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Blog of Mass Destruction

Appraising The Jewelry

By The Reverend Published: September 17, 2008

Some guy approaches you on the street and offers to trade the big sparkling ring he's wearing for a couple thousand bucks. The ring wearer says it's worth at least twice that much although he hasn't had it fully appraised for years. The ring wearer's buddy admits that he isn't sure how much the ring is actually worth but gives you his business card, tells you to call him if there's a problem, assuring you that everything is on the up and up. You buy the ring for $2K.

You take the offer because you have a buddy in the jewelry business. You take the newly purchased ring, bundle it with other jewelry you own, and take the lot to your jewelry friend. You get paid $3K for the lot. Your jewelry friend, claiming the lot is worth, at a minimum, $3K.....puts the jewelry up as collateral for a $3K stake in a poker tournament.

You take your $3K and buy a new riding lawnmower.

Your jewelry buying friend has no luck in the poker tournament and loses the $3K. The house keeps the jewelry, finally has it appraised, and determines that the entire lot is worth $500. The sparkling ring you originally bought is virtually valueless.

Guess what happens next.

The jewelry buying friend comes back on you, says you tricked him, and demands his money back in order to pay the poker game house. You call the number on the business card desperately seeking your original $2K back, but the line has been disconnected. Not knowing where to turn, you sell the riding lawnmower for a $1K loss, pay your jewelry buying friend $2K, and promise him you will pay the rest over time.

The original sparkling ring seller is never heard from again.

Could any of this hypothetical be construed as conservative economic dealings? Could any of this hypothetical be proof of sound economic philosophy at work?

While imperfect, my hypothetical is suggestive of what has happened in the financial industry in the last 8 years. The deregulation of the financial industry has allowed virtually anyone to sell trick and bogus mortgages, bundle them up as instruments of collateral for resale, sell them to a variety of financial institutions, who, in turn, use them as collateral to gamble on stocks and options.

Because of a lack of tight mortgage regulation, thanks to John McCain, the deregulator, and his friends, especially Phil Gramm, the worth of that original bundle of mortgages, just like the worth of the sparkling ring in my hypothetical, preposterously, was never verified. The backward unraveling in my hypothetical is equivalent to what has been happening the past days and weeks as historic investment companies go belly-up and the stock market plunges in a mass dash to find liquidity, aka cash.

Those on Wall Street, those economic titans in the GOP, have been shouting, shouting, shouting forever that they are the conservatives. They're not Pollyanish, like those risky Democrats who would only socialize everything they touched. 'Deregulation and deregulation now' has been the war cry of Republicans forever. Ronald Reagan, the object of GOP worship still today, ushered in the age of deregulation we now live in....George W. Bush carried it on to the disastrous results we see today. The Reagan-Bush Revolution, a deregulating machine which orchestrated the transfer of trillions to the richest while degrading the buying power of workers, has been proven to be a total failure. A scam, really.

John McCain, standing alongside of his deregulating economic advisor Phil Gramm, is proud to be a "soldier" in that totally failed "revolution."

Thanks but...ummm...no thanks. We can't afford the jewelry.

As I type this, the Dow is down almost 400 points. Combined with Monday's losses, that's about 750 points in three days.

That's a lot of lawnmower selling.

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