Nouveau Poor Society May Take Two Years of Therapy Before Regaining Trust & Traction


SUN TIMES COLUMN 320

By Ted Pincus
What hit us this year? Let’s sort it out and have a look ahead.

This autumn, in a reversal of fortune perhaps unprecedented in modern history, American society morphed into the Nouveau Poor. The American dream became a galloping nightmare, the end of the era of excess.

Unforeseen by virtually any of the pundits, policy priests or players, the global meltdown left us all disbelieving, fleeced and wildly disoriented. We asked ourselves: How could a government run by seemingly risk-averse conservatives allow myriad crap games to take place with our money on the line? How could the icons of Wall St. shoot the moon on flaky leverage while garnering 10 percent of the nation’s salaries? How could our most revered banks end up on their knees? How could the auto companies that were symbols of industrial might over our lifetime be on the street today with a tin cup? How could noble global giants like Siemens be nailed on broadscale bribery charges?

And how could a time-honored, sweet old salt-of-the-earth money manager—a dad, uncle, gramps and Park Avenue paragon—scam some of the world’s most sophisticated investors out of $50 billion for the fun of it?

But there is was. The unreal became real. Nigerians were suddenly being warned to be wary of emails from Americans seeking deals. And if you received an insufficient- funds notice from your bank, you weren’t sure if they meant your money or theirs. And after a quarter-century binge, you’d think that the big dose of cold water would sober us up and we would have learned a few lessons. But that’s hardly the case.

I find two aspects of the travesty especially fascinating. One is the concept that nobody admits to being accountable for the most severe recession since the Great Depression, nor the most precipitous drop (47 percent this year) in the equity market (and likewise many people’s net worth.)

Despite a proliferation of sheriffs on our range –dozens of federal agencies watching over us and thousands of regulations in place—nobody saw the wild west show evolving and blew the whistle. Newfangled, fancy securitized mortgages for sub-prime borrowers, blessed as triple A. An insane spiral of executive comp,pomp and entitlement driving a mad auction of home prices and corporate jets. Nobody (except Economist Joe Stiglitz) said “This is all unsustainable.” Certainly not the feds nor the legislators nor the financial system,precarious as it was becoming with brokers leveraged 35 to 1. When everyone’s enjoying the party, nobody want to be the one to say “the party’s over.”

Thus as we view the wreckage, no one steps up to claim responsibility. Lawmakers who fell for the siren song sung of Fannie Mae and Freddie Mac lobbyists and allowed lax oversight are the same ones now castigating the villains. There has yet to be an overhaul of supervision of the great arbiters –the major rating agencies whose profit motives colored their blessings, turning watchdogs into lapdogs. The carmakers have yet to admit that their blind, unstoppable output of iron behemoths made them anachronisms in the market. In fact, other than Master Illusionist Madoff’s stunning confession, the only mea culpa murmured by anyone was this month’s quiet acknowledgement by top cop SEC Chairman Chris Cox that he had sort of slept through the gathering storm on Wall St.

When Walt Kelly’s Pogo paraphrased Commodore Perry and proclaimed that “we have met the enemy and he is us,” he was pushing conservation, but could well have admonished all of us this year. Let’s face it. We were all asleep and ultimately all accountable for both the financial collapse and the moral meltdown.

The second fascinating thing is that despite the jolt, we’re still ignoring many root causes of our latest disaster. While the ’29 crash really affected a modest number of fat cats and two-bit speculators on high margin, the Crash of 08 was a great leveler. It democratized the agony, impacting most of the nation’s 67 million shareholders plus untold others indirectly through benefit plans and dependency.

Yet as the smoke clears, why have we still so many lessons to learn? With Madoffs on the make and governors on the take, where are the new safeguards? How long a reaction time is necessary? How long does it take for Congress to figure out that Sec. Henry Paulson who emerged from Wall St. to help create the present mess is the same guy doing massive damage in the same barnyard? Why would they decry a sick banking system and then hand him the first half of a $700 billion Troubled Assets Relief Program bailout kitty to simply dole out to a few of his favorite banks, plus a whopper to AIG, with no strings attached? They’re sitting on the dough and pumping virtually none into our strapped system. And with 20 days left of his reign, why are some legislators considering handing him more?

The whole epic is becoming a cliff-hanger because a brand new posse comes to town in a few days, armed with a different kind of stimulus package. It sensibly aims at stemming foreclosures first, forestalling bankruptcies, reversing the home price slide, hopefully with a massive refinancing program to give livable 4.5 percent, 30-year-fixed mortgages to the millions out there in trouble. It will likely launch an array of infrastructure projects that should create 30,000-50,000 new jobs for every $1 billion spent. And the highest priority will be intangible: a restoration of trust in each other, bank to bank, business to business, and people to government. (Faith will be a tough hurdle. For example, consider that the Dow didn’t recover its 1929 high until 1954) We can only hope that the Paulson swan song will be prevented from further sabotaging America’s new dawn before the sun has a chance to rise.

A year ago on this day, my column expressed the worry that we were already in a recession, and were due for a very rough ride in 08—and I only hoped I was wrong. As a Great Depression baby and now an aging flack, I’ve seen seven recessions. I believe this one will be the worst by far, the most stubborn, painful post-war period of our lives. While the Obama team faces economic challenges almost as awesome as did FDR, it also faces the dual dilemma of global terrorism and simmering conflicts on most continents. It will be tackling a trillion dollar rescue task while saddled with a leftover $9.8 trillion national debt and soaring health and social security obligations. Triggered by the avalanche of mortgage delinquencies forecast to double this next year and unsustainably high credit card debt, the economy is quite likely to see a 6 percent plunge in GDP, unemployment in double digits, and 24 months of anguish, I believe.

But as Nietzsche said, what doesn’t kill us makes us stronger. And if we do wake up and realize that the free lunch was always a myth, that sacrifice is a necessity, and that each of us is responsible for past neglect and wishful thinking, we may emerge from this mass embarrassment as a trimmer, healthier, wiser society. If we do, our future New Years will be well worth celebrating.

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