30 September 2008


Deep roots make for strong and durable trees, shallow root systems are what the ficus trees in my neighborhood have. Every time we have a tropical system, trees in our neighborhood are damaged. During Hurricane Wilma, most of the trees here were either knocked down or lost most of their limbs. Ficus trees are a pain; their shallow roots can make them dangerous and difficult to deal with. On the other hand, they're beautiful, regrow quickly and are easy to remove when they become diseased or over-topped.

The roots of the current economic crisis are multiplicitous. To listen to media and political rants over the previous few days, this crisis has eight to ten-year old roots. We hear that it began with the evil and to-be-maligned Pres. Bush first took office, or possibly when the GOP took control of the House and Senate, or when greedy Wall Streeters convinced the aforementioned evil-doers to shake of the regulatory yoke. These assumptions are certainly easy and self-comforting, and do nothing to either solve the problems or understand them. Most strong fiscal conservatives blame Pres. Clinton (the Community Reinvestment Act, 1977 was expanded under his administration) and the Democratic Congress (I have a link on a previous post from 2004 showing Barney Frank and others vehemently arguing against tighter regulation of Fannie Mae and Freddie Mac, and of course Sen. Obama is the second-largest Congressional recipient of money from these institutions). These arguments may also be too facile. While it's true that many of the Democrats who stood preened in front of the cameras yesterday took money and argued vehemently for looser lending standards, the CRA asset thresholds were adjusted again in 2007 (http://www.ffiec.gov/cra/default.htm).

I think the roots run deeper than either of these perspectives would have us believe, and that a failure of personal responsibility are part of those roots. It's true that greed exists on Wall Street, and that without certain regulatory checks in place, that greed can over-run common sense. It's also true that widespread individual greed exists, and that it can frequently over-run all bounds. How many of us had to have the latest car, a bigger house, the newest t.v., etc.? How many of us bought these on credit, without any real plan to pay off the bill in a timely manner (after all, we only owe a minimum each month)? How many of us (be honest) felt bad (or guilty) for people who live in small apartments in under-served areas, and pushed for the government to 'do something' by making housing 'more affordable?' It's so easy to push issues off on our respective 'bad guys,' and much harder to examine our own actions. The same kind of blame-game begins every time there's a large and growing crisis; climate change comes to mind.
We have to get away from a cycle of blaming everyone when we do not look at ourselves. If we fail to take ownership for some of these roots, we'll never deal successfully with the tree.

As to the 'Rescue' package, I see two options. Either we accept the plan (or a variant thereof), and hope that it works to stabilize credit and liquidity in global markets, and that stabilization ensures that small and medium-sized banks and businesses are able to conduct 'business as usual.' If we agree, as a nation, to do this, we also need to accept both personal and corporate responsibility and change that business as usual. We need to stop demanding credit for nothing, loans without the knowing how we'll pay them, and always having the biggest and best. Government needs to accept that ensuring that people have a safe place to raise their families does not necessarily mean an equal footing in all areas. Many people won't be able to have a house, buy a car, etc. There needs to be better problem-solving than insisting that under-served neighborhoods deserve looser standards due to their legacy of racism and poverty. These are no excuse for foolish decision-making. Investment banks need to accept limits on their ability to grow. All markets reach a saturation point, beyond which growth occurs only in small increments if at all. One of the reasons so many of these banks are facing collapse is their insistent demand on providing new growth opportunities - like security bundles that included bad mortgages. Finally, we all need to take a deep breath and stop the panic. Unemployment numbers look to edge into the high 6% range next week. While painful, this number is not even where we were in the mid-90s. A credit freeze would probably bump us in the 8% range - about where we were at times during the 1970s. This is not the Great Depression writ large (or even small).

The other option? Let the chips fall where they may. We (and the global economy) will probably take a major hit. Credit and lending will dry up. Many small and medium (and some large) businesses will fail, and the United States will lose its leadership position in the global economy for at least several years. This would be very painful, make no mistake. But, it might just lead us to a stronger position after a number of years. And it might lead us to a more rational, ethical and, yes, less-greedy, business-as-usual. We have survived many grave threats as a nation before, and not by relying on others to fix our problems. It may be time for us to survive this one, and emerge the wiser for it.

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