What Herbert is referring to is how our short-sighted actions and false bravado no longer match our long-term abilities. From epic failure in the Middle East, to our technological inability to cap a well, to our explosive and failed financial institutions, America has arrived at the point where our policies are held hostage by a bumper sticker mentality that feeds on crazy people shouting empty slogans.
Budget surpluses in 2000? Tax cuts! Economy slows down after 9/11? Deregulation, and tax cuts! Economy recovering? More deregulation, and tax cuts! Economy collapses after 2008? Deepen deregulation ... and more tax cuts! Need an energy plan? Drill, baby, drill! How do we fix Wall Street after 2008? More deregulation! Trouble in the economy? Damn illegals! And the list goes on ...
Whatever ails our society, and economy, Congress has arrived at the point where good policy has been abandoned in the name of empty sloganeering. If it can't fit on a bumper sticker, it's not good policy. Is this any way to run a country? Is this any way to run the United States of America? It is if you're a member of Congress.
But this didn't happen over night.
Roots of our Epic Foolishness, Favorable Legislation
One of the key developments over the past thirty years is how favorable legislation for America's financial institutions has made them so damn lazy. Stuffed with one legislative gift after another, our nation's financial institutions have gone from watching their money and making prudent business decisions in the 1950s and 1960s to having Uncle Sam rewrite the laws that allowed them to become reckless, and helped them develop a sense of business entitlement.
For example, back in the 1970s and early 1980s we were confronted with corporate bankruptcies (Boeing and Chrysler) and the Savings & Loan debacle. A combination of high interest rates and, then, some really stupid loans, combined to drive the Savings & Loan industry into the ground. Congress responded by bailing out corporate America and rewriting the laws so that banks could sell their money losing loans (often to one another), with the losses of the S&Ls being picked up by the American taxpayer.
The bankers, as you might expect, fared very well. Worse, the stage was set for "secondary" markets to grow, which have helped banks find a place to take their failed loans and dump them off on other market players. The financialization of the American economy, built on a pile of debt, was right around the corner.
Later, in the 1980s and 1990s, when banks were threatened with bankruptcy because of the loans they made to developing nations, Uncle Sam (and the IMF) stepped in to save the banks from their reckless stupidity (over and over). It was also at this time that Congress began rewriting the laws so that America's financial institutions could bundle up their crappy loans, label them collateralized debt obligations (CDOs), and dump them on other unsuspecting market players.
The lesson that America's financial titans took away from these experiences was classic. They decided that they would lend even more money! And why not? It was clear that Uncle Sam would fix whatever their reckless decisions brought down on the economy.
Epic Foolishness ... Blowback
Now, here we are, a decade into the 21st century and we're seeing the results of our nation's decades long decision to fawn over corporate American and Wall Street's bankers. Only this time, after bailing out Wall Street, and simply rolling with the punches - as we've done in the past - it appears that many regular Americans have had enough.
Those caught in the middle of corporate America's favorable legislation orgy with Congress appear to be fighting back against the schemes that brought us no doc loans, adjustable rate contracts, foreclosures, forced bankruptcy, higher interest rates and record pay and bonuses.
It turns out that many ordinary Americans aren't paying the bills any longer. And they're doing it in droves. In this article from the NY Times it turns out that more and more Americans have stopped paying their mortgages. With foreclosure proceedings initiated against 1.7 million of our nation’s households, over 650,000 mortgage holders haven't paid in 18 months. According to those who have stopped paying, it's not their fault that the market and the economy tanked.
Moreover, they argue that it's also not their fault that the banks made no doc and adjustable rate loans (and credit cards) available to people with debt-to-equity ratios that didn't make historical sense. In the eyes of those who are losing their homes, and find themselves with excessive debt, expecting favorable legislation, new laws, and waiting for the American taxpayer to pick up the pieces for their stupid business decisions shouldn't be corporate America's business model.
But it is.
Today, as this NY Times article points out, we find that Wall Street's biggest banks were essentially providing "no doc" loans to students because they understood that laws on the books would not allow student loans to be discharged in normal bankruptcy proceedings. Put another way, loans weren't made based on the consumers ability to pay, they were based on laws that said borrowers couldn't discharge the loan. This encouraged banks to rmake more loans, which they repackaged or bundled up into CDOs, which they sold in secondary markets (and then recklessly insured with CDSs).
Again, why take the time to conduct basic due diligence when you have Uncle Sam around to rewrite the laws, and make your loan department profitable, whether you make prudent business decisions or not?
Undermining the Moral Justification of Capitalism
Of all the failures that have occurred over the past thirty years perhaps the greatest one has been how corporate America has begun to slowly rob America of the moral justification of capitalism that once made this country great. By pursuing favorable legislation that saves them the trouble of making sound business decisions, America's financial mandarins not only think they're living on Easy Street, but they are slowly robbing our nation of the spirit that told us "If you work hard you will get ahead."
Favorable legislation, get-rich-quick schemes, unwarranted subsidies, bailouts, etc. all work against the spirit that made this nation great, and the moral justification of capitalism. Too big to fail banks, too big to cap oil spills, and too big to catch jihadists all point to a nation that embraces the false bravado of nationalism, while ignoring the spirit behind the moral justification of capitalism.
These developments, as Bob Herbert suggest, are the essence behind our epic foolishness.
- Mark
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