Hair of the Dog Not Working

           Americans are still ‘hung over’ from the financial crisis, which began four years ago.  As the aftermath of the financial crisis continues to unfold, it is crucial for us to take a sober look at the misgivings of all whom contributed to this chaos.  It is apparent that there are too many entanglements and self interests run riot, and corruption as well as dysfunction of government and throughout the financial sectors are not helping matters.

            In a poll taken in late November early December of 2009  by Adweek, consumers felt that the top three contributors to the economic crisis were, mortgage companies, lending institutions, and the Federal government.  It is easy to point our fingers to other sources of trouble, but we as consumers also play a vital role in all of this mess too, let’s not forget that.  “Household debt hit a record 133 percent of disposable personal income by the end of 2007” as reported by Stephen Roach of the New York Times.  In a personal story, Rahil Tesfahun states that her spending on credit was “a therapeutic addiction” helping to curb her anxiety.  It seems as though we grew comfortable spending what we didn’t really have.

            The Federal Reserve drove interest rates low, in order to prevent a depression, but instead, it made money cheap.  “Excesses are inevitable when money is that cheap” says Dean Croushore, associate economics professor at the University of Richmond.  Consumers were sent the message that it’s okay to buy on credit and a ‘you can have it now’ attitude is what was trickling down from the top. 

            World Bank and International Monetary Fund are two financial institutions which were born of the Bretton Woods Conference in 1944.  They were established to oversee economic policy on a global scale alongside the WTO.  It has been customary that the World Bank is run by the Americans, and the IMF is run by the British.  Discord between the IMF and the World Bank had begun long before the bubble burst.  Joseph E. Stiglitz, Chief Economist at the World Bank and an advisor to the Clinton administration, criticized IMF for employing deficient practices saying that they “neglect the messy complexities.”  Not all was to remain well at the World Bank though either.  A special committee at the bank had concluded that Paul Wolfowitz, President of the bank from 2005 through 2007, had “violated his contract by breaking ethical & governing rules” in 2005, two years before the beginning of the recession.  Lack of trust is apparent amongst the members, which was demonstrated when the pledges made at the G-20 Summit in November 2008 were broken by 17 of them in order that they may restrict trades and protect themselves.  With the interests of so few being represented by the three of these organizations, one could hardly blame the countries which are being adversely affected of protecting themselves and taking appropriate action.

            As part of the conclusion to the federal inquiry made on the 2008 financial crisis, and reported by The New York Times, May 17, 2007, the commission found that the crisis was “avoidable,” it also pointed out failures in government regulation were a factor and has raised the curtain once again on the power of lobbyists and the influence of Wall Street on our governments lawmaking.  They went so far as to say that regulators “lacked the political will” to do their job effectively and in an unbiased manner.  The commission was not a perfect union and displays the divisions amongst our political parties.  If we here at home cannot work together productively and cohesively, then how are we supposed to offer sound guidance globally?

            Some would argue that deregulated globalization is the only way to not inhibit the growth of developing countries and to monitor and regulate it would only hinder the process.  I disagree.  I am not alone in my thinking; Stiglitz also states that it’s not globalization at fault, but the manner in which we are conducting it. 

If we are to ever fully recover, reforms and regulations must be reinstated in order to provide crucial checks and balances which are currently absent. We must also weed out and prevent the lobbying of personal interests in our government, perhaps a clear division of not only church and state, but also, trade and state is in order.  The global banks ought to be run autonomously in order to maintain a high level of trust and respect for and by all of the nations it represents.  As stated by the commission “The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done, if we accept this notion, it will happen again.”