Current Article

Avoiding Another Great Depression

By Michael Lang on Oct 17, 2008 in BRAIN FOOD

GREAT DEPRESSION1 The Great Depression in the United States was the worst and longest economic collapse in the history of the modern industrial world, lasting from the end of 1929 until the early 1940s.

The economies of the world have never been as entwined as they are today. So when the United States, a “super economic power” hits the skids, the whole world trembles and the confidence that adds stability to this house of cards is shaken creating a domino effect or runaway fear.

When the American economy enters a downturn, you often hear the experts debating whether it is likely to be V-shaped or U-shaped. Today, the American economy may be entering a downturn that is best described as L-shaped. It is in a very low place indeed, and likely to remain there for some time to come.

And as we coast along the bottom of the “L”, every decision made and course of action initiated will have a critical and possible long lasting affect so right view and right action, two of the aspects of Buddhism’s Noble Eightfold Path are a moral imperative.

This tangled Gordian Knot of problems will be difficult to unravel. By that I mean that our economic dilemma is so convoluted that even the so-called experts disagree on how and where to begin.

Most of us are not old enough to remember America’s Great Depression which actually became a worldwide economic downturn or recession starting in most places in 1929 and ending at different times in the 1930s or early 1940s for different countries.

It was the largest and most important economic depression in modern history, and is used in the 21st century as a benchmark in how far the world’s economy can fall.

As you read this approximately 3.6 million of American homes have been given up for foreclosure. The banks and other financial institutions that own these mortgages face stunning reverses; a few, such as Bear Stearns, have already gone belly-up.

To prevent America’s $5.2 trillion home financiers, Fannie Mae and Freddie Mac, from following suit, Congress authorized a blank check to cover their losses, but even that generosity failed to do the trick.

This social catastrophe has severe economic effects.

Market economies work only when there is a system of accountability, but C.E.O.’s, investors, and creditors are walking away with billions, while American taxpayers are being asked to pick up the tab. (Freddie Mac’s chairman, Richard Syron, earned $14.5 million in 2007. Fannie Mae’s C.E.O., Daniel Mudd, earned $14.2 million that same year.)

We’re looking at a new form of public-private partnership, one in which the public shoulders all the risk, and the private sector gets all the profit. The Bush administration has the audacity to preach responsibility, with those words addressed only to the less well-off.

How Did We Get into This Mess?

A hundred experts in related fields will give you a hundred different answers. And how can we trust the answers given by those that have a vested interest in the decisions made.

Henry Paulson, Secretary of the Treasury since 2006 asked, without blinking for a $750,000,000,000 check to bail out somebody. That’s right….SOMEBODY!

When asked who he reply was that it hasn’t been decided yet and when asked why that amount, his reply was that, “I wanted a big enough number to be taken seriously.”

WHAT THE HELL DOES THAT MEAN?

GREAT DEPRESSION I am sure that most Americans wanted to believe that the powers in Washington would set aside party politics and self interests due to the seriousness of the problem.

Many speeches were given promising that partisanship would be left out of the recovery process. And what happened?

The very first opportunity they (Congress) had to test their resolve….THEY FAILED!

Partisanship means: an inclination for or against that inhibits impartial judgment. So how can we trust the same people that were suppose to safeguard us against exactly what happened when they had the hubris to add $100 billion to the $750 billion initially asked for.

As America attempts to work its way out of the present crisis, the danger is that we will listen to the same people on Wall Street and in the economic establishment who got us into it. For them, our current predicament is another opportunity: if they can shape the government response appropriately, they stand to gain, or at least stand to lose less, and they may be willing to sacrifice the well-being of the economy for their own benefit—just as they did in the past.

The sad answer is we cannot trust them but have no other choice.

I, like many other Americans were hoping that George Bush was through damaging the country he pledged to preserve and protect however the clock just didn’t run out quick enough.

Economic theory, historical experience, and good old greed long ago proved the need for regulation of financial markets. But ever since the Reagan presidency, deregulation has been the prevailing religion.

You might remember the “trickle down theory” that began during the Reagan Administration that was supposed to allow gravity act on wealth. All we had to do was ensure that the rich got richer and their wealth would naturally trickle down to the lower classes and all would be well as long as the government stayed out of the way (unregulated). WRONG!

Sure, the rich got richer….and richer….and stayed rich. And that formula will never change, hence the need for all of these markets to be regulated.

And though I personally hate any regulation of any kind. it takes a back seat to the lessons I learned from our Founding Fathers.

You see, they took into account the foibles and shortcomings inherent in all of us as they penned and signed the documents that are the foundation of our democracy. They were well aware of greed and self-interest and sought to protect us from ourselves.

That is exactly what is needed today. We need, as we restore our economy back to health, to design a system of protection built on the same “checks and balances” we use between the three branches of government.

Then and only then will will have a fighting chance against avoiding another Great Depression.