Here’s a prediction about the past: The decade about to end will be popularly branded an era of great greed, a time when our worst instincts got the best of us.
It will be a selective, unhelpful remembrance.
Greed is a convenient target for the failures we saw in the aughties. When banks hand out seven-figure bonuses just before facing collapse, and then return to profitability just a year after a taxpayer bailout, their executives are easy marks for a president railing against “fat cats.”
The sentiment isn’t entirely misplaced, but it is overly simplistic. Our failures ran far deeper than mere greed.
William Isaac, who was chairman of the Federal Deposit Insurance Corporation from 1981 to 1985, puts it this way:
“You don’t see headlines saying, ‘Gravity caused plane crash.’ We understand gravity is there, it’s a force of nature…and our job is not to blame gravity when something goes wrong. We blame the FAA and the airlines or whoever is not training pilots properly.”
Likewise, in the current crisis, “Greed is a force of nature that makes the free-enterprise system work,” Isaac says. “I’m not saying there weren’t bankers who didn’t get out of control and out of hand….But we spend billions each year that is supposed to keep that from happening. And it didn’t work.”
Getting the history of this episode right is important, because Congress is at work “fixing” the problem. Yet Isaac says there’s “precious little in this legislation that would have helped at all.”
The story of this decade’s financial crisis is really the story of Big Government being too closely intertwined with Big Business, and specifically Big Finance. Congress being Congress, government’s role in the crisis is mostly being glossed over.
Perhaps it’s because the list is so daunting. It includes:
“Markets can handle almost anything,” Isaac notes, “except surprises and lack of information.” They got those in spades.
I’m not trying to whitewash bankers’ willing decisions to exploit each of these shortcomings. But take away overly accomodative monetary policy, explicit pressure to lend to ever less creditworthy borrowers — any of these factors — and the banks’ ability to spark a deep recession would have been far weaker.
Pin it all on “greed,” and greed will strike again.