So It's All Tuna! Now What?

Now What?

The global economy has been sinking into a quagmire allegedly created by the magnitude of crappy mortgages that turned into foreclosures in the seminal year of 2008. Everything seemed to be going along reasonably well until something happened. People went to work and earned their paychecks. Mothers shopped for groceries and toted the children from one after school activity to another. Consumers bought new cars, flatscreen TVs, cell-phones and iPods. Cable and satellite content delivery utilities put every conceivable sports event on screens in millions of American homes. Beer and a multitude of fried potato and corn products ran aplenty. Tens of millions of Americans earned a paycheck, received a pension payment, got a public assistance check of one kind or another, and dutifully spent all of it on the consumables, commodities and utilities and medical bills. All seemed right with the world.

But lurking just beneath the surface was a condition so insidious that it would bring down the global economy in a way that the most diabolical arch-villain criminal mind could not even imagine. On top of that, it was not especially dastardly in its character. One could not point to the evil doers and single them out for punishment.

The decline of the global economy was not a single event nor was it caused by a single cause. We need a single day to represent the transition from The Before and The After. This date will be September 13, 2008, the day that Lehman Brothers filed for bankruptcy. On the morning after the protracted crash there was exactly the same number of people willing and able to work like they did the day before. They all had the same amount of income to spend for all their necessities and discretionary purchases. So what happened?

A couple of things happened that culminated in what professional Economists call a Meltdown. The biggest trigger was the resetting of variable interest rates on millions of mortgages that people had taken out on their homes, to buy homes and vacation spots, and refinance existing debts. Suddenly there was the equivalent of a huge tax that upset millions of household budgets. House prices started to fall making it difficult or impossible for people who needed to sell for one reason or another to realize the anticipated equity for their future goals. Some of them wanted to move to a smaller place, a retirement village, an assisted living location, etc. For them the selling price of the house was their retirement investment.

Other people who were fully entrenched in mortgage debt found themselves in the upside-down position where the payoff balance of the mortgage was higher than the new lower market price. For them to liquidate their home investment, it would cost them additional money just to get out. As other dire economic circumstances, such as the loss of a job or the resetting of an ARM, their ability to maintain timely payments diminished.

If everyone is ready to work and make things, provide services, and such, why is the economy still collapsing? The banking system of the world has two essential functions: move people's money around as payment for goods and services and to make loans for operating capital and to allow present growth through equipment and facilities acquisition. The present failing of the system is that the banks are not making those loans. Even more importantly, consumers are finding it difficult to borrow the money to buy all the stuff that the economy needs them to buy.
Right now, millions of consumers are waiting to see if they have a job next month or next week before committing themselves to spending more money that they have not yet earned. At the same time the lenders are wary of putting out the funds for consumers to use because they do not want to increase their loss exposure when the credit card payments fall behind and many customers will choose bankruptcy to settle their accounts. There is a bottom line fact at play in all of this. That fact is that all the income (earned or otherwise received) of all the employees in America does not add up to enough money to buy all the stuff that the manufacturers and service providers need to buy in order to keep the economy vibrant.

Consumers are not making discretionary purchases because they are using their remaining incomes to pay for necessities and they are a bit wiser about using credit to finance their lifestyles. Real buying power of the aggregate population of the US declined over the years as the total outstanding credit levels increased. While the US population grew by a few more millions, hundreds of thousands of well paying jobs evaporated as the manufacturing sector relocated to more conducive lands with hungry workers who could live on a lower pay level. Some of those jobs were replaced with the low wage variety where immigrant labor, unskilled citizens and those who are new to the labor market could earn enough to be considered employed but not so much as to be able to pay for everything that is necessary for quality life in the United States. Hence some in some families two wage earners holding three distinct jobs were necessary to supplement their TANF, Food Stamps and WIC payments to make ends meet.

These families were not typically the ones who were mortgaging their dwellings for a few more dollars now in anticipation of future earnings.

Part of the dynamics of the free market economy is that some people do not have to provide their labor for their incomes. Instead they derive a few cents on other people’s money transactions. They receive interest on the mortgages, interest on the balances carried by credit cards. They buy and sell paper that represents natural gas, coal and electricity that the families buy to heat their homes. They buy and sell paper that represents crude oil that is refined into gasoline so people can drive to work, the grocery stores, the doctor’s office and everywhere else. Every dollar that is derived from those activities was paid by someone who earned far less. While this process is a natural and necessary one, when too many people get into the same game the benign character of the game becomes malignant. At some point the consumers of the commodities suffer to keep up with and pay the costs while the providers recline in comfort.

