The fundamental problem: lack of trust

The reason why no bailout is yet at hand for the current problems is simple: there is not enough trust.

Calls and letters coming in to congress are running 50-1 against the bailout. Why? few trust Wall St. and congress to be telling them the truth and most suspect that this is simply a gambit for continued big paydays by wall st. honchos.

Why?
In the mid to late 1990's the pundits and experts lauded the so called "new economy" which needed no profits and then didn't even need revenues. All it needed was "eyeballs" watching the new web sites that the new economy was spawning. Spawning massive new wealth practically through thin air (A.K.A the internet). Those who were skeptical and felt business would need revenues and profits were told they "just didn't get it." The "new economy" was not a fringe idea, it had became conventional wisdom before the concept crashed and burned in the "tech wreck" of 2000-2002. This kind of episode erodes trust.

Why?
The election of 2000 was contested. It was not won cleanly but decided by a supreme court decision. Never before in our history had we gone through something like that. Some important assumptions about our country flew out the window in that episode. This kind of thing erodes trust.

Why?
In 2003 our nation was led into war via a claim that Iraq had "Weapons of Mass Destruction." Iraq was invaded and no Weapons of Mass Destruction were ever found. Iraq is believed to possess the second largest reserve of oil of any nation on earth. This kind of episode erodes trust.

Why?
Throughout the middle of this decade a deliberate effort was undertaken to bolster/inflate the housing market. Lending standards went down down and then down some more. We were told by the "experts" not to worry. Housing cannot go down. None other than Alan Greenspan claimed that there was nothing systemic to worry about because there could not be an overall drop in housing prices. Simply couldn't happen. He lectured that there was "no nationwide housing market" - that housing consisted instead of many local markets that moved somewhat independently so if Phoenix was dropping then Philadelphia would probably be rising and if not Philadelphia then somewhere else. Bottom line: don't worry your pretty little heads about a housing downturn. It has never happened and can't happen. As we know, housing is now in a dreadful tailspin; according to Case/Schiller it's down 17% and dropping. This kind of episode erodes trust.

Furthermore, in each of these episodes there has been skepticism from those of us outside the halls of power and it has often met with a concerted effort to get us all "on board."

- See the video's of Abby Joseph Cohen, Bill Gates and others in the 90's extolling the "new economy." Those who didn't see the new economy just didn't "get it" - maybe they were not so smart.
- Watch the mocking sarcastic comments of Donald Rumsfeld when asked directly where the WMD's were in early '03. Watch the comments of Dick Cheney and Bush on the subject in 2002-2003. We were told that everyone knew they were there. Everyone.
- Watch the oh-so-sober presentations of Alan Greenspan on the possibility of a housing bubble (it can't happen he said). Watch other "expert" commentary on the risk of a housing bubble. Consensus until this year was that it cannot happen.

The unwashed masses might *think* that any asset could be bid to high and a mania could develop anywhere but the experts assured us that housing was an exception. They used advanced statistics and calculus and a lot of other neat things to drive home the point.

Put together, these events have done a lot to diminish trust in our leaders over the past 10 years and given the ultimate outcomes one must ask what the hell is going on.

A subtext to all of this of course was sky high executive compensation for those who were on the inside and a yawning gap between the "haves" who were running the show and the unwashed "have nots" - who were often the doubters.

We were told that our leaders really knew what was going on, we were told that our leaders had the character to stick with the program and make the tough decisions, we were told that our leaders had the seasoning to have "been through it all before" and the intelligence to make good tactical decisions. They create the wealth we were told. And in return for all this a 10 or 20 million a year was but a trifle.

But now we know that the new economy was a fraud, there were no WMD in Iraq and housing prices are now dropping like the price of unsold Halloween candy on November 1.

There is extremely little trust right now. People do not trust their leaders, they do not trust the CEO's, they do not trust Bush, they do not trust the Democrats.

Most "main street" type people feel this wall street bailout is just a grasp at another grandiose payday by powerful people who seem very adept at manipulating and used to getting their way.

Could this bailout be just an attempt to again profit at the expense of the rest of us? Much of the public believes this.

Consider that CEO and upper management pay packages are based on stock prices and nothing has to get paid back if stock prices decrease later. These guys are usually in their 50's or 60's. Helping along a "new economy" bubble could therefore be rational from their perspective. Consider that a big new market should have been opened up with the invasion of Iraq (it's as big in population and size as California and has 4 times as much oil as the U.S.) Consider the paydays "throughout the chain" from the origination of mortgages. None of those origination fees have to be paid back.

Could it be that the much of the general "advice" from our leaders and experts on the subjects I touch upon above was self-serving (as opposed to 24-Karat gold insight?)

Could it be that they simply told us to do what was good for them and were not all that concerned about the risks we were exposed to in following it?

The troubling fact is that the self-serving thesis makes sense given the ultimate outcomes: the insiders made out like bandits even while their rationales were exposed as bunk each time.

We probably cannot know yet whether our leaders are being sincere of whether this is another "new economy" sham but regardless we have no reason to trust them.

If they are finally telling the truth then we are all in deep *****.