TARP 1, TARP 2, the stimulus package. Likely more stimuli and likely more TARP-type programs in the months ahead. As nauseous as they make me these moves are, in my opinion, necessary.
The current economic crisis is being compared to the Great Depression and, yes, there are a great number of similarities. The primary barriers between most of us and the soup line are several of the New Deal programs put into place by Roosevelt—FDIC, Social Security, FHA, SEC, etc. But make no mistake; today the majority of us, without the air cushion provided by our federal government, would be in desperate straights. Times are tough, but most of us are not watering down soup, nor living in Hoovervilles.
Although we are being protected from starvation, I do not like being dependent on the largess of Washington to protect myself and my family. In the face of a true melt-down of our financial systems and markets, few of us are protected no matter how responsible we are. I save, I don’t spend money on a lot of unnecessary things, I live in a house I can afford, and I don’t have huge credit card bills. But, if our systems were to collapse, this responsible approach is worthless.
One could save responsibly for years, but if the dollar collapses, truly collapses, it could all be gone in the blink of an eye. I would be selling my wedding rings and scrounging my personal possessions for anything of tangible value to feed my family along with the rest of America.
I do not like this realization one bit. In fact, I detest it. So how do we avoid this type of calamity again?
1. Overhaul our healthcare system. No American should ever fall prey to bankruptcy due to medical costs.
2. Revise bankruptcy laws. With the assurance that no American will go bankrupt due to medical/healthcare situations, revise our bankruptcy laws for individuals and companies. Perhaps re-implement debtors’ prisons. Maybe this sounds arcane and medieval, but I am not kidding. Today, bankruptcy for many businesses and individuals is a financial tool, not an absolute last resort. Our bankruptcy laws facilitate irresponsible spending and unwise risks that fall straight onto the backs of the American people.
3. Institutional punishment for irresponsible corporate governance. A large part of what makes America great is our entrepreneurial spirit—our national desire and willingness to give it a shot. There is inherent risk in this approach, and we cannot snuff out our desire to “go for it.” However, our business leaders are smart people. In their hearts they knew better than to take the kind of greedy gambles that were taken in this and other “busts”—we all knew better (even though many of us chose to ignore our better instincts). But, our culture and our systems do not punish, truly punish, greed and irresponsible risk.
4. Institutional punishment for irresponsible personal governance. Per point #2, bankruptcy should not be easy, without consequence and there should be negative social stigma attached—today there is not. Today, filing bankruptcy is an every day activity hardly more traumatic than taking your trash to the curb.
5. Change the culture of corporate America. Corporate America is nearly entirely driven by quarter-to-quarter earnings. Many, if not most, companies no longer plan their operations for tomorrow—they are nearly solely worried about their next earnings report. Of course, earnings are important. But corporate America propped up (and will certainly do so again) their earnings with many short-sighted measures—essentially freezing wages for the true middle class, creating “exotic” financial mechanisms, cutting R&D investments……
America cannot and will not continue to lead the world with this type of approach. We have cut off, in many ways, the very hand that fed us—our people and our innovation.
6. Change the culture of our government. If businesses and individuals are responsible, so must our government be. We must create a culture of zero tolerance for unethical behavior. Granted, this is a slippery slope. Differing opinions, or mistakes made despite careful thinking are not unethical behaviors. However, the current turbulence has certainly forced more than one rat out of their holes.
Is it possible to avoid hysterical witch hunts, forgive honest mistakes, while holding each other, our business leaders and our government accountable? I believe that ultimately we are smart enough and reasonable enough to pull it off (I think…I hope).
As naïve and simple as it sounds, I often revert to the financial wisdom my father taught me as a child. Money does not fall from the sky. If you want something you have to earn more or spend less.
We can create all of the exotic investment mechanisms and creative business and economic models we like, but at the end of the day are we as a nation, as companies, as individuals spending less than we earn? This is the only question that matters. By posing any other question, by creating “bubble markets,” by creating inflated fortunes on paper, by creating a secular religion of spending more than we earn…we are just kidding ourselves.
The next bust will always be around the corner and at some point Uncle Sam may very well not have the clout or strength to pick us up and dust us off.
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