ExxonMobil earned record profits of tens of billions in the year ending Oct 2008, those profits computed to a 15% return on the stock price of $75.00 per share. Everyone who owns any mutual fund would like to have such an annual return on his or her investments. The reality though is that many of the stockholders in ExxonMobil paid $10.00 or less for their original investments many years ago. At $10.00 per share the $2.83 quarterly dividend makes a 113% return on investment. The billions of dollars in annual profits directly relate to cold families in the winter months.

With our markets measuring its performance in shareholder profits, its efficiency in keeping production costs as low as possible, there is too much room for suffering out of sight of the board room where financial decisions are made.

Buying Rotten Tuna

Buying Rotten Tuna

The idea of engaging in buying and selling is to invest some capital and end up with more when you are done. You buy low and sell high. Or as in the hedge funds, sell high and buy it back low. Both ways make money for the investor.

This nation undertook to make it possible for low-income people to purchase homes and begin to build wealth through ownership of that property. Owning ones dwelling afford the owner several things that renting a property does not. First, the interest on the mortgage is a tax deductible expense as is the real estate tax. When the occupant is a renter, they end up paying those expenses as part of the rent, but cannot gain the advantage of the deduction. The property owner gets that advantage.

Second, the property may increase in value over time. One is not able to take advantage of that increased value if they rent. The landlord is able to sell the property and reap the increased equity. The landlord can mortgage that equity without concern for the renter.

That brings us to the third item. The owner of the property can refinance the property and take advantage of the equity of the property without selling it or having to move elsewhere. It is a ready source of cash for a multitude of uses.

Fourth, a house is an inheritable asset. One can pass ownership down the generations so that each new generation doesn't have to start at square one each time.

People who have ample resources of education, employment, family wealth, and personal savings have an easy time of choosing and buying the house of their choice. People in that position start out discovering how much house they can afford and are able to close on the purchase of their house with little or no interference. Mortgage lenders are always happy to see them in their waiting areas.

Then there are those people who do not have those ample resources. They may be new to this country; they may have been displaced when a big local employer relocated elsewhere; they may have lived for generations in rented housing; they may not have had the opportunity to save a 10 to 20% down payment. They may have been categorized on the BASIC (Black, Asian, Spanish, Indian, Caucasian) scale as some lending institutions so cryptically embedded in their credit applications. They may have been trying to buy in neighborhoods that were Redlined as undesirable collateral. For people who were part of that population the Federal government created such institutions as FHA, HUD, and loan programs that relaxed the requirements for borrowing.

Two of the mega-mortgage institutions created were Fannie Mae and Freddie Mac. They were formed by congress and funded with public money to make it possible for people to work their way out of a dependent culture of public housing. The Federal government had a vested interest in Americans becoming tax paying home owners. Throughout the years, home mortgage legislation and funding for numerous housing Acts has made it possible for many people to realize the dream of home ownership.

Along the way, the original missions of these finance institutions became perverted to the purpose of being a money mill for shareholders. Even though the explicit purpose of the corporations was to become weaned off the federal budget and taxpayer, and eventually be self-sustaining in its ability to raise capital. To do that they needed to be responsive to investors by declaring dividends on their stock.

Fannie Mae was created in 1938 by the Roosevelt Administration as a way to assure adequate credit for a growing nation and was especially useful right after WWII. The perversion was in part orchestrated by the subsequent appointments of corporate leadership by subsequent Administrations. Most recently during the Reagan Administration economic factions loyal to the Chicago School of Economics philosophy of Laissez-faire were woven in to all sectors of the Federal government. The design was to emasculate the government in favor of private business which would take over in the created voids and be able to generate profits for the investors who would provide the capital voluntarily and with a reasonable rate of return. Taxation was not necessary in that model.

If the important functions of government were funded by private investment, having no levied taxes would make more funding available. If the economy expanded enough to pay the dividends of that investment, there was no need to ever repay the initial and continued investments. All unimportant functions of the federal government needed to be eliminated as inefficient and wasteful. Such "unimportant" functions were spending on social programs, like public education, welfare, Medicaid.

