China: Keep Your Dollars

Is the U.S. Dollar a "Legacy Currency"?

"China Urges New Money Reserve to Replace the Dollar"
--The New York Times (3/24/09)

Legacy: of, relating to, or being a previous or outdated computer system.

Here's a tip: when someone refers to something as a "legacy [blank]," it's not a compliment (or a good omen).

So it's unnerving -- at least to me -- to see Treasury Secretary Tim Geithner refer to the toxic assets at the heart of the most recent bailout plan as "legacy loans" and "legacy securities."

Oh . . and the Chinese, holders of more than $1 trillion in U.S. currency, are increasingly nervous (as well they should be).

Just two weeks after the Russians broached the idea of launching a new, international reserve currency, the Chinese are joining the chorus.

It won't happen overnight; think of switching from U.S. dollars as analogous to supplanting English as the world's predominant language. (A brand, new synthetic currency would then be the equivalent of Esperanto).

But it's a potent signal when this country's biggest creditor essentially utters a "no confidence" vote in our currency.

That's especially so when you consider that China holds so many dollars, it can't really sell them without destabilizing the market, leaving its holdings worth even less.

Madoff's Legacy, Cont.

Silver Linings vs. Black Linings

A silver lining is something good, usually long-term, that comes of something bad and helps redeem it, at least a little bit.

So what is a "black lining?" A residual, negative echo of something very bad that continues to reverberate long after the original calamity has faded from memory. Bernie Madoff's $50 billion swindle is likely to have three very big, black linings.

One. Increased anti-Semitism.

As Rabbi Marc Gellman notes, Enron CEO Ken Lay was never identified as a "prominent Protestant energy broker," or Rod Blagojevich as "the prominent Serbian-American governor of Illinois." Yet every single reference to Madoff notes, without fail, his religious affiliation.

Two. Diminished trust, especially in commerce. Consider:

Another thing [Madoff] did was make life incredibly more difficult for people who sell real and honorable and legitimate money products. Now every stock broker and money manager and hedge-fund operator and insurance rep who has already had a tough time convincing prospective clients that what they are selling is good and honest must now also convince them that they are not like [him].
--Rabbi Marc Gellman; Newsweek (12/23/2008)

Three. Poorer communities, long-term.

The money that vanished was earmarked not just for yachts and mansions but things like mortgage payments, college tuition, and medical bills. To the extent that Madoff victimized charities, it's not an understatement to say he also took basic necessities like food, shelter, and clothing from those without.

Some of what Madoff stole will never be replaced. The rest will have to be made up by everyone else -- society -- by giving more and getting by with less, in what for many is already a lean time.