in a contracting economy businesses don't need to borrow for expansion; we don't need loans to help us flip real estate; cheaper houses mean less demand for home credit. We're not going to go back in debt up to our eyeballs for the sake of short-term economy. We're replacing our cars less often. So we can do without so many banks. Let them go.

We DON'T want home prices to surge back up. The Republican plan for a homebuyer tax credit is somehow supposed to both drive home prices up AND make it easier for people to buy homes. It obviously can't do both. Home prices'll stabilize when the fire finishes burning through and buyers aren't still waiting for yet one more government program.

Fires and recessions happen. You can postpone them but you eventually pay the price. You can mitigate some of the damage. But excesses still need to be burned away.