Monday, September 29, 2008

Thoughtless Financial Meltdown

Unless you've been on another planet recently, you've witnessed some dramatic changes in our financial markets. And, unless you have super-human intelligence, you're probably trying to figure out what happened and why the government (read: taxpayers) suddenly has to come up with a bazillion dollars to fix everything.

Some parts of the current mess are complicated; what exactly is a subordinated, pre-accounted, sub-prime mortgage-backed, qualified risk-reversal, fiscal debenture? Well, it's something I just made up. Regrettably, that's pretty much how the financial instruments that contributed to this mess were created.

I'm far from an expert when it comes to understanding our monetary system, but it seems to me that the core of the mess we're in can be explained simply: greedy lenders sold high-risk mortgages to greedy or ignorant people who either (1) felt they were entitled to live "The American Dream" of owning a home and would figure out how to pay for it in "the future," or (2) were so poorly informed about what an adjustable rate mortgage is that they signed on for a loan that they didn't know they'd have to worry about in "the future." Bad news either way.

Then, a bunch of greedy Wall Street hot-shots decided to sell little slices of imaginary money (it would magically materialize sometime in "the future") based on those loans made to people who couldn't afford them. In other words, it was a giant Ponzi scheme. It worked until "the future" came around. Now.

I do have some sympathy for home buyers who were duped by aggressive and sometimes fraudulent lenders, then got hit suddenly with an interest rate that bumped up their house payments to an amount they couldn't afford. There are also people who have to deal with unexpected medical expense or extended unemployment and suffer financial difficulties as a result of situations that spiraled out of their control.

But there's another factor at work here for many highly paid corporate executives and many homeowners who just got caught off-guard because they didn't scramble out of their unfavorable loans in time: an irrational expectation that somehow they'd scoot through the day of reckoning unscathed.

Author Barbara Ehrenreich wrote an op/ed piece called "The Power of Negative Thinking" in the September 23rd NY Times:

"GREED — and its crafty sibling, speculation — are the designated culprits for the financial crisis. But another, much admired, habit of mind should get its share of the blame: the delusional optimism of mainstream, all-American, positive thinking. The idea is to firmly believe that you will get what you want, not only because it will make you feel better to do so, but because 'visualizing' something — ardently and with concentration — actually makes it happen. You will be able to pay that adjustable-rate mortgage or, at the other end of the transaction, turn thousands of bad mortgages into giga-profits if only you believe that you can."

I'm pretty darn tired of all the "just believe it and it will be so" proponents, too. I happen to have a positive attitude, but I don't tip over into delusional thinking. Ehrenreich believes that our society has become delusional, and I agree with her. But it wasn't always this way:

"Americans did not start out as deluded optimists. The original ethos, at least of white Protestant settlers and their descendants, was a grim Calvinism that offered wealth only through hard work and savings, and even then made no promises at all. You might work hard and still fail; you certainly wouldn’t get anywhere by adjusting your attitude or dreamily 'visualizing' success."

Eventually the day dawns when the piper must be paid. The problem is that those people who carefully and thoughtfully managed their debts get stuck with the bill, too. And, in this particular meltdown, there are financial industry executives whose past behavior might be deemed illegal who are looking at huge "golden parachutes" that, if added together, probably would total half the money that is supposed to be needed for the massive government bailout.

Is it any wonder that so many people are mad? Responsible budgeters feel ripped-off; uninformed homeowners who are losing their houses want to know what happened; even the people who felt entitled to maneuver their way around their responsibilities are angry that they didn't get away with anything. And is it any wonder that members of Congress are reluctant to rush to pass unpopular emergency bailout legislation that could lose them votes in few weeks?

Meanwhile, the financial sector crumbles around us with bank failures and consolidations, insurance company failures or near failures, brokerage collapses, and investor confidence in a ditch so deep that it's hard to see the sun. Credit is so tight that you might have to sign a formal agreement with your best friend to borrow twenty bucks. How can we figure this out?

I've compiled a very brief list of articles, in addition to Barbara Ehrenreich's, that I found informative and interesting:

NY Times: Behind Insurer's Crisis, Blind Eye to a Web of Risk

Washington Post: A Lesson the Markets Ignored

Wall Street Journal: The End of Wall Street

Financial Post (Canadian): You Can't Have It All

The Financial Post article is one of my favorites and I recommend it highly. Here's the sub-title:

"Don't blame politicians and bankers. The real cause of the credit crisis is a society that wants everything now."

