America’s financial and economic woes continue to mount and multiply. With them, so too do the woes of the global economy. The US government takeover of mortgage giants Freddie Mac and Fannie Mae is followed by the bankruptcy of finance giant Lehman Brothers during which time Treasury secretary Paulson assures that the United States government is not going to bail out failing companies. Two days later, the US government rescues insurance giant AIG with an $85 billion bridge loan which suddenly makes American taxpayers owners of AIG. What does it all mean?
It means that we live in a complex economic world which grows increasingly interconnected. When one nation’s economy coughs, another nation sneezes. It also speaks to the complexity of life in which neither erudite economists or self-assured bankers understand what is going on any more than the average consumer on the street. Although the tendency is to feign incredulity and point fingers at “greedy” CEOs whilst castigating governments and politicians ( Mr. Obama has this game down pat ), the truth is much simpler. When individual consumers and investors behave badly ( or make faulty choices/decisions) , bankers, brokers, and CEOs can also follow suit making their own poor decisions. And government will always behave like government which is to say that they are the last to act and do not always make good decisions either.
America and the world do not end up in this tumultuous situation overnight. It’s been a long process building for many years. It derives from misguided assumptions by all sorts of parties; careless optimism by individuals, poor diligence by businesses, greed in the board rooms and executive offices of corporations, lack of sufficient oversight by governments and plain and simple arrogance by politicians who feign incredulity and meddle with affairs without providing positive assistance. No, in this instance we share responsibility for events. Unfortunately, it’s the folks at the bottom who get stepped on the hardest. But wait! It does seem that some of those wealthy business elites are also getting spanked on this one. Not a cause for celebration, but certainly heartening to turn and see a suit standing astride you in the slit trench everyone has fallen into.
In America several factors lay behind the current crisis. It begins back in the 90s when banks and other financial institutions frenetically issue credit cards to folks with doubtful credit histories. Many folks see easy credit as an excuse to buy now and pay later, despite credit card interest rates of 18% to 28%. These anxious spenders gleefully take the cards and rack up mountains of credit card debt while they assuage every desire for instant gratification. The habit of spend today and pay tomorrow is burned into the brains of millions of carefree folks who ignore budgets & consequences of excessive debt or self responsibility. Of course, the banks, whose bad debt ratios rise don’t mind since everyone seems to be happy.
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