I have a friend who regularly reminds me that if you jump off the top of an 80-story building, for 79 stories you can actually think you’re flying. It’s the sudden stop at the end that always gets you.
When I think of the financial-services boom, bubble and bust that America has just gone through, I often think about that image. Wethought we were flying. Well, we just met the sudden stop at the end.The laws of gravity, it turns out, still apply. You cannot tell tens of thousands of people that they can have the American dream — a home, for no money down and nothing to pay for two years — without that eventually catching up to you. The Puritan ethic of hard work and saving still matters. I just hate the idea that such an ethic is more alive today in China than in America.Our financial bubble, like all bubbles, has many complex strands feeding into it — called derivatives and credit-default swaps — but at heart, it is really very simple. We got away from the basics — from the fundamentals of prudent lending and borrowing, where the lender and borrower maintain some kind of personal responsibility for, and personal interest in, whether the person receiving the money can actually pay it back. Instead, we fell into what some people call Y.B.G. and I.B.G. lending: “you’ll be gone and I’ll be gone” before the bill comes due.
Yes, this bubble is about us — not all of us, many Americans were way too poor to play. But it is about enough of us to say it is about America. And we will not get out of this without going back to some basics, which is why I find myself re-reading a valuable book that I wrote about once before, called, “How: Why How We Do Anything Means Everything in Business (and in Life).” Its author, Dov Seidman, is the C.E.O. of LRN, which helps companies build ethical corporate cultures.Seidman basically argues that in our hyperconnected and transparent world, how you do things matters more than ever, because so many more people can now see how you do things, be affected by how you do things and tell others how you do things on the Internet anytime, for no cost and without restraint.
“In a connected world,” Seidman said to me, “countries, governments and companies also have character, and their character — how they do what they do, how they keep promises, how they make decisions, how things really happen inside, how they connect and collaborate, how they engender trust, how they relate to their customers, to the environment and to the communities in which they operate — is now their fate.”We got away from these hows. We became more connected than ever in recent years, but the connections were actually very loose. That is, we went away from a world in which, if you wanted a mortgage to buy a home, you needed to show real income and a credit record into a world where a banker could sell you a mortgage and make gobs of money upfront and then offload your mortgage to a bundler who put a whole bunch together, chopped them into bonds and sold some to banks as far afield as Iceland.[...]
Actually I tend to believe that the current economic crisis is a result of governmental intervention. Recessions are a part of the economy, it is a natural re-valuing of stocks and commodities. However, because the US economy is a based mostly on the trust of the people, as is the value of any stock, the economy as a whole can be greatly affected. Unfortunately a good and rising economy has become a staple for re-election which leads to attempted governmental intervention. This intervention is often worse then the initial recession ever would have been. Take for instance the great depression. Having started in the US, it should have run its way through the US faster than other nations. Instead because of constant intervention, the depression didn't lift in the US until 1939. The real problem is that no-one was willing to say just wait it out. The truth is that over any 10yr period, including that of the Great Depression the US economy has grown by 11.5%. Few however, are willing to take the long view and realize that, while painful in the moment, will overall strengthen the economy. Even the current crisis, was mostly precipitated by governmental intervention. The tech-stock crash left the US economy in a recession, so the government pressured/lifted controls from banks in order to quickly end the recession. Now nearly 10yrs later, the same fundamental flaws are still there, but have grown from a false economic boom.
ReplyDeletemekubal said...
ReplyDeleteActually I tend to believe that the current economic crisis is a result of governmental intervention.
This is indisputably true. The current crisis in particular, involving the mortgage market (Fanie Mae, Freddie Mac) is the clear and open result of direct government intervention in the banking industry, forcing banks to extend loans to people who were not qualified. Conservative economists and Republican politicians (incl. McCain) have been warning of this impending crisis for several years now, but their attempts to prevent the problem were blocked by Democrats. Blaming the current crisis on poor choices by businesses and consumers is a way for Big Government liberals to shift the blame from themselves. The fact is that the poor choices of individuals rarely add up to enough economic impact to send a large economy into a major down-turn unless the government short-circuits the normal safety factors inherent in a free economy. Only the government has that kind of power.