Yes, there's plenty of room for a whole lot of people to take some personal responsibility in this unpleasant scenario, but why bother with that as long as there seemed to be an endless supply of money? Just follow the advice of the old Cajun song lyrics: "Laissez le bon temps roullez!"

Unfortunately, the good times rolled right into a brick wall.

© 2008 Cynthia Friedlob

Sunday, September 14, 2008

The Thoughtful Voter

Recently, I watched the 1941 classic Preston Sturges film, Sullivan's Travels. At one point, the lead character comments that they live in "troublous times." It's hard for those of us who didn't live through those years to imagine what it was like to experience the Great Depression and World War II. The very difficult situations we face today may not be as devastating to as many people as were affected in the 1930s and '40s, but to those who are suffering now as a result of poverty and war, these must be troublous times indeed.

I applaud the efforts of committed individuals who try their best to be thoughtful consumers, but we also need to be thoughtful citizens. To that end, if you scroll down this blog page, on the right side you'll see a new link to Here's the description of the purpose of that website:

"We are a nonpartisan, nonprofit, 'consumer advocate' for voters that aims to reduce the level of deception and confusion in U.S. politics. We monitor the factual accuracy of what is said by major U.S. political players in the form of TV ads, debates, speeches, interviews, and news releases. Our goal is to apply the best practices of both journalism and scholarship, and to increase public knowledge and understanding."

The decisions we make in November demand our full attention and rational faculties. We can't allow ourselves to be uninformed or misinformed. Little will matter of our efforts to be thoughtful consumers unless we work quickly to solve our country's significant problems with inadequate health care and health insurance coverage, inexcusable poverty, failing educational systems, corporate greed, continuing war, and diminished international respect.

I've made my decision; I urge you to do your own research.

And vote.

© 2008 Cynthia Friedlob

Wednesday, September 10, 2008

Green White Roofs

Ten years ago, upon moving into a townhouse, I was slightly disappointed to discover that the Homeowners Association had already made plans to replace the roofs on all the units in the complex. I thought it was unfortunate that no one had considered the possibility of installing solar panels. We do live in southern California and there is no dearth of sunshine; in fact 73% of our days are sunny every year. Imagine the energy savings over the last decade if the Board had been a bit more forward-thinking.

But it's not just solar panels that can make a difference. I've discussed green roofs on several occasions in the past, but for many people, the structural reinforcements necessary for a green roof can rule out that option. What if there was a simpler way not only to lower energy costs but also slow down global warming?

It turns out that simply having a highly reflective, white roof on the average home, rather than the conventional dark roof, can prevent 10 metric tons of planet-heating carbon dioxide emissions from entering the atmosphere. And, because a white roof never gets more than a few degrees warmer than the ambient temperature, the need for air-conditioning is substantially reduced -- as much as 40% in some commercial buildings.

The LA Times reported today:

"Since 2005, the Golden State has required that flat commercial structures have white roofs. Next year, new and retrofitted residential and commercial buildings, with both flat and sloped roofs, will have to install heat-reflecting roofing, as part of an energy-efficient building code."

If, in addition to white roofs, the 100 biggest cities in the world also began using reflective materials for pavement, "the global cooling effect would be massive, according to data released Tuesday at California's annual Climate Change Research Conference in Sacramento."

The Atlanta Business Chronicle pointed out that "several years ago, [Georgia] became the first state to amend its building code to recognize the benefits of reflective material. The 'White Roofing Amendment' became part of the Georgia State Minimum Code for Construction."

The Chronicle also notes, "White roofs also reduce the heat island effect in an urban area, a potentially critical boon for Atlanta, which famously suffers from a lot of bad-air days. Studies have shown that cities are often three to eight degrees warmer on hot days than outlying rural areas. The effect in Atlanta has been measured as high as 12 degrees. And heat is a major contributing factor to the formation of ozone." Anyone who's ever ventured into downtown LA on a hot, smoggy summer day knows how miserable that heat island effect can be.

Naturally, the EPA has taken a positive position on cool roofing materials:

"Cool roof systems with high reflectance and emittance stay up to 70°F (39°C) cooler than traditional materials during peak summer weather. Benefits of cool roofs include reduced building heat-gain and saving on summertime air conditioning expenditures. By minimizing energy use, cool roofs do more than save money – they reduce the demand for electric power and resulting air pollution and greenhouse gas emissions."

If you've traveled to the Mediterranean countries or seen photographs of towns and cities in those areas, you've probably noticed the consistent use of white on the buildings, both residential and commercial. Well, it doesn't just look beautiful, obviously it's smart, too. Good for the consumer, good for the environment. A very thoughtful choice.


© 2008 Cynthia Friedlob