It was a dull day in hell.
Just for giggles, the devil emerged from his climate-controlled lair looking for a little monkey business.
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When it comes to playtime, old pointy-head always starts the fun and games with one of the Deadly Sins.
On this go-round, he selected one of his favorites, avarice. Most of us know it as greed.
Searching for an Explanation
Don’t get me wrong. A little greed is a good thing. Without it, nothing would change. The wheels of capitalism would come to a screeching halt.
But too much of anything can cause indigestion.
This is what made the economy such an ideal target for the Master of Mischief.
I don’t know you’re religious persuasion, and I’m not going to reveal mine. But what other explanation is there for the reason the economy took the express hand-basket to hell?
We Americans, as a group, are not known for our sharp insights or introspection. Once a crisis has passed, we seldom pause to reflect on the multitude of circumstances that may have led to our predicament. We’re just glad it’s over.
The late, great pitcher Satchel Paige said it best: “Don’t look back. Something might be gaining on you.”
As we begin to breathe a sigh of relief from the worst economic downturn in a generation, this may be an occasion to break with tradition. We may want to take a few moments to reflect so that we might avoid the same mistakes in 10 years.
I’m a red-blooded, meat-eating capitalist. I’m not suggesting that we clasp hands and start singing “kumbaya.”
Rather, I am urging that we stop to take a hard look at the failure of the multitude of institutions we have entrusted to protect us from our own short-sighted stupidity.
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Following the Great Depression – thankfully, a repeat performance appears to have been averted – several agencies were put in place to safeguard our collective prosperity. These included the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corp. (FDIC).
For a variety of reasons, both of these agencies, among others, failed to either foresee or avert the disaster that befell our economy.
History has shown that our economy is cyclic. The ups and downs, bumps and bruises we face over time are normal.
Wrong-way Creativity
Evidence of these inevitable changes is reflected in the bellwethers of our economy. Seventy-five years ago, firms like U.S. Leather and American Cotton Oil were listed among the Dow Jones elite. Today, the only company remaining from this original roll call is General Electric.
We are as clever as we are myopic.
As quickly as we devise mechanisms to protect ourselves from ourselves, a clever Wharton geek concocts a scheme to sidestep the regulatory margins. It is precisely this type of creativity that led to the development of credit default swaps.
While default swaps resulted in unprecedented riches for a few and prosperity for many; there is little argument that this unregulated economic contraption precipitated the downfall of many heretofore rock-solid financial institutions like Lehman Brothers and AIG.
Innovation has, and always will be, the life-blood of our economic vitality.
After the first atomic devices were unleashed over Hiroshima and Nagasaki, the Father of the Bomb, Robert Oppenheimer, had the wisdom to recognize that we couldn’t allow a free market in nuclear fission. The government had to step in. Otherwise, any Tom, Dick or Ahmadinejad would have the means to fashion a backyard bomb.
I am not trying to equate danger of credit defaults swaps to the destructive potential of the atom. However, not since the Great Depression has the destruction of wealth been as rapid or as devastating to so many.
We may not have the capacity to anticipate or control all the consequences of our actions. But, as we go forward, it couldn’t hurt to take stock of the institutions we have delegated to avert the type of economic meltdown that each of us has been forced to endure over the past several months.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
