27 February 2009
No "Magic Bullet" Theory Can Explain Economic Crisis
If you read through hundreds and hundreds of complaints on the web about the economic crisis, you will realize at some point that there is a common denominator between most of the complaints. Most of the people who are angry about this debacle are as confused as they are angry because they are not sure exactly who did this, or how it happened.
I told my buddy yesterday, "the most striking thing about this financial catastrophe is, there is no way to blame a 'rogue' trader or a 'rogue' bank for all of this. You know, the way we usually do when we want to suspend logic and common sense in order to get a neat, gift wrapped answer to the problem that the guy on the six o'clock news can sum up before they read the winning lottery numbers of the day. There will be no Nick Leesom, no John Jett, no Lee Harvey Oswald, 'magic bullet' type of cockamamie theory that will be advanced to neatly explain all of this."
To me, this will be one of the enduring frustrations of the financial crisis – that if you are going to blame anyone, you will have to include almost everyone in the financial food chain. In modern America, that is unheard of. In modern America, even the highly educated have tended to like our national storylines rendered in a beginning – middle – end fashion, with easily recognizable good guys and bad guys, and one crazed, lunatic psycho personification of evil to point at.
"Toxic assets" and "toxic loans" are catchphrases that every over-caffeinated TV and radio producer in the country relies on to paint a picture for their audiences; "community reinvestment act" is one of the hottest buzzwords on talk radio, that opens the door to the age old "the shiftless, lazy, good for nothing Negroes did this to us" - but these days the catchphrases and buzzwords seem impotent in the face of such a huge national calamity, as if the people mouthing the words have no conviction in their voices.
We don't want phrases right now - we want the enemy, the people who have reduced our 401(k) statements to meaningless abstractions, the people who have taken all of our jobs and still want to lay more of us off every week, the people who told us last week that our homes are worth less than we paid for them five and ten years ago.
Its pretty obvious President Obama didn't do this, but President Bush didn't have the power to do it either. If you take a look at a hundred year chart of the stock market, you won't see who did this, but you will see when it started - when the regular, gradual trajectory of growth started taking steroids, like the baseball players did, to keep up our string of economic homerun investment returns.
What do you do when the enemy you want to root out is woven into the fabric of your daily life? Even if you are the most parsimonious, credit stingy, life beneath your means person you know, is it in your power to convince all your neighbors that they don’t have to drink premium coffee? Is there any way to persuade them that the car they buy doesn’t have to have the capability of competing in the Indy 500 to haul them back and forth to work? Is there anyway to remind them that designer clothing, which seems ubiquitous now, was practically unheard of as daily wear for the masses of us forty years ago?
We have gone from a nation that used to have one phone number per household to one that has phone number, and one corresponding phone bill, per person. We pay monthly fees to watch the same TV stations we used to get through our antennas for free. Our expectation that we deserve the highest level of service and convenience is similar, in many ways, to the modern CEO’s expectation that he deserves the highest level of compensation and bonus.
You cannot sell derivatives to people who will not buy them. You cannot approve mortgages for people who do not apply for them. You cannot create off the books trading entities if the regulations do not allow them. You cannot convince people to pay high interest rates for things they don't really really want.
Finding the enemy is not hard. For most of us, he is a lot closer than we want to admit.
Dealing with him, though, will prove to be one of the greatest challenges of modern times, akin to putting toothpaste back into the tube. Contrary to popular belief, it can be done, but it is a slow, tedious, and very messy operation.