Fleeing the Blame

As, when there breathes a heavy fog, or when
Our hemisphere is darkening into night,
Appears far off a mill the wind is turning,

Methought that such a building then I saw;
And, for the wind, I drew myself behind
My Guide, because there was no other shelter.

Now was I, and with fear in verse I put it,
There where the shades were wholly covered up,
And glimmered through like unto straws in glass.

Some prone are lying, others stand erect,
This with the head, and that one with the soles;
Another, bow-like, face to feet inverts.

Dante’s Inferno, Canto XXXIV

In an article in Slate this morning Daniel Gross makes a significant point, one I’ve made here from time to time, and one that seems to elude a lot of people who should know better: the financial crisis that’s going on now isn’t the Great Depression, revisited.

All this historically inaccurate nostalgia can occasionally make you want to clock somebody with one of the three volumes of Arthur M. Schlesinger Jr.’s history of the New Deal. The credit debacle of 2008 and the Great Depression may have similar origins: Both got going when financial crisis led to a reduction in consumer demand. But the two phenomena differ substantially. Instead of workers with 5 o’clock shadows asking, “Brother, can you spare a dime?” we have clean-shaven financial-services executives asking congressmen if they can spare $100 billion. More substantively, the economic trauma the nation suffered in the 1930s makes today’s woes look like a flesh wound.

“By the afternoon of March 3, scarcely a bank in the country was open to do business,” FDR said in his March 12, 1933, fireside chat (now available on a very cool podcast at the Federal Deposit Insurance Corp.’s Web site). In 1933, some 4,000 commercial banks failed, causing depositors to take huge losses. (There was no FDIC back then.) The recession that started in August 1929 lasted for a grinding 43 months, during which unemployment soared to 25 percent and national income was cut in half. By contrast, through mid-November 2008, only 19 banks had failed. The Federal Reserve last week said it expects unemployment to top out at 7.6 percent in 2009. Economists surveyed by the Philadelphia Federal Reserve Bank believe the recession, which started in April 2008, will be over by next summer.

I agree with Mr. Gross’s explanation for the phenomenon, too:

So what’s with all the speakeasy-era speak? Financial executives invoke distant history in part to make up for their own recent shortcomings. If a force as powerful as the Great Depression has been unleashed on the global economy, how can a mere mortal like Merrill’s John Thain be held responsible?

I’m familiar enough with my own generation to recognize typical Baby Boomer behavior: these masters of the universe don’t have the courage to stand up and acknowledge the mistakes they made. They made their mistakes and they made them nearly in lockstep.

Among the common threads that run through the problems in the financial industry and the automobile industry is that management has completely failed in its fiduciary responsibility to the stockholders. Management’s primary responsibility is to maximize stockholder value. A quick look at today’s stock prices (not to mention the capitalized value) of companies in the financial and automobile industries shows you how complete was their failure and lack of faith:

Company	Current quote	Annual high
General Motors	$3.06	$29.95
Goldman Sachs	$53.31	$234.22
Ford	$2.08	$8.79
Citigroup	$3.77	$35.29

And these are the survivors. The list of woe goes on and on.

If it were a just world not only would these traitors have lost vast fortunes of their own money (which they have), they wouldn’t be saying, as GM CEO Rick Wagoner did last week that “Bankruptcy is not an option” while going to Uncle Sugar for a handout but “Would you like fries with that?”

It’s not a just world and the guys who don’t retire to private islands in the Caribbean with the billions they still have left will undoubtedly get jobs with the same levels of responsibility, power, and compensation in the next companies they wreck.