In today's Washington Post, Steve Pearlstein has a bracing column in which he tells us that our short national nightmare is far from over - we are just at the outset of a long hangover that will demand great changes by a spoiled nation and a citizenry that has come to believe itself to be entitled to something for nothing.
He writes that there are two plausible explanations for how we got into this mess. The first - tying our current crisis to the shenanigans of our financial wizards - would, if true, mean that we can dig our way out of this mess once the bad loans have worked their way through the system:
"One explanation is that we got here because mortgage bankers and brokers were sleazy, investment bankers were greedy for fees, banks were incompetent, rating agencies were compromised, and regulators either were blinded by deregulatory ideology or chose to look the other way."
A second explanation, however, is more structural, and therefore less readily redressed.
"What if, for the better part of a decade, the United States had been living way beyond its means, consuming more than it produced and investing more than it saved? What if China and Taiwan and Saudi Arabia and even Japan were willing to finance that trade deficit on easy terms because it allowed them to peg their currencies to the dollar in a way that generated higher job creation and economic growth in their home markets? And what if this mutually advantageous imbalance in trade and investment flows wound up creating a huge supply of cheap dollar-denominated credit that virtually invited the bankers and brokers and rating agencies and private-equity firms in U.S. markets to throw caution to the wind and make ill-advised lending and investing decisions? Not only is this a plausible explanation, but I think it is the underlying story."
Pearlstein writes that both the accounts are likely correct, meaning that our recent financial shenanigans were the precipitating event that exposed the rottenness at the core of our modern economy and our modern "lifestyle."
Because of the likely accuracy of the second structural explanation, he writes that we are going to have to cease individually and collectively living past our means, and this belt-tightening will force us to confront that we are not remotely as rich as we think we are (the kind of confrontation that bankrupt debtors always have to face):
"Such a broad reduction in wealth and living standards will take many forms. It will come in the form of higher unemployment and stagnant wages and falling income, which take statistical form in slower or even negative economic growth. It will come in the form of inflation and its first cousin, a lower value for the dollar. And it will manifest itself in lower values for pension funds, 401(k) accounts, university endowments and house prices."
I can't help but read this column in light of the season: this is the time of year when we send off our best and brightest graduates to join the mobile army of the corporate empire. At our top universities we will be celebrating the accomplishments of our top students, loudly advertising the various awards they win - Rhodes, Fulbright, Mitchell, etc. - and praising them for their achievements and promise.
Where, one wonders, are the concomitant admissions of failure that is reflected by those graduates who, in the first instance, were responsible for the subprime mortgage fiasco? Given that these loans were packaged at some of our elite financial institutions, there can be little doubting that they were cooked up by some of our best and brightest graduates. From what colleges and universities did Pearlstein's lineup graduate: those "mortgage bankers and brokers [who] were sleazy, investment bankers [who] were greedy for fees, bank[ers who] were incompetent, rating agency [employees] who were compromised, and regulators [who] either were blinded by deregulatory ideology or chose to look the other way"? Why don't these graduates get equal time when we think about what we, the educators, have been doing? Do we gleefully advertise and promote the graduates of our elite schools out of a sense of well-placed pride, or out of a self-delusion that allows us to be blind to our own deep complicity in our current economic falsehood?
Or, what about an admission that our present course of massive indebtedness and the wholesale transfer of national wealth abroad was orchestrated, more often than not, by the most successful of those graduates from our elite institutions - political and business leaders especially. Why don't we list not only their accomplishments, but those very graduates who will be responsible, among other things, for "lower values in ... university endowments."
Lest I be confused with seeking to play "the blame game": we had better start looking much closer to home, namely, in our own actions and complicities, rather than looking to blame it on a few individual bad apples or an impersonal "economic downturn." We have all been gladly complicit in the good times, and for that very reason we need to be reflective about our participation in the hard times.
We will be told that that's just "the market." Doubtless. The current economic crisis seems to have been precipitated by no one in particular. But it is precisely this delusive belief that made it possible in the first place - by detaching loans from the places and communities from which they originated - itself preceded by the detachment of people from the places where they came from - no one in particular would be responsible for them. Our current confrontation with the consequences of our actions demands a stricter accounting, but I am guessing that we will not see any such claiming of responsibility in this season when we send out our best and brightest.