Posted: Thursday, September 18, 2008 12:00 am
The turmoil in the financial world may be hard to understand completely. But one thing comes through: The root cause is borrowing too much and then borrowing some more in order to cover the earlier debts, all without any firm foundation on which the entire debt rests.
The financial geniuses on Wall Street now are exposed as so many reckless gamblers. But their institutions have become so big that the U.S. government cannot allow them just to go broke without throwing the country and maybe even the world into a depression.
According to the news accounts, the government is bailing out firms such as insurance giant AIG with billions of dollars in loans, but since it doesn't have the cash lying around, this is money that the government has to borrow first.
One hopes that all this works, and that the slump in housing combined with the decline of other markets and the debt crisis will not cost too many innocent people their jobs.
But whether it does or not, one also hopes that this experience will usher in a period of greater prudence and more frugality in American life.
Starting in the 1950s, the country's prosperity was built by mostly people who lived with their families in two-bedroom houses with one bathroom, who watched one TV instead of three or four, who vacationed at the nearest state park instead of flying to the South Seas at the drop of a hat, who shopped for bargains after studying the ads, and who were pretty content with the progress in their lives compared with those of their parents.
It also was a time when America had industrial strength, a time before technology and globalization made it possible and even economical to have all our material things made abroad. And it was a time when America still met most of its energy needs, as opposed to now, when we ship billions of dollars abroad every week in return for fuel.
It may be foolish to long for simpler times less marked by wild consumerism based on borrowing ever more money. But if the cry of "more" leads to the kind of debacle now devouring Wall Street, we need to get back to an economic system in which buying, building and consuming are based on actual means, not on whole Everests of debt. (hh)