As one ponders the economic and psychological damage of the credit crisis and the rolling stock market crash of 2008, one cannot help but wonder what might have been had those in leadership done more to head off looming problems before they became unmitigated disasters. What if Republicans in Congress had been able to reign in Freddie and Fannie three or four years ago? Could we have avoided the subprime mortgage meltdown that has triggered such carnage? What if regulators had been more vigilant in monitoring the entire financial industry? Could the excesses that fueled this mess have been minimized? What if the Fed had not left interest rates too low for too long in the early part of the decade? What if corporate boards had been more vigilant in overseeing the increasingly aggressive decisions made by upper management of financial firms? Would so many banks and other firms have failed or been on the brink of doing so in the coming months? If the SEC had not abolished the “uptick rule” would short sellers have been as successful in driving the stocks of some severely wounded financial firms off a cliff? What if the SEC in 2004 had not allowed certain investment banks to up their leverage limits from 12-to-1 to 30-to-1 or higher? (The firms allowed to do this are today either reconstituted, merged into a healthier entity or out of business). It is doubtful that the misery wrought on Wall Street these past few months would have been as bad were leverage limits still at 12-to-1. What if the FDIC had asked its member organizations to pay more, not less for insurance to protect depositors in the event of a bank’s failure? Would the FDIC be more adequately capitalized to meet today’s challenges?
Hindsight is 20-20. However, there were calls by many in government advocating proactive change in each of the circumstances listed above. I am sure that I have left many circumstances off my list and I am equally as sure that there were people in government and the financial industry who were issuing calls to reign in the excesses before they led to disaster. However, as is the case all too often in our democratic society, proactive change is seldom enacted. For whatever reason, we have to be kicked to the curb as a people before recognizing a problem and taking the steps to deal with it.
Why is that? Clearly, when money was cheap, the housing market was booming and Americans of all stripes were being allowed to buy homes that prior generations could not even imagine owning, no one wanted to listen to the killjoy in the room who warned of future problems and suggested bringing the party to an early conclusion. Too many people were making too much money and the future consequences of the binge were not worth bothering with. “Drink up folks, I am buying!”
It is interesting to think how different things might be today had the capital poured into residential real estate, expensive dinners, lavish vacations and other conspicuous consumption over the past ten years been instead used to rebuild crumbling infrastructure, attain energy independence, right-size the military for its weighty global mission, improve public education and improve our health care system. Where might our stock market be right now? Where might the dollar be? I would imagine that the despair and fear of today would be much reduced, if not completely eliminated had we all acted more reasonably over the past decade.
Why is it so hard for the United States to proactively deal with looming problems? We face serious funding problems for Social Security as well as municipal retirement plans. Medicare is a ticking time bomb. We have ignored for years our growing dependence on foreign (often hostile) oil producers. Yet, the Herculean efforts of the government over the past few months to rescue us from the blunders of the past have pushed such matters so far off the front page that one doubts we will hear about any of them for years. Sadly, we probably won’t hear of them until they blow up in our face once again.
The sputtering global economy has caused the price of oil to be cut in half in record time. Americans are paying half as much at the pump today as we were two months ago. During the price run-up, the majority of voters were coming to a consensus that radical steps needed to be implemented to solve our energy dependence problem once and for all. Now, with so many other issues crowding out this story and the price of gasoline no longer a major problem, will Congress feel constituent pressure to move on a national energy policy? The skeptic in me thinks not!
So, in two to three years time when the global economy is recovering from this preventable mess, we will still be vulnerable to the whims of oil producing nations. Should growing demand from economic recovery drive oil back toward $200 a barrel, will full economic recovery be possible?
It would be nice to see –just once—this country’s leaders “get it right” regarding policy. I hope that the new Administration and Congress, no matter what their composition, will be proactive in dealing with these and other future problems. Otherwise, we will careen from one inferno to the next in the coming decades. We all deserve better.