the “financial crisis” is really an ethical crisis

For my first post I wanted to excerpt an e-mail that I wrote back on September 30, 2008 because it serves as a good background for today’s post…

“I am opposed to any bailout bill for a number of reasons:

• The crisis confronting the U.S. right now is not a financial crisis, but an ethical crisis. The ethic in question here is a total lack of self-responsibility that pervades our culture at lots of levels, from Wall Street hedge funds to the credit-card-maxed-out Midwesterner.
• The only way for people to be cured of these sorts of behaviors is to suffer the consequences of their choices.
• We have been pushing the reckoning for this ‘entitlement’ attitude forward into the future since 1987 when the Federal Reserve pre-emptively moved to quell that year’s stock market crash.
• Better to deal with this issue now while the U.S. is still relatively powerful as compared to any foreign competition. If we have to deal with this 20 years from now it will mean that our nation’s foreign competition will likely be bigger, in terms of economy and population, and better organized.
• Better that the generation that created these problems, Baby Boomers thru Generation Y, deal with the problems that they created rather than forcing future generations of folks to deal with it.
• The only way for capitalism to properly function is for those who risk capital for potential benefit to actually feel the pain of a bad choice. A bailout will actually create a situation in which return and risk are not symmetrical. That is not fair and it plants the seeds for future failings.”

Unfortunately the “Emergency Economic Stabilization Act,” better known as the “Bailout Bill,” passed on Friday, October 3rd, 2008 and was signed into law almost immediately. I am not sure how many of you have read some of the details of the bill, but it largely passed because of “incentives” given to specific members of the House of Representatives. Some of these include:

• For bicycle commuters it provides limited benefits to offset commuting costs. The estimated cost of this incentive is $10 million over 10 years. This was included in order to get the vote of Rep Earl Blumenauer, Democrat from Oregon on board.
• An exemption for children’s wooden practice arrows from an excise tax that is currently 39 cents. The estimated cost of this incentive is $2 million over 10 years. The specificity of this incentive is clearly directed at a specific Congressperson…right?
• For film and television productions it will allow production companies to use the domestic production deduction. The estimated whopping cost of this incentive is $397 million over 10 years!!! Apparently the southern Californian Reps weren’t on board.
• For commercial fishermen, and others affected by the Exxon Valdez oil spill (of the 1980s), it allows them to average any settlement or judgment-related income over three years. I am guessing that this is to ensure that any large lump sum payment will qualify at a lower tax rate, but really, who knows? The estimated cost of this incentive is $49 million over 10 years. Again, the specificity of this incentive is a wee mysterious, don’t you think? Hmm, perhaps we should ask Rep, Don Young, Republican from Alaska about that bit of hubris.
• For motorsports complexes it extends seven-year cost-recovery period to the end of 2009 for land improvement and support facilities placed in service after Dec. 31, 2007. The estimated cost of this is $100 million over 10 years. Oh, my! Apparently this was included to get the Republican Rep from New Jersey, Frank LoBiondo on board.

And I could go on. But the total amount of the incentives is ginormous and amounts to billions of dollars!

The sources for all of this are: USA Today, the Senate Finance Committee, and Citizens Against Government Waste.

My point in all of this is that this “financial crisis” is merely symptomatic of a much deeper, more tangled crisis. In the United States there is a pervasive attitude of “Anything For a Dollar” (heretofore known as, “A Fad,” because I am hoping that it passes into oblivion). The problem with all of this is that capitalism is a system for organizing economic resources and is not a system of ethics. Let me repeat that:

Capitalism is a system for organizing economic resources and is not a system of ethics.

An economic system should exist within its political, moral and ethical structure, and not the other way around. However, in my opinion, in the U.S. there was initially a blurring of the boundaries between economics and ethics starting with the 1970s movement at de-regulation of industry. Unfortunately, many of the boundaries that were established as appropriate in the most recent legitimate economic crisis, the Great Depression of the late 1920s and 1930s, were systematically erased by Congress over the last several decades. The irony is that the effects of the Great Depression, that still remain as a gigantic and gloomy specter over our collective financial subconscious, have become disconnected from their more troubling and instructive causes: unethical behaviors driven by rampant, uncontrollable greed. Sounds familiar, doesn’t it?

The lessons of the Great Depression were enormous and because it took a very grim 16 years to recover from the disastrous onset of Depression in 1929, a generation never forgot them. Most of the major legislation from that Era was unwound and not surprisingly, the result in 2008 is similar to what it was in 1929. So the problem with the Bailout Bill is that it is throwing gigantic amounts of money at the WRONG problem.

The total cost of the bailout to each citizen of the United States is:

$700 billion divided by 305 million people or $2,295!

And that is not evenly distributed as not all 305 million folks here pay taxes. Not only that, but this is all before interest. The amount of the bailout effectively erases any of the benefit from the Bush Administration’s personal income tax cuts for most folks. Problem is that we citizens paid for the tax cut by hiking up the debt then, too. So all we did then was push into the future, and onto other generations, that day of fiscal reckoning. Now we are doing the same thing again with the Emergency Economic Stabilization Act; and we are not even dealing with the real problems!

Over and out!

Jason