On the Contrary

I have written before that our economic crisis has yet to hit bottom, but who the hell am I to know better than the President and his brilliant economic advisors.  Well, I am that little lower level bureaucratic pissant who was involved in trying to change the way the Corps of Engineers did business in my little office.  And in this role I learned a lot about experts and change.  Neither are what they are cranked up to be.  Experts are people who know what ought to happen, but many times they are co-opted by access to power, and change is always the victim of inertia and self interest.  So President Obama has some of the world’s top minds on the economy advising him and little has changed.

But you don’t have to take my word for it.  On Fareed Zakaria’s GPS Sunday, he had Michael Lewis of Liars Poker fame making the same point I have been trying to make:  Nothing has structurally changed in the banking system and there is still massive debt out there.

“I think that we are in for another day of reckoning down the road. I just don’t know when it is.  I think that they haven’t even properly evaluated the institutions. They haven’t been honest about what these institutions have on their books. They’ve had phony stress tests.  So, we’re in a kind of, I think, right now, in a period where there’s a false sense that it’s over, that the crisis is passed. I don’t think the crisis is passed.”

In another dissenting view of the bottoming out of the economic crisis, Sandy B. Lewis and William D. Cohan wrote an op-ed piece in the New York Times (The Economy is Still at the Brink) which basically said the same thing.  But they went on to point out that the team of advisers really didn’t have any people who did real work in the financial system and really understood how business gets done.

“We have both spent large chunks of our lives working on Wall Street, absorbing its ethic and mores. We’re concerned that nothing has really been fixed. We’re doubly concerned that people appear to feel the worst of the storm is over — and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March. But wishing for improvement and managing by the Dow’s swings are a fool’s game.”

They both make my point that the systemic problems have not been addressed and we are simply patching a deteriorating tire so we can get a few more miles out of it before it finally completely comes apart.  So why am I so smart and the experts are missing it?  Because they are being seduced by access to power and more importantly, they have not been some lower level lackey who has actually had to make the system work.  They don’t really get how things really work so they are easily compromised by power and the status quo.  Remember Star Trek’s Captain James T. Kirk?  He had his Scotty who understood the nuts and bolts and with that knowledge made things happen.  We don’t have any Scotties in these pools of experts and that is why in the case of Michael Lewis, Sandy Lewis, and William Cohan, you are starting to hear warnings about our economy.

I keep asking the same question and I get no answer and yet I think it is fundamental to fixing our economy.  Our economic ship ran aground because of the housing bubble.  But that was only a symptom of the larger problem that our financial markets were making all the money in our economy by packaging and selling debt.  The goods and services side of the market was dwarfed by this financial services sector where all the profit was.  But if we can’t package and sell debt anymore and the fundamental problem was this imbalance between financial services and the making of real products, just exactly what is going to be the engine of our economy in the future?

To me this is the root issue.  If we just restore banks so they can lend again, then ask yourself lend for what?  If we are going to have a vibrant economy again then we must start making something the rest of the world wants to buy.  That is the root question no one is addressing.  The assumption is that the market place will somehow guide us and we need to just follow its lead.  The last time we did this the big profits were in the financial sector and look where it got us.

The banks are the problem and nothing has been done to change the way they do business.  If you doubt this, just follow the money.  People who blame Freddie and Fannie, or the irresponsible borrowers have missed the whole point.  Who needed more debt to package to make tremendous profits?  When everything collapsed who walked away basically unscathed?  If we don’t tackle the banks soon, our window of opportunity will close and we will be setting ourselves up for even a bigger fall. Unless we change the system in a fundamental way so that smart people can’t still game it to take out gigantic profits thinking they deserve it because they are so smart, nothing will change.