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October
12, 2008
Everybody’s Business
Fear and Loathing in La Jolla
By
BEN STEIN
I lived with them on Montague Street
In a basement down the stairs.
There was music in the cafes at night,
And revolution in the air.
— Bob
Dylan,
“Tangled Up in Blue”
A FEW days ago, I spoke to a large gathering of investors in the
San Diego suburb of La Jolla, and was startled by the audience’s furious anger
at the powers that be. The Wall Street-Treasury-Federal Reserve axis is hated, loathed and feared by these
people, who were, as far as I could tell, largely Republicans, almost all well
to do — or formerly well to do. They are in a state of extreme agitation about
how the current mismanagement of our financial system has played havoc with
their own personal financial situation.
In fact, they are among the angriest upper- and middle-class people
I have ever seen. And the most frightened and worried. (In a way, they are now
feeling the way ordinary workers have been feeling for years.)
And why not? With the experiment of allowing a major investment
bank, Lehman Brothers, to simply vanish, leaving huge holes in the
portfolios of many other financial entities, Henry M. Paulson Jr., the Treasury secretary, threw the
financial system into chaos.
Yes, some people at Lehman undoubtedly did some bad things, but
those kinds of people are found everywhere. Letting Lehman fail was almost
incomprehensible. It took the federal government many decades, after the
banking collapse leading to the Great Depression, to restore
confidence in the financial system. Then, in one horribly misguided moment, Mr.
Paulson, with the apparent agreement of Ben S. Bernanke, chairman of the Fed, demolished that
confidence.
Now, we have to spend $700 billion to try to get it back, and it’s
by no means certain that even this enormous bailout plan will work. Confidence
is incredibly important. In a way, it’s the only factor that
counts in finance. Do markets and lenders have confidence in this plan? Do they
have confidence that it will work successfully for the whole country and not
just for the Wall Street buddy system? The results in the markets,
post-bailout, are dismal.
When confidence is gone, it’s really gone. We see the results all
around us, in what seems to be a gathering slowdown. For those of us surveying
the financial statements we can get online at any moment to destroy our sleep,
the recession is already here and it looks a lot like a depression if we add in
the losses on our real estate.
So, as I drove home from La Jolla to the comfort of my dogs in Los
Angeles, I thought, “Well, what now? Now that we are facing a situation of
complete unpredictability with a financial system fluctuating between state
socialism and chaos, what do I do?”
I thought I should try to maintain my health so I could keep
working and speaking longer and keep supporting my family longer, not to
mention the many other people and lenders I help support. I also thought that I
would like to keep as liquid as I prudently can, even if it often means selling
stock at a loss. Cash is balm in this situation: it lets you sleep. I also
thought that I wouldn’t be buying a ranch in Idaho, as my wife has wanted me to
do — not for some time, if ever.
But in my way, like my father before me, I’m a working man. My
work, speaking and writing, is my pleasure. I plan to do it as long as I draw
breath. My beloved father, a distinguished economist and writer, was working on
differing expectations for inflation as they bear on the price of long-term
bonds, with tubes in him in the I.C.U. I still have the blood-spattered pages
of his written thoughts. He didn’t need the money. It was his passion. My ideal
last day would be speaking and then drifting off to eternity with my economic
statistics bulletin and my dogs by my side.
Not everyone feels that way, however. Many people long for
retirement. But clearly, many of them are in deep, deep trouble. Even before
the recent crisis, the financial situation of large numbers of retirees was
desperate. The data for boomers is grim, with only small percentages really
able to retire in comfort.
NOW, the case is far worse. People planning for retirement were
told they could expect that their savings in broad indexes of common stocks
would double roughly every 10 years. But we are now below where we were in
1998. If pre-retirees needed that doubling to get to their savings goals, they
are now cut off at the knees. Unless the stock market stages a miraculous
recovery, and I pray it does, a whole generation of boomers will be hopelessly
far from its needs for savings.
I wonder if Mr. Paulson with his hundreds of millions in the bank
really understands the terror of those people in the room in La Jolla and the
tens of millions like them. I wonder if Mr. Bernanke does. I wonder if, as they
rolled the dice on Lehman and came up snake eyes, they thought of the fear that
would spread throughout the land. What do people — decent, hard-working people
— do now? The standard advice would be to buy when the market is down, and it’s
probably good advice. But only “probably” because we have no idea how far down
we’ll go or how long it will take to recover. Maybe it is better to be liquid
now. But then again, maybe not. Uncertainty and fear rule.
Frankly, I don’t know the answer. I just know that for a long
time, we have paid Wall Street “experts” unimaginable sums for preparing for
our retirement. They still have our money, and we have ashes. And I wonder
whose side government is on, which is a bad thought to have, and I wish I
didn’t have it. As the song goes, there is revolution in the air.
Ben Stein is a lawyer, writer, actor and economist. E-mail: ebiz@nytimes.com.