Private decisions for investment and engaging in financial transactions have historically been transacted between and among amicable willing trade partners, parties which have a mutual need, and between and among parties for whom the commerce was forced. Trade partners could pick and choose with whom they would and would not trade. Private arrangements, conspiracies and exclusionary practices were employed to the advantage of the trade partners and to the disadvantage of the others. It required a government to break down those trade barriers and to assure that everyone had the chance to engage at some level of commerce.

When investors who control the bulk of the monetary assets become spooked by current events, social upheavals and wars, they tend to clam up and protect their principle by removing it from the market. When they do this everything begins to slow down. Fear can overtake the otherwise rational decisions and collapse begins.

The Federal government acted to counteract such freeze ups during the Depression by creating the Federal National Mortgage Association - Fannie Mae. "Fannie Mae was created in 1938, under President Franklin D. Roosevelt, at a time when millions of families could not become homeowners, or risked losing their homes, for lack of a consistent supply of mortgage funds across America. [from the Fannie Mae website]"

It made sure that homeowners did not suffer wholesale foreclosures due to investors being unwilling or unable to maintain their commitments to lending the money to the home owners.

In the 1970s, the Federal Home Loan Mortgage Corporation Act fashioned Freddie Mac to draw off mortgage obligations and return the funds faster to the economy for continued growth. "Our mission forms the framework for our business lines, shapes the products we bring to market and drives the services we provide to the nation's housing and mortgage industry. Everything we do comes back to making America's mortgage markets liquid and stable and increasing opportunities for homeownership and affordable rental housing across the nation. [from the Freddie Mac website]"

Once upon a time, there was regulatory oversight of these corporations and Fannie Mae actually did pay back all of its initial 'seed money' that was provided by the American taxpayers. That was a time when actual tax revenues were able to pay for such endeavors. Today all the funds used in such programs is first borrowed from people who have it, then it is lent to intermediary banks which use it to pay off the people who invested in the previous round of investing. Surprisingly that actually that does work but only so long as the full faith and power of the US is behind the investment, i.e. the American taxpayers' ability to make good on the promise.

In times of growing markets and lucrative investing opportunities people with wealth want the government to stay out of their affairs. They want to decide when, when and how much to invest in whatever they decide is best. This would be dead normal for a human to desire. It would also be reasonable if humans were not so susceptible to emotional reactions to events that occur around the world and would not get into a frenzy when easy money seems to be floating in the water. One must remember that unless an investment actually produces something of value like a new computer chip, or a million tons of wheat, or a productive oil well, then the profits from buying and selling are derived from some other investor who sustains a loss on the same investments.

This is where that businessman in Nahant back in 1978 was so extremely prophetic. He was doing well investing in tuna boats and the catch that pulled value from the sea. He was doing quite well for himself until his business hit a glitch. With his delivery schedule interrupted, he was faced with a total loss of his investment if the tuna he owned was not sold immediately. He knew that someone who did not really understand the tuna trade could be encouraged to buy-in so he could sell-out. Ultimately he sold all of his marginal tuna and walked away without ever having to bring it in to port.

Jump ahead to the Present in 2008. President Bush, Treasury Secretary Paulson, and Fed Chairman Bernanke are out stumping to find buyers for a whole lot of Rotting Tuna. The people of the United States are being asked to buy the Tuna with the promise that they will possibly make a profit. The real outcome however, is that Americans are being asked to buy the tuna because the current owner is such a nice guy and is too important a character to have to sustain a huge loss on his tuna investments. He knew that the tuna was for buying and selling, not eating. He knew that it was a perishable item with a limited shelf life.

In the case of the real tuna on the real boat, the buyers of the tuna were doing it voluntarily even if ill advisedly. In the case of the Troubled Assets Relief Program (TARP) being batted around the committee rooms of the US Congress, the American people are being roped in and squeezed for funds to buy the rotten tuna. And since most Americans do not have the $2,300 each to chip in, they are having their futures refinanced for them and the tuna will forcibly be sold to them.

