May
24
Jennifer wrote to ask if there was something more to the mortgage default crisis than the mortgage defaults. Her premise was that subprime mortgages didn’t seem to be a big enough part of the total mortgage universe to have set off so much trouble.
While she was about it, she also mentioned having heard some fellow accusing OPEC of precipitating the oil price surge to create recession deals and acquire a bunch of valuable American assets. What about that, she wanted to know.
Occam’s Razor teaches, “When you hear hoofbeats, don’t think zebras.” In other words, if there is an obvious explanation for something, there is no need to search for a less obvious one. This isn’t always true, but it usually is. And in this case it applies.
Subprime mortgages may not be a big part of the total mortgage universe but they are a huge part of defaults. The crisis, in which investors suddenly lost all interest in buying mortgage-backed securities, was caused by loss of confidence, and unlike the actual defaults the loss of confidence extended to the entire universe of mortgage-based investments.
As for OPEC, two points ought to be made. The first is that OPEC doesn’t control a majority of the world’s oil. It hasn’t done so for years. It cannot by itself manipulate the market (and, incidentally, despite administration requests for Saudi Arabia to pump more, it cannot much affect the situation for the good by introducing more product, either).
The second point is that no hypothetical evil party needs to precipitate an economic downturn in order to snap up valuable properties and companies. All it has to do is wait for the next trolley. The global economy is too complicated for anyone, including the U.S. government, or even the allied governments acting in concert, to manipulate; and if anyone with global holdings did manage to do it, the potential for acquisition deals would be far outweighed by the risk of unintended consequences for the holdings one already has.
I’ve been seeing this a lot lately, this attraction to theories in which current events do not evolve organically but are brought about by design.
Some former Aloha Airlines pilots, for example, are utterly convinced that their creaky, gas guzzling jets would still be flying were it not for the company’s evil, venal management. Aloha management, aided by investors who had more money than sense, kept the airline going for about a year longer than it had any right to last, given current economic conditions and predatory pricing by a competitor. In the process they brought Aloha’s performance to the forefront of the industry. The rank-and-file deserve credit for this, too, but when mostly the same rank-and-file worked for the previous management, performance wasn’t as good, so it seems churlish to pretend that Aloha would be fine today if it hadn’t for those jerks in the executive suite.
In a previous radio halflife, working in management myself at a company that was financially troubled, I recall well how employees who prided themselves on their skepticism nevertheless repeatedly embraced fanciful theories about what was “really” going on in the company when the actual situation was plain for anyone to see.
If these theories aren’t supported by the facts, why are we so quick to embrace them? I think it’s because we’re not comfortable with the idea that anything is completely out of our control. If everything is one person’s fault we can get them fired. If everything is one country’s fault, we can wage war against them. Just having a secure belief that we know what’s going on can be comforting.
By contrast, it is highly discomforting to realize that the economy has become so complicated that no person, country or other entity can control it. Yet this is the case.
I think the popularity of James Bond movies and the original “Mission: Impossible” television series and the current forensic science shows stems directly from the fact that, after a hard day at the office with all kinds of things falling through the cracks and some team members perhaps not pulling their weight, you can watch another team in another place execute the most complicated plans, always equipped with the finest gear, so skilled and working together so well that when thrown a curve they can improvise and get back on plan.
We need this. We need it so badly we even prefer our enemies brilliant.
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3 Responses to “Did someone actually cause our current crises?”
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Thank you, Howard! I didn’t realize that OPEC did not control the majority of the world’s oil. Just smack me! LOL! Okay this puts a different perspective on things as I try to wrap my head around this.
What started it all was when I went into the Food Pantry off of Hobron and picked up a cauliflower to take home. At $3.39 a pound, it would have cost me over $9.00 for a single cauliflower. Yes, it was the proverbial “Cauliflower Moment” that started my quest for enlightenment on world economies. I know it’s a lofty quest ~ born from a vegetable. LOL!
Thanks for your insight on Aloha,too. Many thanks for taking the time. Jen
Some Senators in Washington DC want to sue OPEC for the higher oil prices. Stupid!!! Increased Demand and decreaseing supply causes higher prices for everything. It is called the law of supply and demand. You learn that in Economics 101. Aloha
When San Francisco decided to build BART, Bay Area Rapid Transit, they explored Steel Wheels, Rubber tires and magnetic systems. They chose Steel wheels because it is cheaper, more relible and has had no problems for 30 years . Why is there a group of people putting inserts in newspapers trying to get signitures to stop this process? I don;t get it. What are they up to? Steel wheel systems are used around the world and they work well. Aloha Howard.