In financial news, Tim Geithner has at last unveiled the administration’s plans to deal with the toxic assets infecting bank balance sheets. The plan assumes, contrary to all evidence, that the problem currently facing the global financial system is one of liquidity, not solvency–i.e. if mortgage-backed assets were properly valued, they’d be worth much more than currently, so if we just make a market for them, banks will be able to sell them at good prices and thus recapitalize their balance sheets. In reality, as Paul Krugman was quick to point out, the mortgage backed assets really are crap, buying them (even at a premium) won’t render troubled banks solvent, and it’s not a certainty that people will buy them at a premium. Above all, in my mind, is the following human fact: if you give someone $100 to invest for six months and, at the end of six months, they give you back $0, you’d be unlikely to give them $100 again: the plan ensures current management isn’t fired–indeed, it seems to be designed expressly to avoid that possibility–whereas nationalization would. The problem of undercapitalized banks would be solved if they could raise capital, but who is going to invest money with the same people who burned it with such abandon?
In other news from my world, there’s been developments in the saga of my friend, Stoner Mark, who I wrote about below. To recap, Stoner Mark is a friend of mine who lives on the West Coast. To make a living, Stoner Mark deals pot in a nice provincial city. Recently, his head filled with dreams of a new cell phone and more vacation time, Stoner Mark made a large purchase of what was supposed to be high-quality greens, blowing through most of his savings to do so. Instead of the boon to his business he thought it would be, the pot turned out to be crap, and now he’s broke and his mortgage is coming due, so, like many of us, he’s in need of a bailout.
When all this happened, stoner Mark called me first for a loan, which I provided, and then for advice. Like a good friend, I told stoner Mark that his only real solution was to bite the bullet: sell the house, move back home with his generous parents, and get his life in order (i.e. figure out how to be something other than a drug dealer). He also had two deadbeat stoner roommates at the time; I suggested that, as hard as it would be, he needed to throw them out in the cold. Since then, Stoner Mark hasn’t called (and no one has answered my plea for advice to give to him!); I’ve learned that he’s been surviving on loans from his other friends and from his parents and is desperately trying to get rid of the bad greens.
Well, just yesterday, oddly at the same time I was absorbing the details of Geithner’s new plan, Stoner Mark’s parents called me in an angered state. It turns out that, not long after they first called me for advice, Stoner Mark got in touch with them and came clean about the situation. They were, of course, shocked and appalled to find that their son was a drug dealer; Stoner Mark’s brother, a lawyer named Todd, was in such a state of rage at what he saw as his parents’ subsidizing Stoner Mark’s deadbeat lifestyle that he had to get psychiatric attention. After much soul searching, however, they realized that it was both good for the family and the right thing to do to help him. Then, outrageously, he convinced them to help him in the most ridiculous way imaginable: they offered to just give him $5000 to cover his losses! I was so shocked by this I called Stoner Mark, trying to see what effect this would have on him. I tried to be casual, not letting on that I’d spoken to his parents.
What was he up to these days, I asked, was he still in trouble? No, everything was fine again, he managed to use the money from his parents (which he called a loan but they insisted they gave to him not expecting to be paid back) to essentially cover his living expenses while he dealt with the bad pot. He used the rest of the money to buy good pot to mix in with the bad, which is what I’d feared he’d do with the loan I originally gave him. He’s now getting his business back in order with the help of the loan; he’d lost a lot of customers from having the bad pot for so long. I asked him, diplomatically, if he had any plans to find a new source of income? His response: “of course not, man, this is the life!” I tried another angle: I asked him how good his suppliers were, if he’d be able to still buy good stuff and make a healthy margin down the road if he didn’t have money from his parents? Not to worry, he said; yeah, the new stuff was pricey, and yeah, the good stuff is more expensive these days, but he’s making bank again, he’d be able to afford it. It sounded like the same kind of dreaming that led him into the situation.
Maybe I’m just old-fashioned, but I find the whole thing maddening. If a drug dealer buys crap product, his business should go down, it’s just the American way. After I talked to Stoner Mark, and realizing that I was crossing boundaries, I called his parents back, I was just too livid. “You see what’s happening, don’t you?” I said to them. He’s just going back to drug dealing, you’ve enabled him to continue to be a drug dealer. Suddenly, they turned on me: “at least it’s something he does well”, they said. Can you believe that! They think he should continue to sell drugs, at least he can do SOMETHING. They’re little baby is destroying a nice West Coast community with bad ganj and they are proud of him; they’re even willing to subsidize his market!
It’s just amazing. Thank God the country isn’t ran this way.
