While the current global financial crisis has its immediate roots in the collapse of the American housing bubble, there has been little to no discussion about the deeper causes of the meltdown. As you’ve probably read many times elsewhere, the internal practices of the financial sector – AIG, Merrill, Lehman, Mac – triggered the floodgates of our economic volatility. Indeed, it is very easy to assign blame to the equity managers without delving into what drove their actions. In this time of collective anxiety, everyone needs to stop yelling “Doomsday!” and quietly interpret the events that have just occurred. What economic analysts have forgotten is that market prices are just qualitative analyses of the commodities and processes we place value in. The markets are a mirror and what they reflect is us. We have to learn our lesson and step back from the financial sector to see what choices we have made to cause our distress.
To begin, the culture of greed that exists on Wall Street is undeniable. Executives over-leveraged their companies on derivatives and extremely risky real estate speculation without regard for their fiduciary responsibilities. European bankers took part in the game too, as clearly evidenced by the collapse of some of their largest financial institutions and the nationalization of the banks in England. Iceland made such poor investments that they are now utterly bankrupt. But I do not think blame should fall as heavily to the equity managers – whether private or public – as it has. These fund managers are a collective of people who have been trained since their first job out of college to exploit the market through every possible loophole in order to drive profits constantly higher. Parents saw dollar signs and pushed the golden unicorn of an “investment banking” job. Meanwhile, all of our finance students were ever taught to do is play with numbers without any consideration of the actual assets they were dealing with. In truth, the school of finance just got better at its game and the government either didn’t keep up or willingly abetted to profiteer from their exploitations. Government regulation and oversight, endowed with a lot of foresight, is always necessary to close exploitable loopholes and keep investors rooted to the ground. For that, the cavalier laissez-faire deregulation that drove the Bush administration can take its share of the blame. We can also blame the Bush administration for putting us into two costly wars without exit strategies, which destroyed American diplomatic capital and fed helium-inflated deficit spending. Bush, however, was also not the deeper cause of our financial turmoil.
We, the American people, can point out fingers at the managers of our equity and government until we are blue in the face. The fact of the matter is that all of them still work for us (except the private equity managers, who were only responsible to those of us who could afford to play). And, for the most part, all they have ever done is what we have told them to do. We demanded mansions, they gave them to us. We never demanded real energy independence, so no one invested in the infrastructure. We cheered the stock market on, so they invented new ways to continue the ride. We demanded justice for 9/11 and widely approved the Iraq War in our bloodthirst. This is not to de-villify the Bush administration, because, more than any in the recent past, it was the most willing to encourage the feeding frenzy. There is no effective governance from them now, because they were never put there to be effective governors. The Bush administration was just an enabler of our most base instincts towards racism, xenophobia, fiscal irresponsibility, environmental degredation, and war profiteering.
The 300-foot tall pink elephant in the room is our collective desire for unsustainable consumption. The American people always demand growth, but without any understanding of where that growth could take us. Why is it always bigger and not more sustainable? Whether the effects of our haste take the form of carbon emissions, invisible equity or imperialist intervention, we are playing the game like there is a fourth quarter that will end. For some reason, probably teleology, people have not yet begun to understand how the game really works. The game doesn’t end unless we end it. We like to talk about “the companies doing harm” like they exist apart from reality, but we are the ones that work for them and purchase their products. We are their lawyers and accountants, shielding them from legal and financial attack. Neither of the presidential candidates will address it, despite Barack Obama’s promising pledge to create a solar and wind energy infrastructure.
We are not going to fool the environment or the market. As James Lovelock famously wrote in his book “Gaia”, the Earth is essentially a living superorganism. Its health is directly impacted by our actions, because we are a living part of it. Not to mention a dominant part. There are only so many resources at our disposal and it has become critical that we manage them wisely with our eyes on a permanently iterable lifestyle. I think that Thomas Friedman best described the reality of our situation, when he wrote in his New York Times editorial, “The Post-Binge World”:
“My friend Rob Watson, the head of EcoTech International, has a saying about Mother Nature that goes like this: “Mother Nature is just chemistry, biology and physics. That’s all she is.” And because of that, says Rob, you cannot spin Mother Nature. You cannot bribe Mother Nature. You cannot sweet talk her, and you cannot ignore her. She’s going to do with the climate whatever chemistry, biology and physics dictate. And Mother Nature always bats last, and she always bats a thousand.
There is a parallel with markets. At their core, markets are propelled by fear and greed. They’re just the balance at any given moment of those two impulses. Over the long run, you cannot spin the market. You cannot sweet talk it into going up or beg it not to go down. It’s going to do whatever it’s going to do — whichever way greed and fear tug it. And the market always bats last and it always bats a thousand.”
Whether we ignore these economic, political and social facts is up to us. When people “put their faith in the markets” to guide society, it’s like praying for divine guidance. It’s not going to happen and you’re avoiding the inevitable problems. We have to collectively change our overconsumptive habits before the sense we’re getting of Newton’s Third Law – “Every action has an equal and opposite reaction” – gets any more intense. The collapse of the financial markets needs to be evaluated as part of this larger picture. If we look in its mirror, it is showing a world that no longer can run on credit. We must pay down our debts – to each other and to the environment. This election will play an important part in whether we alter our values for the better. Choose without unsustainable desire.