Predicting the Next Big Financial Meltdown

Elizabeth Warner, the new chairperson of the oversight committee assigned to the $700 billion government financial bailout, started her job asking a very few very basic questions:

Where did the money go? What is the plan going forward? Is it working?

So far, almost every institution asked these questions has declined to answer on the grounds that 1) they don't know the answers, or 2) they don't have to give anybody the answers. Congress is now threatening to refuse the second half of the money (the first $350 billion is nearly all spent) if some accountability and transparency doesn't materialize and materialize fast. Although Secretary of the Treasury Henry Paulson sold the plan on the promise to buy up toxic mortgage assets and unfreeze the credit markets, mostly he has instead handed cash money over to the banks, no questions asked, no transparency demanded. The banks in turn have held onto the money, leaving credit still very tight indeed and the economy still in peril.

All of that is pretty infuriating and dysfunctional, all by itself. But did you know that lots of other major American institutions are currently on the brink of failure too? They are, and just for perverse fun I thought it might be worthwhile to list a few of them. See if you can predict which of the following will collapse next:

Infrastructure : In the past year or so we've witnessed the collapse of a bridge during rush hour in Minnesota, major electrical grid failures in huge areas of the country, a broken water main in D.C. that almost killed nine people driving along a major highway minding their own business, and the steady erosion of the ground in around New York City as one of the largest (and oldest) underground water systems leaks millions of gallons of water a day under roads and houses, causing flooding, sinkholes, dangerous erosion, and destruction of property values in entire neighborhoods. Many states are now selling their highway systems to foreign investors because they can no longer maintain them and badly need the revenue. So while we fret about whether to build electric or hydrogen-powered cars (neither of which Americans can buy right now because we don't have jobs), the roads to drive them on are falling apart before our very eyes.

Hospitals & Basic Health Care : Every year the number of uninsured persons in the U.S. increases, and the number of underinsured increases even faster. Michael Moore's movie Sicko shows how even people with good health insurance can and do end up destitute and without access to treatment here in the U.S. What many people don't realize is that these rapidly rising costs are putting major hospitals in a state of severe financial strain. In the west Michigan city where I live, both of the major hospitals are approaching bankruptcy despite increasing their prices by double digits year after year--one has announced it may go belly up in 2009 without some kind of help. So many people cannot pay their bill, even people with insurance, that they cannot increase prices fast enough to keep up with the number of defaults. An imminent collapse of the entire health care system is not only possible, it's happening before our eyes. It's just that the financial markets are eclipsing this news by staying front & center in Congress--which doesn't want to touch health care with a ten foot pole. At the same time, General Practitioners are leaving the medical field in droves, pushed out by the incredible burdens placed on them by managed care and insurance carriers and making wellness care and routine care expensive and nearly impossible to find.

Auto Industry : The recent loan begrudgingly given to the American auto industry will tide them over until January 20th when Obama takes office, at which point they will be in crisis again. Why? Because people can't buy any kind of car without money. Financing is difficult if not impossible in most cases, many people are losing their jobs, and dealerships already have a backlog of vehicles from 2008 they can't seem to dump. Even if the American auto industry could retool and get cars that ran on dreams to their lots tomorrow, if they can't sell them, so what? We have much deeper problems than fuel efficiency right now. Not that fuel efficiency doesn't matter, it does. But the prospects for getting people back to work have to improve radically before the auto industry starts to sell cars again, and even with bailout money they will be dumping hundreds of thousands more jobs in the coming year.

State & City Governments : With housing prices still in freefall and foreclosures still rising rapidly, many city governments are hurting for money. Industry is pulling out and retail businesses are failing, leaving a poor tax base right at the same time that state and city government services are needed more than ever due to the rising number of homeless and unemployed people. Until the underlying problems of employment and the housing crisis are addressed, this trend looks to only become more intense in the coming year.

Banks : Everybody likes to watch the DOW go up and down and fret about that, but it's just a sideshow. Underneath all that is the fact that the U.S banking system is still a mess after accepting cash infusions in the billions of dollars from taxpayers. Many bank failures have been concealed by the Treasury Department by using TARP funds to force broker sales of failing banks to other slightly stronger banks that may or may not want them, resulting the the loss of thousands of jobs in the financial sector, but preventing FDIC seizures that tend to freak out the public. Citi is still struggling after receiving over $120 billion in taxpayer funds and will likely be back for more. Government seizure of the entire industry is still a very real possibility.

Credit Card Industry : You've lost your job. You have a mortgage and the average credit card debt of $8,000 with a minimum payment of around $300. You have to choose whether to pay for your house, which keeps the snow off of your kids, or your credit card, which enables you to pay for shoes you bought in 1987 until 2038. Which one would you decide to pay? Yeah, me too. Now project that scenario forward and hold onto your hats. Not that I'm going to cry if those guys go down--they're hard to pity, for sure--but I don't see anything good on the horizon for them.

I don't envy Barack Obama. The situation in the U.S. is as bad as anything anyone has seen since the Great Depression, and the rot goes much deeper than we are even led to believe. But I do think that times like this give us all a chance to re-evaluate what really matters. I think we'll all be doing a lot of that in 2009.

One thing is certain: It won't be boring!