A friend of mine recently gave me a copy of “The Jewish Book of Why,” which explains the reason for many customs and traditions such as: Why are flowers not often found at Jewish funerals? Or why is glass broken at the wedding feast? (There are also some questions about gefilte fish, most of which remain unanswered to this day.)
Given what’s going on with our economy, wouldn’t it be nice if someone wrote “The Economic Book of Why”? Provided that someone was wise enough to pen such a tome – we should be so lucky – I would submit the following questions:
1) On monetary policy:
Why does Ben Bernanke want to be Alan Greenspan? Or a kid’s bath soap? You know, Mr. Bubbles? Do we really think that lowering long rates is going to make businesses and consumers more confident about what is going on in the economy? Will it resolve the housing crisis? The Euro crisis? The tax/spend/deficit debate? Why do officials think the gizmo du jour – the present gizmo being Operation Twist – is going to suddenly solve the economic fissures that have been developing over 20 years? Wouldn’t more certainty and less tinkering be more helpful?
2) On government regulation:
Why can’t government help or at least get out of the way? Can someone explain the SAFE Act? Why does it have a provision requiring loan officers that “sell” a handful of home loans to register with the government, get background checks, fingerprinted, etc.? Is that really going to make things “safe”? Does it help that the Small Business Lending Fund, designed to encourage banks to lend, requires that SBLF banks obtain certification from borrowers attesting that they aren’t child molesters? (I know of one bank that declined to enter the program to avoid subjecting their customers to this “process.”) And what about Dodd-Frank, pending implementation of health care reform legislation, a tax code that’s anybody’s guess, etc.? Isn’t this more uncertainty? More cost? Does it help?
3) On blaming banks:
Why do community and similar banks get blamed for the actions of the investment and megabanks? Wasn’t the housing crisis caused by the collision of many factors: aggressive mortgage companies, lax regulatory standards, easy money (there are those pesky bubbles again), consumers biting off more than they can chew, the securitization of debt (where lenders and borrowers became disconnected), greed, Glass-Steagall on steroids, etc.? Isn’t equally blaming all banks like blaming Vin Scully for the Dodgers 2011 opening-day atrocities by some ignorant fans? Yet this “blanket blame game” happens every day in the press; on the street; and in City Hall, Sacramento and Washington, D.C. Doesn’t that make it harder for Main Street banks to do what’s necessary to help the economy recover?
4) On understanding how this happened:
Why doesn’t the average Joe seem to understand how we got into this mess? Isn’t it because individuals borrowed too much money (and some unscrupulous lenders lent it) at a time when personal income was not growing commensurately? Isn’t it because we bought big houses, took fine trips, attended fantasy baseball camps or purchased even more mundane (or even necessary) things with money we borrowed against our inflated houses? Doesn’t the fact that an estimated 11 million homeowners are underwater on their home loans attest to this?
5) On solving the problem:
Isn’t this a case of, to quote a classic rock anthem, “The piper’s calling you to join him”? Isn’t this a case of broad, prolonged excess that’s going to take a broad, prolonged cure?
If we could identify the mythical sage who could write “The Economic Book of Why,” I bet we’d discover that’s exactly where we are. We might rightly conclude that there is no easy way out. And that no new regulation, no new quantitative easing, no unread 2,100-page bill, no complex tax code revision is going to solve it.
We might also conclude that the sooner everybody “gets it,” the sooner we can get past the knee-jerk activities and get on with the long, and unfortunately painful, task of getting back to business.
David R. Misch is chief executive of the Private Bank of California, headquartered in Los Angeles.