On September 29, 2008 with the Liassez-faire Republican President poised on the brink on the end of his 8-year administration, proposed the biggest intrusion by the Federal government into the private business sector. His $700 billion proposal was only conservative in that it probably was a conservative estimate of the actual sum that would ultimately be appropriated to curtail the precipitous fall of mortgaged backed securities and everyone else who had any investments that were in any way related to those mortgages. It was so big and intrusive a proposal that two-thirds of the GOP legislators voted against it. The language of the proposal was such that the Federal government would have a significant say in the workings of the financial sector. One should wonder if they who voted against the proposal did do because of the dollar amount of because of the amount of control it prescribed. That debate is for another day.

At the end of the day (September 29, 2008) the taxpayer did not buy the rotten tuna!

The Shocking Secret of Tuna!

The Shocking Secret of Tuna!

Food from the sea - it is something mankind has taken for granted for thousands of years. He has set out in small boats to cast nets into the cold deep waters of the Atlantic, Pacific and Indian Oceans; into the Caspian, Black and Red Seas and countless other named bodies of salt water. Men have stood on sandy shores spreading nets in tidal surf hoping to drag protein out into the atmosphere where it could be dried in the sun's rays and sold or eaten directly to sustain human civilization.

Large boats troll the deep waters of the North Atlantic Ocean and Mediterranean Sea pulling tuna and other species of aquatic life out of its biosphere into ours. Even as the populations of fish decline in consequence to extensive fishing, changing water chemistry and additional heat from the sun, massive factory ships continue their mechanized reaping of the sea. Men begrudge the limits placed upon them by international regulation that cause them a loss of livelihood. They cannot fathom the reality of voluntarily not earning their living in order to allow what remaining fish populations to recover. This is especially when the recovery period may be longer than their remaining lifetimes and maybe a whole next generation, if ever.

Tuna is but one species of fish to represent all fish species. It is but one link in the network of who eats whom. No population of fish nor population of Man exists in isolation. So goes one population, so goes the others. We need to find the equilibrium. Over fishing is not just a commercial imperative, it is a biological imperative. Existing populations of Man need to eat. It is not like we are stockpiling fish bodies for the future. Fish is a highly degradable commodity that must be consumed quickly. Likewise it must be bought and sold quickly if losses are not to be incurred. This is where Tuna! as a metaphor arises.

Tuna is not merely a species of fish, nor is it merely a fictional town in Pennsylvania, Greater Tuna, where seriously goofy people live. Tuna is the metaphor for how we buy and sell everything without consideration of its intrinsic value nor any of the negative consequences the commerce brings. "It's All Tuna!" is the book title that describes this metaphorical nature of tuna.

People want and need drugs to stabilize their health and live happier. In the beginning, chemists sought to take on the maladies of human disease and find cures to make it possible. Ingenuous men mixed beneficial and toxic substances it hopes of finding that elusive cure to soothe the human spirit and heal its body. On the beneficial side he discovered anesthesia that made life saving surgeries possible. Somewhere along the development line he discovered that he did not need to cure the patient if he could merely soothe the symptoms. Somewhere along that development line he discovered that making a daily dose that sells for $1.00 would generate $1B a year if only 2.75 million people would take it. And if 27.5 million people took the daily dose, they would make $10B per year. A lot or people benefit from buying and selling the drugs not using them.

Crime must be punished. But must the act be a crime? We incarcerate 2 millions people in the United States. Although that amounts to only 0.67% of the population it costs over $40 billion to house them each year. Many jurisdictions have moved to privatize this function making it a profit-motivated enterprise. Now add it the interdiction functions, the prosecution, the judgeship and the defense lawyers and you have a hugely profitable enterprise.

The Governor runs on a platform of being tough of crime. The Legislature measures its performance with laws that make the streets safe for our wives 1 and children. They together create the raw materials for their enterprises - a crop of perpetrators who need to be caged. They make sure that certain activities remain illegal and highly profitable. The they buy and sell the human cargo that they hooked and yanked out of the metaphorical sea to be harvested and warehoused until they no longer create income for the system.

There are many other example of how this economy makes tuna. The shocking secret of tuna is that WE are the tuna. Humans and human needs are bought and sold on the open market so that merchants can make a profit on us. No investor ever put up his money so you or anyone else could borrow it to buy a house and make a home for the comfort of his/her family. He did it to make a few percentage points on the principle. Then he sells the mortgage to someone else so both of them can make their profits. No fisherman ever figured that the tuna or the sword or the pike or the cod needed to live on in a happy existence. It was there for the buying and selling.

1 Could equally be a husband or significant other just as well.