We Are Flying Blind

Last week, an editorial leader in The Financial Times started with a simple declarative sentence: We are flying blind. Last month, Krugman, I believe, observed that, given all the attempts to draw lessons from past financial crisis, the way in which this current situation resembles the Great Depression is that the last time our policymakers didn't know what to do and our economists didn't understand what was going on, was the Great Depression.

Between the ink stained wretch's simple declarative sentence and the Nobel Laureate's nuanced observation expressed in a complex tense, the most important aspect of the current situation is nicely captured.

We'll know what happened when it's all over. We'll understand what happened a good while after that. And that's the way it is. Perhaps the best response would be, not analytical, but liturgical.

Pity about Dreier . . . how about the other 249?

. . . completely overshadowed by Madoff.

But consider, Marc Dreier, Yale College, Harvard Law School, head of litigation in New York for Colonel Jaworski's old law firm, founder and proprietor of his own 250 lawyer litigation shop. Apparently he had the lifestyle of a Russian billionaire (and the scruples, as well), and nobody ever accused him of being the nicest guy in the room.

Admittedly, his $380-million fraud was peanuts compared to Madoff. But there is something over the top about being arrested in two different countries, and in the only picture in the media so far he looks like an unshaven, slightly crazed proprietor of a meth lab. Unlike the Madoff situation, there is some color here, folks, there is entertainment value.

Not that revenues of the docu-drama are likely to be captured for the benefit of the bankruptcy estate.

And I have to feel sorry for the other 249 lawyers. Back in the 70s I knew a decent guy on The Columbia Law Review who fell under the spell of a criminal asshole named Harvey Meyerson, got implicated in a billing fraud and ended up disbarred. Right now, the other 249 lawyers have problems, all right, starting with a looted $38-million trust account. Of course, there's the receivables run-off, but I wouldn't count on that to cover everything. Not by a longshot.

Car Wars

Chrysler has closed its plants for a month. At least that's the announcement. I'm not sure if that's its assembly lines, or if that's all its operations. If you want to minimize that speak of merely extending the customary holiday shutdown of assembly lines by a couple of weeks. If you want to play it for impact, couple a total shutdown of operations with its dealers pulling $60-million a day out of the company for fear of bankruptcy

It's all in the wrist.

Chrysler is an interesting case because it's owned by Cerebus, a much more vigorous version of the Ford family and far better connected politically, with more ability than GM to play its cards close to the vest because neither Chrysler not Cerebus are publicly held. And before that it was owned by Daimler for a decade, long enough to shift its corporate culture. If there was ever a group of people where it's a good idea to watch what they do, and not what they say, its Team Chrysler.

Meanwhile, the single issue Johnnies are making hay with the situation. I'm not sure whether they are an impediment to, or merely a distraction from, resolving the situation. The Republican Senators from states with foreign assembly plants are clearly in the first catagory. Those guys hate unions. The appalling effort on NPR by Senator DeMint (R., S.C.) to sound like he knew what he was talking about revealed an insane anti-union bias (or perhaps an insane hostility to health insurance for old people, or perhaps simple, blissful stupidity). Greenies looking for an environmentally sensitive auto industry building hybrid vehicles that nobody will buy unless gasoline climbs back to $4/gallon, are probably in the second catagory.

Then there is the 800 pound gorilla. Bankruptcy or bailout, on a go-forward basis the American auto industry will soon be a shadow of its former self. Rather like the steel industry in the 1970s, what emerges from all this will have been diminished in the transition. We're going to have to find a new and different way to add value in the global economy. Better crank up Tom Russell singing about the Homestead works.

Top of the Second Inning

. . . listening and not talking for a month is a good thing to do. One problem with this blog format is that, in the absence of deadlines and a publication rhythm, bloggers tend to spew continuously. And, gotta be careful when the better half sends you to Koch's to buy a seersucker suit, or when in a New Orleans oyster bar and the shucker has an intestinal disorder.

That said, after a period of watching and taking a deep breath, I'd say we've reached the top of the second. Hopefully, this is a play in three acts and not a nine-inning ball game. If the former, civil society and the political order as we know them emerge intact. If the latter, all bets are off.

Assuming a play in three acts. The Annus Horribilis of the financial markets has come to an end. The Annus Horribilis for the general economy will be 2009. Give the dialectic another year for the feedback loop, wherein 2010 the financial sector in its present form is finished off by the consequences of the state of the general economy at the end of 2009, and in the second decade of the third millenium, well, community banks, like small mammals after the asteroid finished off the dinosaurs, will rule the earth (if by rule the earth, you mean not being squished by a passing thunder lizard).

If a game in nine innings, the outcomes are likely to be far more unpleasant for those of us who enjoy provincial prosperity and tranquility. The social fabric will tear cloth. Exemplary justice will come into fashion. Pity Mrs. Madoff, with her master's in nutrition, who apparently made the phase shift from writing cook books to cooking books . . .