The global financial media are not plugged intothe Jewish calendar, but they have recently been indulging in anintensive spate of items looking back on the year now ending. For themthe year under review is the one marked by the collapse of LehmanBrothers on September 15, 2008 - the event widely viewed as triggeringthe freezing-over of many sectors of the financial markets and theconsequent plunge in economic activity. That has provided theopportunity to look back on the extraordinary events of the last 12months.
However,this anniversary coincides roughly with the upcoming Jewish New Year.Rosh Hashana 5769, on September 30 and October 1, 2008, came againstthe backdrop of frenetic efforts by the Bush administration (rememberit?) to push through Congress the original version of TARP (TroubledAsset Relief Program), aimed at bolstering the crumbling US financialsystem, and its dramatic rejection (a revised version was passed beforeYom 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 firstrun on a bank in some 150 years, as the Northern Rock Building Societycrumbled under the weight of its risky business strategy - whilemarkets worldwide were shaken as the extent of the shocking lending andtrading practices that the world's major banks had indulged ingradually 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 compareit to its predecessor. Two years ago I coined the ungainly acronym IKGW(It Keeps Getting Worse) to use as a guideline for the developingcrisis, about which most of the economic Establishment was still firmlyin denial.
The pretence that this was merely a localizedcrisis, limited to some sectors or some countries, and hence notsomething with systemic and long-term implications, survived anamazingly long time - at least until March 2008, when Bear Stearnseffectively collapsed and was saved, and even, for some diehardostriches, until September 2008, when Lehman collapsed and was notsaved.
IKGW continued to be the watchword until early 2009. But themassive and unprecedented efforts by governments around the world tostem the tide of economic collapse and restore functionality andconfidence to businesses and markets eventually bore fruit. Theheadline summary of the past year, therefore, is one of crisis andrecovery, of impending disaster but of disaster averted nonetheless. Ifcelebrations are not in order, then at least relief and a measure ofrelaxation surely are.
The message of how bad things might have been andhow much better they now are is the main one being propagated bymainstream spokesmen and analysts, via the mainstream media. But thisis a very warped, and ultimately self-serving, view of the world fromthe pinnacles of power and wealth. It ignores three critical issuesthat this and a subsequent column will consider: why things got to thepoint they did last year; how bad things still are today, for so manypeople; and the extent of global economic imbalances left unresolvedor, worse, exacerbated by the very measures taken to stabilize theglobal economy.
The good cheer is concentrated in the financial sector - theepicenter of the disaster and the main focus of the rescue efforts.Because markets have regained functionality - and in many cases arerising strongly - and the profits and bonuses are flowing again throughthe accounts of banks and bankers, the drive to believe and persuadeothers that all will now be well is most powerful there. But thisdisregards - deliberately, and for obvious reasons - the fact that thebloated profits of the financial sector and its top echelon were, andremain, part of the problem and are not part of the solution.
Thoughtful observers realize that the inverted economicstructure that grew up between the late 1970s and the current decade,wherein finance became a central component of the economy instead of anancillary and supporting part, was fundamentally wrong andunsustainable. The greed that engulfed the financial sector ultimatelydestroyed it.
But the effort to salvage this sector must focus on itsessential and positive functions, enabling it to revert to its naturalrole and size within the overall economy. That means an absolutereduction 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 jobof fixing what went wrong is very far from complete, and much if whathas been done so far has been hastily and shoddily executed.