Thoughts on the Economic Crisis

Posted by Bryant Daniels on 09.24.2008

Everything you've already heard a thousand times in one neat little package!


I feel like there are some important things worth taking away from the economic disaster, simple points that we as a country need to improve upon in order to avoid a repeat. I think at this point it's par for the course to institute more government oversight over the economic sector, if for no other reason than to save the people from themselves. In essence the country replaced the dotcom bubble of the 90's with a housing bubble for the 21st century, perpetuated by Bush's "ownership society." But Bush and the rest of his cronies aren't the only ones responsible for this mess. Prominent Democratic leadership also did it's part to turn a blind eye to regulation, because low-income families were able to become home-owners with the low interest rates that allowed banks to get credit happy. It's difficult to blame the people, as some have, for simply not managing their finances well. Imagine if you were a low-income family, living in low-income housing, with the banks dangling promises of home-ownership in front of you. How many people are going to pass up the opportunity for home ownership? Similarly we need to make sure predatory banking and speculation don't account for too much market manipulation. Whereas a low-income family may not know the full negative potential of their borrowing, money-managers who analyze the market for a living probably have a good idea of what may come.

We also need to declare in a bipartisan effort that the government will not bail out these major companies in the future. If a company is "too big to fail," it should probably be broken up as a basic rule of thumb. Those who oppose bail-outs, mostly the staunchest libertarians, are being short-sighted. We need to understand the world we live in is a globalized one, and the already dying American manufacturing industry can't afford to fail. If we consider for instance the already struggling American auto-industry, failure as a whole would not lead to a new American firm filling the gap, as would have probably been the case some thirty to forty years ago. Today the global market would fill the threshold and foreign firms already far outpacing America in terms of hybrid or flex-fuel technology would begin to dominate the market. A collapse would thus thrust even more Americans onto economic turmoil and cripple the economy further.

Thirdly we should begin to restructure the compensation system that has brought about windfall profits in the form of bonuses to so many CEO's whose policies sell-short the American people. Major bonuses are often doled out based on a company's yearly performance, so a CEO's personal incentive to create stable longevity isn't of the utmost concern. There is no greater way to ensure short-term thinking than to reward it, and even when jobs are lost within the company the CEO may still wind up with millions in performance compensation (just ask Carly Fiorina).

But most importantly, we all must begin to take a little more care of ourselves and our investments. As a liberal I even cringe at the idea of the government swooping in to save the day here, as necessary as it may be. But we aren't rewarding mis-management here so much as we're taking a gamble when the alternative is even worse for everyone.