We Are All In This Together Now

There’s Enough Blame To Go Around

Dated: 22 Feb 2009

Posted by admin

By Frank Schiavone

Big crises are not caused by just one thing. They are usually the culmination of a lot of things - wrongheaded thinking, failed policies, poor choices, deliberate inaction, and selfish impulses that are inherent in much of what we humans do. Our nation’s economic meltdown is no different. It did not happen by chance or just plain bad luck.

The collapse of the housing bubble was merely the trigger. The seeds of the crisis were planted well over two decades ago with the rebirth of laissez faire capitalism. We were given fanciful assurances that America’s best days were ahead of us and that there was no end to the possibilities. We could have it all and, oh and by the way, at no additional cost. How do you turn that deal down?

It’s human nature to want to pin the blame on someone or something and numerous news outlets have not disappointed. Several have come up with their lists of culprits. All the usual suspects have been spotlighted.

There are the policymakers: the endearing Phil Gramm (always a crowd favorite); Presidents Bill Clinton and George W. Bush; the Maestro (the world’s smartest man); Treasury Secretary Hank Paulson; and SEC Chairman Christopher Cox.

There are the Wall Street “masters of the universe”: Jimmy Cayne, Ralph Cioffi, Matthew Tannin (Bear Stearns); Dick Fuld (Lehman Brothers); Martin Sullivan, “Hank” Greenberg, Joseph Cassano (AIG); Abby Cohen (Goldman Sachs); Sandy Weill, Chuck Prince (Citigroup); and Stan O’Neal (the former boss of Merrill Lynch).

There are the mortgage lenders, brokers, and purchasers: Angelo Mozilo (Countrywide); Herb and Marion Sandler (World Savings); and Franklin Raines (Fannie Mae).

Other bad actors: Lew Ranieri (“the father of securitization”, Business Week categorized him as one “of the greatest innovators of the past 75 years”); Kathleen Corbet of Standards and Poors (Triple A credit ratings were awarded like gold stars. To quote an S&P analyst, “[A bond] could be structured by cows and we would rate it”); David Lereah, chief “economist” with the National Association of Realtors (He told us the housing boom will never end. He later said in January 2007, “It appears we have established a bottom.”); and Burton Jablin of HGTV (“My House is Worth What?”).

Let’s also not forget: our local governments and their bosses the Building Industry Association who needed to build as many “roofs” as possible; developers and land speculators who bankrolled our local policy makers’ political careers; and our business royalty that had a vital economic interest in increasing their customer base.

There are also the mythical villians: the all-powerful ACORN; the evil Barney Frank; and the seed of the apocalypse, the 1977 Community Reinvestment Act.

Last but not least: We, the People. We stopped believing savings were important. We were born anew. Stuff became our new graven image. We couldn’t get enough of it. We borrowed against our houses and our children’s futures to get more of it. Like drug addicts, our appetites could not be sated. We became easy pickings for the predators among us.

The blame game may be cathartic and there certainly is plenty of blame to go around for the mess we are in – including flawed public policy, criminality, delusion, greed, stupidity, and ideological claptrap. No one is arguing that criminal behavior should not be punished or that reform is not desperately needed.

But in the end, the blame lies squarely on our collective shoulders. We went on a spending binge using our homes as piggy banks. We believed the nonsense that debt didn’t matter, that there was no end to the housing bubble, and that the market is “rational” and can regulate itself. Worst of all, we believed that we could get something for nothing. Lowering taxes would somehow balance budgets, tripling of house prices was somehow sustainable, and there was no end to leverage. Finally, we believed we were special. The law of gravity didn’t apply to us.

Today, we are faced with a monumental paradox. We’ve accumulated a mountain of public and private debt. (Private debt has outstripped public debt by more than a factor of three – 36 trillion verses 11 trillion.) The debt largely contributes to the mess we are in. Yet, we now need to pile on more to stem the bleeding. Millions are unemployed or underemployed. Over two million families lost their homes to foreclosure last year alone. Experts tell us another ten million families are at risk of losing their homes.

Now is not the time to rededicate ourselves to the religion of fiscal conservatism. Yes, piling on more debt is not a good thing but we can ill-afford to leave future generations a nation that is mortally wounded. We also cannot abandon our fellow Americans because they made poor loans or “choices”. Yes, we may be rewarding “bad behavior” but it’s the price we must pay to put America back together again. Our lives are inextricably interconnected even with the foolish, the self-indulgent, the greedy, the profligate, and yes, the dishonest. We must save them to save our country and ourselves.

The silver lining in all of this is that we are saving more. We can at least borrow the money from ourselves to pay for the huge debt we will be amassing in the coming years.