Finding the Weak Spots

By Kevin D. Williamson

Wednesday, March 25, 2020

Semper Paratus is the motto of the U.S. Coast Guard — “always prepared.” A better motto for the U.S. government, and for the United States at large, might be Nonnumquam Paratus — “sometimes prepared,” or, more literally, “not never prepared.”

Somebody, somewhere, is going to make a stack of money off the coronavirus epidemic, though God help him if the politicians ever discover who he is or how he did it. Some gentlemen of my acquaintance in New York City kept uncharacteristically quiet after making a splendid little fortune off of the financial crisis of 2008–09. Their play did not require any ingenious act of financial engineering: When real-estate prices tanked in parts of Manhattan and Brooklyn, there were plenty of investors willing to pick up attractive properties on the cheap, confident that New York real estate was a pretty good long-term investment irrespective of the short-term state of the economy. The problem for some of those would-be buyers is that, with a worldwide financial crisis under way, financing was hard to come by. The investors who had ready cash on hand enjoyed, for a little while, a masterful position in the market. Money in the bank — semper paratus.

I imagine some of those guys, or investors like them, are making the most of the recent volatility in the stock market. If you have the resources to ride it out, it’s a pretty smart play: Americans are not going to forget how to make things and do stuff, and either the U.S. economy is going to bounce back and return to form or there will be some kind of economic disaster from which there is no recovering, and we’ll all have far more serious problems than the returns on our 401(k) funds. The latter is something you might expect from an asteroid, not a respiratory virus, serious and deadly though this one may be. But how long that recovery takes is impossible to know, which is why making the most of a downturn requires surplus resources — you can’t bet next month’s mortgage payment on an investment that might take two years to pay.

There are good businesses and bad ones getting hammered right now by the epidemic’s consequent economic shutdown, and that is not only a matter of share prices, which fluctuate for all sorts of reasons. And there are investors and entrepreneurs and angle-players who are spending their days and nights looking for an opportunity to make money from that. Bless them.

Talk all you will about “vulture capitalists” or whatever term of abuse you want to use, but ask yourself this: If there weren’t investors around to buy on the downturn — whether that dip is in Brooklyn residential real estate or in the S&P 500 — how would the downturn stop? It wouldn’t.

In difficult economic times, the usual self-righteous political types and self-interested market incumbents — including business executives whose financial interests are not identical to those of the shareholders who actually own the firms — lament the vultures and the ghouls, and several predictable lamentations will be heard upon the land. As if on cue, there already are demands for new restrictions on short sellers in the stock market, which is to say, on investors who expect the share price of a given company (or commodity or other investment) to go down rather than up. Of course, prices move both ways — but getting a good read on which and when and how is a difficult thing. As Bryan Corbett of the Managed Funds Association wrote in the Wall Street Journal last weekend, “The ability to deliver returns regardless of whether the market goes up or down is one of the key reasons these investors turn to hedge funds. It’s why they’re called ‘hedge’ funds.”

Short sellers are hated because they are the bearers of bad news: “Your business is overrated, your story is bulls***, your shares are overpriced, your management is too lazy and too comfortable.” The class of investors known as “activists” are hated for much the same reason. But they perform an invaluable service — doubting, testing, scrutinizing, looking for weaknesses. That is how institutions — be they businesses, political parties, or governments — get better. But getting better can be painful.

I like the shorts and the skeptics because of the work they do and because they are eternal underdogs. The powerful people hate the shorts because the ruling class, if you’ll forgive the term, is in effect long . . . everything: stocks, especially those of major corporations, but also market incumbents from Wall Street to Main Street to Silicon Valley, housing, commercial real estate, etc. By that I do not mean that the members of the governing and financial elites are motivated by personal financial interest in these things (though one assumes that they are, at least in part, from time to time) but that the ruling class is heavily invested in the status quo and that it dreads the one thing that the TED talkers and the voguish intellectuals claim to celebrate and admire: disruption.

The ruling class is in the position of Ted Hughes’s hawk: “I am going to keep things like this.”

I return often to the case of housing prices: High and rising housing prices have been for years treated as a salubrious sign of economic vigor, and rising house prices are indeed a wonderful thing — if you already own a house. (Or three, Senator Sanders.) If you are a young person, a renter, a person without a lot of money, and looking to buy your first house, then high and rising house prices are a burden. But the sort of people whose voices matter the most in our political discourse tend to be homeowners, not prospective house-buyers. A steep decline in housing prices would be just the kind of disruption that would help a lot of young people without a lot of money, but it is just the kind of disruption that many of our policies are designed to prevent.

The same dynamic holds true across many conflicts involving business policy. The case against Uber and Lyft never has been that these services are unsafe (compared to a Philadelphia taxi?) or unfair (compared to an official monopoly with legally enforced price-fixing?) but that they disrupted the established way of doing things, and in the course of doing so devalued a lot of assets staked to the old monopoly model of taxi services. The same is true of Airbnb and a dozen other Internet-based competitors in complacent markets.

But it also is true of activist investors who force changes on self-satisfied corporate managements; it also is true of education reformers who would upend business as usual at those nests of mediocrity we call public schools; it is true of so-called populist politicians from Donald Trump to Bernie Sanders, who have revealed lodes of deep dissatisfaction within their respective political coalitions and shown the party apparatuses to be walking dead.

A bias toward high housing prices is understandable if you own a house. In the same way, the status quo bias is understandable from the point of view of the comfortable people who have so much power and so little competition under the current arrangement. Putting a brake on the ordinary dynamism and churn of a market economy and a free society seems eminently reasonable viewed from the top.

How’s that working out?

Our national response to the coronavirus epidemic has exposed a great many weaknesses in public and private sector alike, in the state and in official action but no less in the culture and in private life. Semper paratus? Hardly. We were caught with our national pants down. A couple of months ago, we thought the big question facing these United States was which of two elderly, decrepit, habitually dishonest, implausibly coiffed dorks should be elected head of the executive branch of our creaky and sclerotic national government. What we have seen — and what we cannot unsee — is that the ship is taking on water, and that registering our collective preference about who captains it will not prevent its sinking.

We might have been better prepared for this — there have been warnings, for years, about the specific issue of our lack of national readiness for an epidemic such as this. But there is the more important question of our broader capacity for social action: When we are running $1 trillion deficits in the fat years, we are not preparing for the hungry ones. When we are dedicating the majority of our federal spending to entitlements, we are not dedicating that money to facilities for responding to crises and challenges that are necessarily public in nature. When our politics has been reduced to ritual, it forfeits its ability to engage productively with genuine political problems.

Somewhere out there is a guy who has figured out a way to make a buck off of this. And if you are looking for someone who really understands the problem, he’s the guy.