The job of fixing what went wrong is very far from complete.
By PINCHAS LANDAU
The global financial media are not plugged into the Jewish calendar, but they have recently been indulging in an intensive spate of items looking back on the year now ending. For them the year under review is the one marked by the collapse of Lehman Brothers on September 15, 2008 - the event widely viewed as triggering the freezing-over of many sectors of the financial markets and the consequent plunge in economic activity. That has provided the opportunity to look back on the extraordinary events of the last 12 months.
However, this anniversary coincides roughly with the upcoming Jewish New Year. Rosh Hashana 5769, on September 30 and October 1, 2008, came against the backdrop of frenetic efforts by the Bush administration (remember it?) to push through Congress the original version of TARP (Troubled Asset Relief Program), aimed at bolstering the crumbling US financial system, and its dramatic rejection (a revised version was passed before Yom Kippur).
The previous Rosh Hashana, of 5768, fell on September 13-14, 2007 - another red-letter day, week and month in the development of the "subprime crisis," as it was then called. The UK experienced its first run on a bank in some 150 years, as the Northern Rock Building Society crumbled under the weight of its risky business strategy - while markets worldwide were shaken as the extent of the shocking lending and trading practices that the world's major banks had indulged in gradually became clear.
Here we are again, in September, with Rosh Hashana imminent - an ideal time to take stock of the last year and, perhaps, to compare it to its predecessor. Two years ago I coined the ungainly acronym IKGW (It Keeps Getting Worse) to use as a guideline for the developing crisis, about which most of the economic Establishment was still firmly in denial.
The pretence that this was merely a localized crisis, limited to some sectors or some countries, and hence not something with systemic and long-term implications, survived an amazingly long time - at least until March 2008, when Bear Stearns effectively collapsed and was saved, and even, for some diehard ostriches, until September 2008, when Lehman collapsed and was not saved.
IKGW continued to be the watchword until early 2009. But the massive and unprecedented efforts by governments around the world to stem the tide of economic collapse and restore functionality and confidence to businesses and markets eventually bore fruit. The headline summary of the past year, therefore, is one of crisis and recovery, of impending disaster but of disaster averted nonetheless. If celebrations are not in order, then at least relief and a measure of relaxation surely are.
The message of how bad things might have been and how much better they now are is the main one being propagated by mainstream spokesmen and analysts, via the mainstream media. But this is a very warped, and ultimately self-serving, view of the world from the pinnacles of power and wealth. It ignores three critical issues that this and a subsequent column will consider: why things got to the point they did last year; how bad things still are today, for so many people; and the extent of global economic imbalances left unresolved or, worse, exacerbated by the very measures taken to stabilize the global economy.
The good cheer is concentrated in the financial sector - the epicenter of the disaster and the main focus of the rescue efforts. Because markets have regained functionality - and in many cases are rising strongly - and the profits and bonuses are flowing again through the accounts of banks and bankers, the drive to believe and persuade others that all will now be well is most powerful there. But this disregards - deliberately, and for obvious reasons - the fact that the bloated profits of the financial sector and its top echelon were, and remain, part of the problem and are not part of the solution.
Thoughtful observers realize that the inverted economic structure that grew up between the late 1970s and the current decade, wherein finance became a central component of the economy instead of an ancillary and supporting part, was fundamentally wrong and unsustainable. The greed that engulfed the financial sector ultimately destroyed it.
But the effort to salvage this sector must focus on its essential and positive functions, enabling it to revert to its natural role and size within the overall economy. That means an absolute reduction of everything - banks, brokers, traders, profits, bonuses, the whole shebang - and certainly not the regaining of past "glories." Most objective people - experts and laymen alike - believe that the job of fixing what went wrong is very far from complete, and much if what has been done so far has been hastily and shoddily executed.
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