Washington Mutual and “Too Big to Fail”

I first learned of Washington Mutual when our mortgage in Pittsburgh was sold to them in 2001 or so. We had originally signed with Cendant Mortgage (they had the best deal when we bought in 1999) and I remember some vague talk about the possibility of our mortgage being sold to another company. It didn’t make any sense to me. We’d locked in a fixed rate for 30 years and put 20% down. The rate of return on interest was going to be absolutely constant and predictable. Where’s the money in that? Of course, the answer must have been in some kind of risk economy as with mortgage derivatives (though the crash was from subprime derivatives, not from mortgages like ours), a concept of which I was totally unaware until the meltdown of recent weeks. As will all mortgages, we were a calculated risk — a relatively low risk (at $781 a month–housing was cheap, but then so was the University of Pittsburgh when it came to faculty salaries), but still a risk.

The stock market, and indeed much market behavior, is about the management of risk. This kind of risk is easily quantified (even if that quantity is a fiction and ease of measurement does not translate into ease of prediction), since it is about money above all else. On the basis of that quantity, fortunes are made and lost. We call this activity an important part of a collective fiction called “the economy.” An economy, like a society or a culture, is a total concept–one that posits a closed system where no such closure exists. Such concepts are immensely useful, but they are abstractions, shorthand for a series of forces that we do not want to explain every time we talk about large scale phenomena. The American “economy” was booming for years while divisions between rich and poor grew, infrastructure crumbled, healthcare disintegrated, consumer debt ballooned, and high paying jobs were replaced by low paying jobs. The only possible conclusion that one can reach is that most objective measures of the economy have nothing to do with moral economy (the field from which political economy emerged), the well being of a polity, but rather the well being of the rich and extremely rich. Now, there are plenty of economic theories which suggest that welfare of the rich is the welfare of the citizenship as a whole, but it sure doesn’t look that way right now.

And so when I hear about a $700 billion bailout and the words “too big to fail” I have to ask: why aren’t America’s healthcare, transportation and education systems also “too big to fail?” Why aren’t old age benefits “too big to fail”? If we can spend $700 billion to prop up the interests of the very rich [1] because it is for the common good, why hasn’t a responsible government already spent the money necessary to replenish and refurbish other cornerstones of American society?

The answer, of course, lies in what you think constitutes a successful “economy.”


1. I realize that lots of people would lose their homes if mortgage companies and banks started failing left and right, but I suspect it would cost considerably less than $700 billion to bail out homeowners instead of lenders, and to simply let the lenders hang. They are the ones paying the lobbyists to get more “free market” legislation after all. Why are the poor and the middle class the only ones who have to operate in market conditions?

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