Much is being made these days about the unwillingness of the banking system to make the loans needed to regenerate the vitality of our economy and restore prosperity to the world. Populist rhetoric is at an all time high and the usual suspects are, of course, the bankers themselves. We are actively chastising the banks for the dumb loans they made while, ironically, castigating them for now being too tightfisted. Of course, even in the best of times, the bankers of Wall Street are never societal heroes; in the popular culture, the true banking heroes and icons are Bonnie and Clyde. Still, it is worth asking how the seemingly brilliant and highly educated people who became bankers could have been so dumb.
But, there is a striking paradox in the immediate problems we are struggling with today. On the one hand, they were brought on by a relatively small segment of the financial community. At the same time, they were passively enabled by a massive and pervasive institutional failure of good governance at almost every level. When we unbury ourselves from the debris of today’s wreckage, the key question will undoubtedly be how this could have happened. How is it that our vaunted financial system was such a house of cards?
One of the tragedies of the financial storm that reached major hurricane proportions in September of 2008 is the fact that it has been very poorly explained to the average citizen. A tremendous amount has been written about it in the past several months, much of it highly technical or politically charged, but little has been truly communicated. Washington in particular has done an unusually poor job in explaining the problem even as they have appropriated trillions of dollars to the various recovery packages.
The result has been a backlash of anger and a sharp drop of consumer confidence that has certainly made the economic pull back that much worse. The country is thus parched for good information on what is happening and why. As true as this is here at home, it is just as true abroad. The crisis is being fed by the uncertainty of what lies ahead in terms of regulatory structures, tax rates, and regulations not to mention the general macro-economic conditions we will face.
There is no denying the gravity of the current situation. The financial crisis is real, it is global, it is serious and it is growing. With the cream of the nation’s financial institutions such as AIG, Merrill Lynch, Lehman Brothers, Wachovia, Citibank, Fannie Mae, Freddie Mac and others in various stages of collapse, it is an understatement to say that this is the worse financial crisis in the past seventy years. Day by day, the economic panic is growing and is digging deeper wounds into Main Street. We tend to think of this as a financial crisis but the Main Street economy is already in worse shape than the financial markets.