A $700 billion bailout of major financial institutions is, without question, tough to stomach. It is a lifeline to mismanaged companies that paid enormous salaries and bonuses.However, to stop the analysis there is to miss the bigger threat. The bailout should serve as a wake-up call to the entire nation. If Wall Street got into trouble by borrowing too much, downplaying risks and living only for the present, the same could be said of much of the rest of the country. Both could stand to take a long look in the mirror.
America’s politics, economic policy and even its culture, to some degree, are mired in a state of denial. In Washington, politicians continue to pile up unconscionable debts, telling themselves that they can’t be expected to behave responsibly and run for office at the same time. A war in Iraq, an unwillingness to get serious about health care costs and a series of tax cuts without matching spending cuts have added almost $4 trillion to the national debt during the Bush administration alone.
On Main Street, personal savings have plummeted in recent years, from about 10% of income a generation ago, to close to zero now, and some of the financial crisis can be pinned on homeowners who took out mortgages they could not afford. Yes, they were egged on by irresponsible lenders abetted by irresponsible regulators and members of Congress, but the choice was theirs.
The list goes on: governments on the hook for pensions they cannot afford; credit card debt that people have no hope of repaying, the looming crises in Social Security and Medicare. The problems reach so far they can only be fixed by a tectonic shift in political dialogue--one acknowledging that an economy built on consumer debt, government debt and trade deficits is not sustainable.
First, of course, the immediate crisis needs to be addressed quickly and cleanly. That action, expected this week, surely will be followed by tighter regulation of financial institutions. It should be followed by any mechanisms that can be found to place the burden of repaying the debt on those who created the crisis. One obvious $25 billion target of opportunity is to end the ruse that allows some of the world’s wealthiest money managers to pay an income tax rate of just 15% by masquerading their earnings as capital gains.
If the bailout only elicits anger, it will be one of the biggest missed opportunities in history. Some leaders, including New York Mayor Michael Bloomberg, have begun speaking about the long-term challenges. These include paying our bills, as a country and as individuals; consuming less oil; and redirecting resources now going into health care and retirement into investments for the future such as education, science and infrastructure.
Too many others, though, are taking a politics-as-usual approach.
Unwinding decades of excess will not be pleasant, but the credit crisis should teach us that denial is far worse.
