Meridith Whitney, one of the few analysts to successfully predict the current crisis, had a simple rule of thumb to determine the value of any given bank or financial firm: take a hard look at the crappiest assets they had bought or invested in with borrowed money, and figure out how much they’d be worth in a fire sale.
Now that sub-prime markets started pulling the rug out, and Ponzi schemes like Madoff and smaller ones have started to unravel, the creaky foundations of the whole interconnected capital markets are shattering. As much as 40% of the world’s “cash” has simply disappeared, if it ever really existed beyond mere Enron-style projections. New financial ‘instruments’ including derivatives and other creative accounting practices allowed huge amounts of money to move around. But the bottom line is that they have caused the fundamental trust relationships that held up the basic belief in the VALUE of all money, not to say stocks, bonds, banks, etc., to be damaged if not destroyed. We’re all in that fire sale.
Where is this going? With cascading bank failures and a catastrophic credit crunch now resulting in massive layoffs even by “healthy” companies, more than ever the crisis is revealed as a crisis in belief, in faith. It is naive to think that this problem can be solved at the level of awareness that created it– a paradigm that essentially took people’s belief in the value of any abstract measures such as money for granted. Previous currency collapses, over the last 60 years, could always be recovered from if there was a core of solid western currencies and economies to bail them out; third world debt could be absorbed as long as first world prosperity was relatively stable. Now there are no givens, as the dollar, pound, Euro, and yen all face severe constriction whether inflationary or deflationary, and governments including the US hover on the edge of debt behavior which in any ordinary company or country would result in bankruptcy.
Responsible thinkers need to start planning for a world in which the only certainties are ‘needs’, fundamental commodities such as food and water, and barter. And, sadly, guns and instability. The 30’s– the last comparable time– led to massive reinventions of public life and ideology in every major developed country. “Faith” in markets or banks, in currencies and basic concepts of value, in law and liberal civil society itself, nearly died– and was partly reborn or reinvested in fascism or communism. This radical change did indeed revitalize major economies– but at a terrible human cost which was only fully paid by the devastation we collectively call WWII.
We need to confront the absolute necessity of providing a vision to the world, a cognitive and moral and even theological framework, within which civil society and economy and personal growth can be expressed. The right question is not “will things really get ‘that bad’ again?” but “what can we do to give people hope and something to work for if and when things DO get that bad?” Prudent contingency planning demands it. Currencies are not backed up by gold anymore– they’re not backed up by anything except people’s belief that they have value– belief which can change or collapse. Our world could easily degenerate into the warlordism of China in the 20’s, the Afghanistans or Somalias of today, or the Europe of the 30’s. Wise folk from all walks of life need to realize that we all need to take responsibility for our future and our lives, individually and collectively, as governments and institutions have failed us. Obama is not a messiah and can’t save us. And empty optimism that things will ‘get better’ or ‘turn around’ in defiance of concrete proof comes from the same kind of judgement that led to this collapse itself.
February 2, 2009 at 1:15 pm |
Really provocative, right-on analysis–concisely written, compellingly argued, and original. I’m left with the feeling of how unnerving it is that no one else is talking in these terms. Obama gestured towards it, but the fact is, while everyone uses these words, “crises of faith,” etc, no one really addresses the implications of how you *respond* to a crisis of faith. The market has been not only an organizing principle of our money; for much of the Western world, it’s been the organizing principle of an entire worldview. What do people reach for when their worldview collapses–when the world we are living in takes a turn beyond what we had been able to imagine? What fills that vacuum. You’ve zeroed in on the core issue, and I can only hope that more thinkers, activists, and policymakers begin to take up the charge. Thanks!
February 2, 2009 at 8:37 pm |
Governments, especially the U.S., have made a mistake in trying to prop up something that should be allowed to contract naturally. We’ve been obsessed with avoiding recession when recession is as much a part of the economic equation as growth. Now we are poised not for recession but for a collapse.
February 4, 2009 at 1:49 pm |
I think what you are saying is impt. at the same time I am very wary of apocalytptic thought which is a real problem in the environmental movement…you need to be careful of not going over the edge…I certaintly do not think Obama is a messiah and believe he is simply a manifestation of the post-political era we are in, yes it was manifested on the political level but that is not its historical, cosmological significance.
February 5, 2009 at 6:25 pm |
in general i agree with you. so write some contingency plans and stop waiting for people to do it. you are the one who saw it. the rebbe said that if you see something it is part of your purpose. write an amazing contigency plan for JErusalem/ Israel –> approach Nir Barkat and others about implementing it, and get off your ass and do it. I believe in you.
February 6, 2009 at 8:26 am |
ah, there’s the rub… what should we actually do? i believe in consensus decision-making, i believe in an alternate model of political/ economic structure where there’s a tremendous amount of autonomy and freedom for individuals, but strict limits on the powers of institutions (corporations and governments). This is a group project! This is not just me (or Obama, or Barkat, both of whom DO seem to grasp the need for far-reaching changes.)
But for any changes to really root themselves in the way we all live our lives, as Charlie points out, come from the inside out. Each of us going through our own processes of transformation, of openness, of being fully morally present in the moment of every interaction or transaction (especially economic!), is crucial. No ’solutions’ can work that are simply top-down; the top/leadership can merely create the space, and some incentives, for people to truly be human to each other, and to be fully human and alive ourselves.