Questions About a System in Crisis

Questions about a system in crisis
Scott Kurashige, September 30, 2008

Anyone paying the smallest attention to current events is now aware that we are in the midst of the greatest financial crisis since the Great Depression. The “experts” tell us things won’t get as bad as they were during the 1930s, but every day brings news of more investment firms and banks facing serious troubles. Last week Lehman Brothers, after weathering 158 years of panics, recessions, and the Depression, went down in a flash.

Clearly, Wall Street bankers elevated their greed and amoral behavior to new heights. Sadly, these are some of the very people most directly impacted when the Twin Towers were struck on 9/11. One might have hoped that they would have reconsidered the meaning and purpose of life. Instead, they continued their reckless pursuit of profits through the creation of paper wealth, chasing multi-million dollar bonuses with little regard for the public good.

Many who have benefitted the most from a societal investment in education used their skills and knowledge to devise what amounted to a very sophisticated con game — one so complex that even the CEOs of companies like Merrill Lynch could not explain what they actually owned. Now the public is finally beginning to see what they were doing.

There was a time when investing meant loaning money to a business that would produce something of value to society. Those businesses that proved most valuable to the public saw their stocks go up in value.

But over the past decade, Wall Street shifted its focus to financial schemes that were nothing more than gambling. Moreover, they fed their addiction by borrowing ever greater sums. And since they borrowed their gambling money from each other and insured each other’s debt, they created a house of cards ready to come crashing down as soon as the first piece was removed.

As a result, nobody knows what these investment firms and banks are really worth and how many are already insolvent. Since no private interest is willing to lend money to a company that might be on the verge of bankruptcy, the financial markets ground to a halt. Even the safest Wall Street investments are now seen as risky.

That is why the federal government has stepped in so aggressively. The Bush administration, which came into office promising to complete the “Reagan revolution” by eliminating the influence of government over the free market, is now acting as if only socialist measures can save Wall Street. The federal government is buying up Wall Street’s bad debt —both from failed firms like Fannie, Freddie and AIG, and from those still in business. Their hope is that the “good” parts of the financial system will continue.

But Bush’s tax cuts have already put the federal government in deficit. So the government is borrowing billions of dollars, increasingly from foreign states, to finance its activities. Analysts say the U.S. will end up spending $1 to $2 trillion. And if the bad debt is worse than Bush officials fear and the economy does not turn around soon, the U.S. might not get much of that money back.

What is sickening so many Americans is the notion that we will end up paying for the sins of Wall Street that were facilitated by the deregulation championed by Reagan and Bush, as well as Clinton. (Actually, much of the cost will be paid by future generations.)

Still, even the unprecedented actions of the Treasury and Federal Reserve may prove to be band aid measures. If 9/11 could not change the culture of greed on Wall Street, can we expect that a new set of rules will? Will they just find more sophisticated ways to game the system or lobby Washington?

And why could Bush watch big cities like Detroit experience the collapse of their economic, educational, and housing infrastructure, but deem a company like AIG “too big to fail?” What could we do in Detroit with an instant $85 billion investment?

Why are our livelihoods so bound up with the bailout of giant multinational corporations? Isn’t it time that we end our dependence on corporate America?

We can start, as many Detroiters already have, by doing business with a local, nonprofit credit union instead of a faceless corporate bank. Credit unions are designed to put the needs of their members first. Your money will be safe in a reputable credit union and have all the government protection afforded accounts in any other bank. Guided by their members’ participation, credit unions can use their capital to address the concrete needs of their communities.

A credit union may not give you instant credit to buy a widescreen TV from a big box store with no money down. But we are now learning the true costs of a society driven by easy money and instant gratification. It’s up to us to choose how we want to live in the future.

Scott Kurashige, a member of the Boggs Center board, is the author of Shifting Grounds of Race, (Princeton, 2008).