Friday, January 09, 2009

Are We All to Blame?

Where we are as a culture is at the very heart of the mess we are in today. While I personally am turned off by much of what is called popular culture you must concede the same rot that is being fed to our youth profoundly affects the political and business culture in America and all around the world. There is absolutely no sense of shame anymore - anywhere. It's not moralistic, puritanical constraints I want to see imposed on society but perhaps a return to a sense of some degree of shame when someone commits a crime or cheats under the mantra of "everyone is doing it".

F.Scott Fitzgerald’s novel “The Great Gatsby,” remarked on the corruption of morality that comes with unrestrained greed and materialism. “Gatsby” was actually a defense of a traditional American value (hard work, thrift, living within your means) in that, America in the 1920s, had been perverted by a form of capitalism unmoored from a moral foundation. During the roaring 20's the bored mega-rich, unhinged from traditional American values, end up destroying everything they touch, never having pay for it. Is that so different from today? Millions of Americans today live far beyond their means, and are enabled by private enterprise and government. This while businessmen and politicians feathered their own nests, often flaunting it as they rubbed it in our faces.

Lately I keep reading opinions about the current financial crisis that claim “we are all to blame.” We somehow all share a collective guilt because of our greed and arrogance. But not everyone did it. Not everyone has blood on their hands just by being an American. Isn't the whole “We’re all to Blame” angle just a ploy to get us ALL to pay for it. A huge percentage of us don’t have a jumbo sub-prime mortgage. We didn’t squander everyone's money they entrusted in us in a fraudulent hedge fund scheme. It may be right to say that "everyone” is not to blame, but literally millions of Americans are. Sadly it seems much of America has lost sight of important values.

Our leaders - and it can be demonstrated that Republicans, Democrats and unelected bureaucrats are really no different - have failed us in profound and devastating ways.

I don't think it can be denied that our government not only condones unethical, morally bankrupt behavior described above, they promote it. That’s really the issue and everyone knows it. Capitalists are opportunists, while not defending what they've done in many circumstances, it's their nature to exploit every possible angle for gain. In their world, if you don’t get caught it’s not cheating - so you might as well try - the rewards are so great and penalties so laughable, you’d be a fool not to try. But our elected leaders and trusted civil servants should (and do) know better. In order to feather their own nests or retain absolute power the termites get in bed with the cockroaches - and we the people pay.

Obviously we live in a complicated and ever changing world. Fifty years ago when the rest of the world was rebuilding after a devastating war America cranked up a production based society unseen in human history. There was no one else even close until Japan emerged as a major player in the 1980's. They were in many respects better than America at the production game. Today the Asian giants are building production machines with nearly unlimited labor resources and on a scale that dwarfs our dwindling manufacturing base. So then, we must consider the role competition from abroad, namely London, Singapore, Hong Kong, Tokyo, Beijing play in making our government officials behave the way that they do. Free trade, fair trade, subsidies, tariffs all play a role in our lawmaking and business decisions. We always hear how much market share we lose if we do not lighten up on regulation or cut labor costs. Regardless, instead of stooping to the level of our less than scrupulous economic rivals America should have led the world by example. Naive as I am I always believed many honorable people populated the boardrooms and legislative halls across America. I am not so sure anymore.

Today the world's financial system is now so intertwined that it basically succumbs to the butterfly effect everyday. The butterfly with the largest wings is still in America, for now.

The big butterfly's flapping has caused a economic crisis the world over.

When legislatures, presidents and Federal Reserve officials through their actions or lack of action allow the abdication of long standing lending standards along with ultra-low interest rates creating an unsustainable Lend-to-Securitize business model of sub-prime mortgage originators,then we get a housing boom and bust. The housing value collapse sent a shudder through Wall Street and eventually Main Street. The icing on the cake was a Bush appointee, Mr. Christopher Cox, an absolute stumblebum of an SEC Chair. He eliminated the so-called uptick rule, removing a key restraint on shorting just as the credit crunch was getting started. The market peaked shortly afterward, and began heading south — with no uptick rule to prevent indiscriminate short selling. To add injury to insult in September 2008, with the crisis in full bloom, he made shorting financial stocks illegal. Was he unaware that rapid market sell-offs are often slowed by short sellers covering their positions (to lock in profits on their bearish bets)? Without any short-sellers in the market, the downturn became even worse.

To say the GSE's, Fannie Mae and Freddie Mac, were among the principal culprits of the housing crisis is not framing it right. Fannie and Freddie were cogs in the giant mortgage machine, but they actually had nothing to do with the abdication of lending standards from 1994-07. They did however cook the books repeatedly to benefit their upper management bonuses and were continually protected by Democrats in Congress from taking the heat or being forced to change dangerous practices. And yet GOP controlled Congress from 1994-2006, including the first 6 years of the Bush Presidency. If the President and the Republicans really wanted to rein in the GSE's, they needed only make it a major priority. They didn't.

Plenty of blame to go around.

I hold out zero hope that the new government under Barack Obama will be any different. It could even be worse. I hope I am wrong. I don't want to see our country collapse financially - and the world with it. I don't know what I can do exactly. Living within my means is a place to start.



Anonymous said...

Your life is now your life is now your life is now
In this undiscovered moment
Lift your head up above the crowd
We could shake this world
If you would only show us how
Your life is now - JM