Until the last few weeks, the financial panic was still mostly far away on Wall Street. But not now.
Car loans, mortgages and college financing are suddenly harder to come
by. Millions are stuck in houses not worth what is owed on them.
Cash-strapped consumers are cutting back. The economy slows. Jobs
disappear. Who wants to open quarterly 401(k) statements only to learn
everything they put away in retirement accounts the last two or three
years is gone?
There is plenty of blame to go around. Greedy Wall Street
speculators took mega-bonuses even when they knew their leveraged
companies were tottering - and someone else would pick up the tab.
Crooked or stupid politicians allowed Fannie Mae
and Freddie Mac to squander billions, as they raked in campaign
donations and crowed about their politically correct support for
millions of shaky - and now mostly defaulting - buyers.
The new national gospel became charge now/pay later and speculate,
rather than put something away in case of a downturn. To provide more
goodies we hadn't earned, politicians ignored soaring annual budget
deficits and staggering national debt and kept spending.
But amid the gloom, there are some valuable lessons we can take away from the Wall-Street panic.
(1) Cash really is king. For all the talk of a trillion here or
billions there, when the crunch came many of these investment houses
and their once-strutting managers found themselves with a minus net
worth. They were desperate to find liquidity - any money anywhere they
could find it. Pedestrian passbook savings accounts proved wiser
investments than all the clever hedge funds, derivatives and subprime
schemes put together.
(2) Wisdom and blue-chip college educations are not quite the same
thing. The fools in Washington and New York who blew up Wall Street had
degrees from our finest professional schools.
The most chilling example, at the very beginning of this ongoing
mess, came in 2003 during the House Financial Services Committee's
hearing on Fannie and Freddie. At one point, Rep. Barney Frank,
Massachusetts Democrat, asked Fannie Mae CEO and fellow Harvard Law
School graduate Franklin Raines
- who took millions in bonuses even as he helped bankrupt the
once-hallowed institution - whether he felt the mortgage giant had been
"under-regulated." Mr. Raines answered him under oath, "No, sir." Then
overseer Barney Frank announced, "OK. Then I am not entirely sure why
we are here."
If these guys are our best and brightest, then it is about time we
rethink what constitutes wisdom, since an Ivy League law degree
certainly seemed no proof of either intelligence or ethics.
(3) We as a nation need to relearn the old notion of shame - as in,
"Shame on you!" Firms like Lehman Brothers and Bear Stearns were once
responsible Wall Street institutions, built up over decades by sober
men. But their far-lesser successors in just a few months have
bankrupted these venerable brokerage houses - with seemingly no shame
at what they have done to the image of Wall Street.
Americans used to pay their debts. Somewhere in all the blame-gaming
about the crooks and liars in New York and Washington, we never hear
that real people borrowed real money that they should not have. And
they then defaulted on what they owed to others. Walking away from
debts may have been understandable, but it was also a violation of
trust - and wrong.
(4) Finally, what one makes is no proof of his worth. Almost every
head of a Wall Street firm took tens of millions of dollars in bonuses
these last few years, as they posted phony profits by borrowing ever
more with ever fewer assets. But if financing facilitates the American
economy, we should remember that less exotic and remunerative
construction - such as farming, manufacturing and mining - is what
really powers America.
Recently, Americans built a new bridge across the Mississippi River
in Minneapolis to replace the older one on I-35 that collapsed last
year. It was finished three months ahead of schedule, and the
industrious construction team that worked 24/7 to make thousands of
commuters safer is now eligible for up to $27 million in well-earned
incentives. Meanwhile, Franklin Raines at Fannie Mae made nearly twice
that sum in bonuses - leaving behind nothing much at all other than
billions in other peoples' debts.
How odd that all those boring lessons from our grandparents turn out
to be true in the globalized, hip 21st century: Save your money. Don't
borrow what you can't pay back. Look first at a man's character, not
his degrees. And if a promised return on an investment seems too good
to be true, it probably is.