Welcome to Hillside Avenue

In the evening, when the temperature is comfortable, I spend time sitting on the front porch listening as the sounds of night slowly move in.  Sometimes I think about problems at work; sometimes I think about things that need done from the “Honey-do” list.  Most often however, I just sit and let thoughts randomly drift to the surface.

Last night my thoughts drifted to riding my bike in the summer when I was a kid.  Those were uncomplicated times for a boy.  I usually woke up around six-thirty in the morning and by seven I was riding my bike to whatever adventure was on tap for the day.  My bike was great.  It had a banana seat, high handlebars, front and rear hand brakes and ten speeds.  When I sat on it I felt a little like a member of Hell’s Angels, invincible and not afraid of anything or anyone. My bike and I had a symbiotic relationship that made us nearly inseparable.  I cleaned it, oiled it and keep the tires filled.  It took me wherever I wanted to go to do whatever I wanted to do.

I remember sitting at the top of Hillside Avenue one hot summer day straddling my bike and looking down a long gravel street that dropped away at a frightening angle.  Hillside Avenue was a right of passage for boys in my town.  A boy couldn’t make the step from small child to adolescent until he had conquered Hillside on his bike. That day, it was my turn.

As a group of my friends watched from the bottom, I sat on the crest of that hill with my feet planted firmly on the ground. My hands were white and bloodless from gripping the handlebars with all my strength. Sweat dripped from my forehead.  Only some of it was because of the sun beating down from the mid-afternoon sky.

Finally, resolve overcame fear. I lifted my right foot to the bike pedal and pushed off with everything I had. In a second I was away, standing on the pedals while the gears freewheeled.  There weren’t any rules or requirements about how fast you went down the hill.  The goal was just to make it to the bottom…upright and alive.

The first few hundred feet went fine as I built up speed.  Then, my front tire caught the side of a stone and the bike jerked quickly to the left.  I wasn’t new to riding. I had skills.  Instinctively, I made a correction and continued down the hill.   My speed increased and the tires slipped on more dirt and gravel.  With each slip, I made a quicker, more violent, correction and with each of those corrections I lost just a little more control.

Soon I was careening from one side of the street to the other until one final shift of weight proved to be too much.  For a split second, my bike and I leaned at an impossible angle of attack to the road.  Finally, friction gave away and I went down.  It seemed like I tumbled and skidded for hours, but my friends said that it was over in seconds. When I finally stopped, my bike was a jumbled mass of steel, rubber, dirt and gravel.  I was worse.

I remember the doctor staring at me as Mom took me to his office.  I had oozing cuts on my arms and legs and blood flowed from a cut just above my eye.  The gravel had torn through my shirt at the shoulder and my jeans at the hip and knee.  My right wrist was broken and I could barely walk.

“Hillside Avenue?” he asked.  My Mom nodded silently and I just looked at the floor.  One by one Dr. Johnson patched up my injuries.  He set the wrist, sutured the cut over my eye and scrapped most of the gravel from my knee.  Then I went home and did the same for my bike.

It’s funny how things stay with you over the years.  Maybe it’s the scars that I still have or the small pieces of Hillside Avenue gravel that are buried in my left knee to this day.  Whatever the reason, I learned a lot from that fall. Besides the obvious lessons on riding a bike and not taking unreasonable chances, I also had my first example of what happens when the corrections in a negative feedback loop are too aggressive or too far apart.  I learned that, when you have those kinds of corrections, a soft landing isn’t one of the likely results.

Our economy has been hurtling down Hillside Avenue for two years, careening from one side to the next and slipping on pieces of dirt and gravel.  The causes are many.  Greed, imprudence, unreasonable expectations, fraud and stupidity all have their place in how we ended up sliding down this gravel covered hill.  Each time we hit a stone, our government made a correction.  Sometimes it was a drop in interest rates and sometimes it was a massive bailout of a bank or insurance company.  Once it was the passage of a bill to reduce home foreclosures.  Yesterday, it was a bill to assume the bad mortgage debt of banks and other financial institutions.  With every correction, the hair on the back of my neck stood up a little further.  With this last correction, my left knee started to throb.

I’m not enough of an economist to know whether absolving the banks of their bad debt is a good thing or a bad thing.  But I do know that giving someone a way to walk away from the bad decisions that they’ve made without getting any scars doesn’t teach them much of a lesson on how to do the job right.  What it does teach is that someone will always be there to keep you from getting hurt when you do something wrong or stupid.  That lesson makes you brave and more prone to do stupid and dangerous things.

Henry Paulson seems to think that this is a good course of action.  He said that it would “allow banks to shovel bad debt off their balance sheets and allow the firms to go back to business as usual.”  Based on what they’ve been doing for the past seven or eight years, I’m not sure that letting them get back to business as usual is a good thing.

But, my big concern about this bailout bill is that, despite economists’ love of calculus and statistics, economics isn’t a science.  At best, it’s an educated guess.  If it were a science, poverty would be non-existent and GNPs around the world would consistently be through the roof.  Calculus and statistics only work in a stable environment and, because of one major wild card, economics isn’t stable.  That wild card is people.

No one knows for sure how investors, bank presidents, builders, homeowners, home buyers, consumers, employers, employees and, most importantly, voters are going to react to this bill.  If everyone reacts well, then the feedback loop will dampen and we’ll dodge the gravel.  If the right people react wrong, then we’re all going to make a trip to the emergency room.

If we weren’t six weeks away from an election, would the Bush administration be pushing this bill?  I have my doubts.  The Republicans don’t have a prayer in this election if the economy tanks before November.  Despite that, the Democrats have no option except to go along with it. If they stall or oppose the bill and the economy melts, then they’re toast.  In an election year, drastic action of this magnitude was the only way to achieve “mutually assured survival”.

That may be great for politicians, but it doesn’t give me a warm fuzzy.  I’m going into hunker down mode.  I’m putting plywood on my financial windows, stocking up the pantry and making sure I have plenty of wood for the fireplace.  The next few months are going to be “interesting”.

One thing is sure, with a bail out of this size we’ll all be paying the price for Wall Street’s arrogance for decades to come.  I’m close enough to retirement that I’ll probably be feeling the effects for the rest of my life.  So Mr. Bush, Mr. Paulson, Mr. Bernanke, Mr. Greenspan and all the CEOs and executives of the investment and commercial banks that got us into this mess, thanks a lot for your help.  Give me a call someday. I’d like to introduce you to Hillside Avenue.  You might find it an educational experience.

See Ya,

TD

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