–Retransmitting Story Published 12:13 ET Friday
By Denny Gulino
WASHINGTON (MNI) – As the years after the financial crisis
accumulate it has become clear that it separated winners from losers by
the millions, and many, perhaps most of the losers will not recover.
It’s not pleasant to contemplate. Which is why rear-guard efforts
to hold back time’s power to erase both the bad memories and accustom us
to ignoring the continuing damage may be bound to fail. Omar Khayyam was
on to something with that Moving Finger, “having writ, moves on.”
Witness Treasury Secretary Tim Geithner’s plea in his morning Wall
Street Journal op-ed, “Financial Crisis Amnesia.” It may be a worthy but
futile effort. As he, and his deputy, Neal Wolin, later on CNBC try to
argue, the financial crisis was big, bad and deserves a societal
response, just not the kind represented by industry pushback and the WSJ
editorials and columns by the dozens in opposition to Dodd-Frank’s
retribution.
And in the morning’s New York Times, the op-ed by the one-time
chair of the Financial Crisis Inquiry Commission, Phil Angelides, “Will
Wall Street Ever Face Justice,” calls for larger retribution in the
courts. Other than a sputtering series of delayed attempted
prosecutions, the time may have long passed for such massive legal
inquiries.
Therefore it may be mostly irrelevant to ask whether Geithner,
Wolin and Angelides are right or wrong. The balance of regulation and
permissiveness will be determined by today’s realities, not yesterday’s
horrors.
But will justice be forever subverted, even if they are right?
Actually, there seems to be a law of the conservation of justice as
immutable as the one for conservation of energy. Instead of providing
satisfying relatively immediate answers, however, these laws seem to
take time to play out. Worst of all, the responsible parties who face
punishment under them are not always those who get pilloried on the
front pages of the newspapers and Web sites.
It could be argued, in fact, that those ultimately responsible are
all around us — and maybe are us. After all, we can influence our
leaders, we can read the tea leaves as well as they. We can protect
ourselves by encouraging vigilance and rigorous policymaking. How then,
is it with a national debt so large, annual deficits so big and debt
burdens on future generations so monumental, that historians won’t pin
the whole mess on us?
So blind Lady Justice may choose her own targets and, reviewing
the national scenery, seems to have done so already. Let’s review what’s
been happening, and figure out who is actually in her cross hairs.
Small-business casualties litter the landscape, having lost their
ability to hire. Many neighborhoods hollowed out by foreclosures will
remain hollowed out.
Millions of the long-term unemployed will never be re-employed and
as they age into involuntary retirement, the work force is being
re-sized in fact if not yet by definition. Ratios like the unemployment
rate have become less comparable with pre-crisis years.
NAIRU, the old monetary policy guidepost, as the non-accelerating
inflation rate of unemployment, now may be obsolete. And GDP growth no
longer is calibrated with employment in the same way, as both Ben
Bernanke and Henry Paulson have pointed out in the past two weeks.
In the political sphere the need in an election year to settle on
talking point weapons for the campaign troops freeze in place
bumper-sticker notions that won’t resume their evolution into guidelines
of greater relevance until well after the votes are counted.
Conservatives who value family formation as much as household
formation find themselves mouthing anti-family platitudes for now.
Liberals who care about safety nets find themselves adopting language
that contemplates shredding them.
Meanwhile the economy grows mainly on the backs of the winners,
those who survived with adequate earning power and the ability to still
visualize the far horizon. The American socio-economic spectrum has been
re-weighted, with one end clustered much more heavily with those for
whom the financial crisis was economically fatal, whose capabilities
were devalued too soon by the lightning strike.
Banking finds that deleveraging and the impulse to shrink the
financial sector are not abstruse theoretical concepts. They power
the buzzsaw ripping away the foundations.
Wall Street incentives are resized and aimed differently, while
Street participants see colleagues and divisions and reliable profit
centers disappear. The market mechanism itself seems threatened both by
hyper-regulation and by the way a cloudy future cripples rebuilding.
Mutual funds have an existential reassessment.
In fact, among American institutions, there is no greater
post-crisis loser than Congress, which found itself blindsided, forced
to swallow unprecedented emergency spending backed by a Republican
president, and then has been channeled by outside forces into a confused
effort to adjust ever since. It somehow had become hard of hearing with
limited eyesight and missed the gathering storm.
The fallback crutch of Congress has been acute partisanship, the
arena where the rules are still clear. But acute partisanship may well
be revealed as a symptom of deeper institutional problems, not
their cause.
To the dismay of the vast middle of the electorate, which senses
the nation’s deep structural problems cannot be dealt with, the
paralysis of a Congress unable to deal with structure becomes a daily
embarrassment and a deeply imbedded concern.
Meanwhile, structural change, positive and negative, is taking
place at a rapid rate in many other spheres far removed from Dodd-Frank
as forces unleashed by the crisis and technology’s disruptive influence
blindly rework the pillars amid the vacuum of effective civic intent.
Construction industries look to Congress for infrastructure
spending and see a highway bill being downsized into near insignificance
while the nation’s investment in residential housing undergoes a
permanent reshaping.
The health care industry begins to outlive its many traditional
protections and inexorably gets squeezed as its share of the economy
reaches a bloated limit. Big pharma meets big India pharma.
Education, like health care, hits the pricing-power wall and so
begins to experience its convulsive future from top to bottom.
The auto industry rebounds, surprised to find out how many people
want 40 mile-per-gallon cars, and haltingly begins to supply the demand.
U.S. manufacturing, not just the auto industry, sees its
exaggerated productivity edge being matched around the world and begins
another phase of robotization. That ensures it remains the top
high-value producer in the world, with even fewer employees per dollar
of output. About no other sector does political rhetoric comport less
with reality.
The oil industry adjusts to new domestic production technology and
its new economics as U.S. oil imports shrink. The domestic production
resurgence that was wholly unexpected, creates jobs and promises much
better prices at the pump — even as it builds the potential to
jeopardize long-range alternative energy initiatives. Not yet, though,
while Iran keeps the oil-price bubble alive.
Lady Justice — or maybe just the choreographers of the March of
Time — certainly keep busy. It’s all how today’s problems are being
worked out — with a lot of pain and little planning or
direction involved, and less comfort and peace of mind in the bargain.
Given that, when Geithner writes that his wife “reminds me of the
panicked calls she answered for me at home late at night or early in the
morning in 2008 from the then-giants of our financial system,” can we
ask, is amnesia all bad?
“Amnesia is what causes financial crisis,” Geithner answers.
** Market News International Washington Bureau: 202-371-2121 **
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