For what to some are fairly obvious reasons, there is more than a bit of irony in a practicing Jew quoting a fellow named Bacon. It neither passes the smell test nor feels
quite kosher. Then again, what's life without a whiff of illogic or a morsel of imaginary trayf? I mean, it's not like the mere quoting of Sir Francis will lead to a deathless yearning for a BLT, or visions of fatted swine rotating on a greasy spit . . .
Oh what the heck; let's throw caution to the wind and quote the old boy:
Knowledge is power.
There, I've gone and done it! But you know something? It wasn't nearly as satisfying as I thought it would be. Moreover, with all that's been going on for the past God knows how long, it's probably no longer even true.
Simply stated, in this day and age knowledge isn't always power.
Currently, there are people running all over Capitol Hill -- and up and down Pennsylvania Avenue as well -- all loudly proclaiming that they never suspected:
- The economy was in such bad shape, or
- That major banks were on the verge of collapse, or
- That all those no-money-down, interest-only mortgages would eventually spell doom and disaster, or
- That the Big Three Automakers ["BTA"] were sinking in quicksand, or
- That America's been in a recession for more than a year.
From all available evidence, it is obvious that the facts, the figures, the forecast -- i.e., the knowledge -- have been available to legislators and regulators, executives and lobbyists for quite some time.
In 2005, federal bank regulators, correctly assessing the crisis looming just over the horizon, proposed a series of guidelines for institutions writing risky loans. In light of what has transpired in the mortgage industry of late, their warnings and proposals seem to have been written by some Delphic oracle:
- They correctly warned bankers that "exotic mortgages" were often being granted to buyers who had bad -- even no -- credit.
- They urged banks to make sure that buyers "actually had jobs and could afford houses."
- They proposed "a cap on risky mortgages" so that a "string of defaults wouldn't be crippling."
- They strongly urged banks to "help buyers make responsible decisions" by clearly advising them that "interest rates might skyrocket and huge payments might be due sooner than expected."
All of these proposals remained precisely that: proposals.
In January 2006, Paris Welch, a prominent California mortgage lender tried to blow the whistle on all these no money-down, low-interest mortgages as well, warning anyone in authority who would listen to "Expect fallout, expect foreclosures, expect horror stories." She -- among others -- correctly predicted that without stringent regulation, the mortgage industry in particular -- and the American economy in general -- were heading for a major implosion. And yet, despite having this knowledge -- which, according to Sir Francis Bacon, should have been empowering -- both Congress and the Bush Administration chose to listen to other voices that spoke very different words.
Bankers proclaimed that all the so-called "troubled mortgages" were in reality, no trouble at all. As a result of their proclamations (and an intense campaign put on by their paid lobbyists), regulators delayed taking action until it was too late -- at which time these very bankers either went under or came back to Congress asking for buckets and buckets of bailout money.
As an example, David Schneider, the former home loan president of Washington Mutual ("WaMU"), told federal regulators in early 2006 that "These mortgages have been considered more safe for portfolio lenders than many fixed rate mortgages." Schneider backed up his testimony with lots of paid lobbying in an effort to convince Congress, regulators and a sympathetic White House that he knew the situation better than any or all of the prophets of doom and gloom.
Guess again: Within two years of uttering these words, both Schneider and WaMU were out of business. Indeed, the WaMU collapse was the largest bank failure in U.S. history.
Here we have a clear-cut example of knowledge not leading to power, because knowledge and power were, in essence, occupying different universes
Now this is not to say that had Congress, the White House and all their buddies indeed gotten off their collective arses and started using the knowledge at hand sooner, that none of our current problems or challenges would exist. The sad truth is that we will never know, because much of Congress and virtually all of the Bush Administration, chose to pay attention not to those with the facts and figures, but rather to lobbyists representing the very interests they should have been regulating in the first place.
Generally speaking, knowledge without will, vision, integrity or courage, has a most difficult time of translating into power. In the political arena, it is close to impossible; a process that lacks will, vision, integrity and courage will more often than not become an exercise in futility, a danse macabre where hidden agendas abound, and what started being potentially empowering, becomes either an impediment or an irrelevancy.
Yesterday, the 10th of December 2008, the House of Representatives passed a $14 billion loan-guarantee package for the "BTA." In addition to the money, the measure mandates that the BTA submit a reorganization plan (or suffer the consequence of having to immediately repay the loan) by March 31, 2009. It further creates the executive post of "Car Czar," who will have what appears to be unfettered authority to get the Big Three back on tract. (Honestly, why we persist in using the term "Czar" is beyond me; I'm sure Congressman Frank must be aware of just how profligate and imperious most of the Russian despots were. After all, much of his family escaped from Czarist Russia!)
In order for the bill to become law, it will of course have to pass the Senate. And here is where the going gets rough. For despite having the knowledge of what will likely happen if the BTA go under, many Senate Republicans are against the plan. Indeed, Senate Minority Leader Mitch McConnell (R.KY), whose state has more than 50,000 jobs related to the industry, has already said he will cast a "no" vote. Instead, he supports an amendment by Tennessee Republican Bob Corker that would force severe cuts on union workers and auto industry bondholders as part of the bailout.
McConnell, Corker, and many of their Republican colleagues, represent states that have non-union auto plants. They see this bail-out measure as an opportunity to bust the UAW and stick bondholders with enormous losses -- matters which are purely political and have little to do with saving the American automobile industry. Additionally, one of the bill's amendments that is under extraordinary fire forbids any company receiving loans from using any of that money for financing their lobbying efforts against new, more stringent carbon emissions standards recently enacted by California and a dozen other states. Despite the knowledge that the "cleaner the car," the more likely consumers are to purchase them, the BTA's friends and lobbyists are fighting this measure tooth and nail.
In other words, for many, it's politics as usual.
Oh that the knowledge we did possess could have empowered our elected leaders to act before things got to such a pass -- as we were careening into recession. Unfortunately, whatever knowledge was available was ignored, twisted, obfuscated or just plain buried.
Why?
Well, according to Sir Francis -- who's getting easier to quote -- the answer may well be that
"Nothing is more damaging to a state than that cunning men pass for wise . . ."
©2008 Kurt F. Stone
Note: Within 24 hours of posting this article, Senate Democrats decided to abandon their efforts to bail out the auto industry. The stated reason for the abandonment was Republican intransigence; GOP senators balked at supporting any bill that would not, in essence, destroy the United Autoworkers Union. The Democrats knew that under these circumstances, they didn't have the 60 votes needed to for the measure to pass.
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