“I am shocked, shocked to find that gambling is going on in here!”
~Captain Renault, Casablanca
In November of 2007, the residents of several small townships in Norway learned that the American economy was in trouble. The towns invested in products offered by Citigroup, and residents were, and continue to be, upset that municipal leaders invested the future of their children in the “black arts” of investment bankers in distant places. The tragedy dealt to the irresponsible leaders of the Norwegian towns was founded on their own greed and the failure of the credit crisis that was already apparent last summer to many except the American public and its elected leaders.
The NYTimes Business section did cover the impending doom no one saw coming in August of 2007, and with an article entitled How Missed Signs Contributed to a Mortgage Meltdown. In 2004 the FBI was so concerned with an influx of shady characters looking to profit from the mortgage business, that a press conference elicited a statement from Chris Swecker, the FBI official in charge of criminal investigations. “It has the potential to be an epidemic”. Although he hoped, “We think we can prevent a problem that could have as much impact as the S&L crisis.” The FBI had approximately 1,000 agents working on banking fraud during the Savings & Loan crisis, and approximately 200 agents working now on the mortgage crisis.
The originally failed bill which is described as a bailout, a rescue package, or a buy-in, had bipartisan support in both a yea and nay form. New Jersey provided some of the clearest and most dramatic description of the nay voters who came from both the liberal and conservative camps. Congressman Garret chastised his colleagues vocally on the floor, and released a statement saying it “would have set a precedent for government intervention in the marketplace, added to the ever increasing national deficit, and increased the chances that inflationary pressures would impose what is surely the cruelest tax on families.”
Meanwhile, across the aisle, Congressman Rothman criticized the trickle down logic, the failure to provide real reform to prevent another catastrophe, and failure to provide support for community banks and homeowners.“I think there are better ways to fix the economic problems caused by this Administration than this trickle-down Wall Street bailout program. The bill hints at, but does not make the necessary regulatory changes, fails to require direct relief for local banks and homeowners, and totally ignores the need to invest in infrastructure, energy and other economic stimulus endeavors that are so urgently needed to lift up our economy and our people.”
Although “taxpayer” protection is being touted, some are describing it as protection offered by organized crime syndicates, and will only be available as long as taxpayers continue to pay for protection. The federal government has rescued several institutions judged “too big” to fail, and in the process have created more institutions that are too big to fail. There is plenty of blame to go around from bankers, to politicians, to speculators, but perhaps the American public should take on a little blame. Years before the American crisis became evident to the Norwegians, a fundamental understanding changed in the United States where houses became short term investments, something that would make you money every year, something to flip at a profit, and they stopped being homes; this laid the foundation for today’s crisis.
WWI Poster
The Main Street world of community banks are in a different boat than other failing financial institutions. Although their boat may get rocked by the fiscal turbulence, their business model was based on a regional understanding of their communities and making prudent business loans based on traditional values. Politicians are battering each other trying to take credit for extending protection to these banks by increasing the insurance on deposits from 100k to 200k. This is valuable to small and medium sized businesses that might be keeping substantial sums available in one account to meet payroll or pay suppliers.
The American interest in how the government responds to this economic crisis is so great that it has clogged connections and crippled servers as people email representatives and access documents. Perhaps, unlike the 9/11 crisis when Americans were told to go out shopping, representatives in Washington might embrace this increased engagement and begin to see the American citizen as more than just a taxpayer.
Perhaps it is an opportunity to not only reform the doings of the financial industry, but renew a greater form of patriotism that asks more than for people to go to malls while our soldiers die on the battle field. We face an economic crisis as a nation and, whatever end result, there will be pain and sacrifice. But maybe as a nation we can find resolution through the courage of those citizens who make the ultimate sacrifice, and find a united path that gives teeth to the American paper tiger economy.