The Financial Crisis (Part 3): The fierce urgency of later
The banking crisis has gone truly global. The current woes of the financial markets are nothing if not transnational. Their subsequent impact -the economic insecurity affected the whole of society- has become truly globalized.
Let us mourn, understand, improve and celebrate.
At the moment, the mournful world seems to be hovering somewhere in its own type of the Five Stages of Grief:
Denial. When the subprime mortgage problems truly started rearing their ugly heads by swallowing Lehman Brothers and AIG, it was assumed that other countries were not going to be affected that badly. Their regulation and oversight had been much more sensible all along, or so it was said. European and Chinese leaders- delighted by schadenfreude because of Washington’s apparent geostrategic weakness- tumbled over each other to explain to US lawmakers why the American model was failing.
Anger. When the crisis spread to other nations, so did anger towards those apparently responsible. Resentment grew against the Bush Administration for once again failing at their job, and against the reckless and unethical financial markets and firms for being reckless and unethical.
Bargaining. After these initial outbursts of frustrations, countries tried to find was to protect the status quo. Which banks are particularly in trouble? Who else needs special protection? How can we save the system? The recent interest rare reductions by the large economies, the pumping of liquidity into the markets, and the increased oversight all seem much more concerned with rescuing the current situation rather than looking forward.
Depression. With the analytical processes (from the bargaining stage) gaining speed, it becomes increasingly clear that everyone is affected, and that no one is truly safe. Lay-offs, plummeting share and housing prices, loss of consumer confidence rip through our economies. The world is clearly heading for an increasingly rough ride.
Acceptance. With some luck, the coming summit- apparently now hosted by Bush, in a poorly veiled attempt to wrest control away from the French and the UN- will look beyond the stages of bargaining and depression. The current diplomatic wrangling between the Europeans and the Americans gives little reason for optimism, but fortunately many already seem to be looking beyond the short-term consequences. There is an increased understanding that 1) the old system is unsalvageable, and that 2) the world is heading for lean times. With that acceptance, it becomes time to prepare for the death of important parts of the old system, and let a new one take shape. Schumpeter’s “creative destruction” needs to be given space to do its macabre work.
French President Sarkozy (whose obsessive compulsion to save the world from any and every local or international crisis has become a spectacle in its own right) is already talking about changing the identity of capitalism. British Prime Minister Brown (who has found a way to overcome his charisma-challenged political personality by returning to his former job of Chancellor of the Exchequer) speaks of “rebuilding the IMF” and “very large and radical changes”. Even US President Bush (ever the Socratic wonder) is asking tough questions about his own profession, and accepts that “in dealing with the financial crisis, we are really helping people to be able to have a better future themselves”. After eight years in office, it is gratifying to see that George finally seems to grasp his basic job description.
With this final stage gaining momentum, the process of grief from a policy-making point of view can be completed. Although many parts of our global society will continue to feel the consequences for a long time to come (“creative destruction” tends to, well, destroy), it is paramount to start moving beyond the present pain and truly understand, change and celebrate the new reality.
The current debate about the long-term changes to the system is showing promising signs already. The crisis has pulled the pillars of power away from underneath the financial elite and returned them to politicians and intellectuals, at least for now. It is clear that reform is needed, and this shift in power has opened the door to do so.
The answers are not easy to find. Even with proper oversight and regulations- which, by the way, will probably be impossible anyway- our ethical framework does not allow incompetent managers and directors to be truly punished. There is nothing to balance the potential of earning many millions through mere mediocrity. Morality unfortunately dictates that we are not allowed to torture failed managers, or repossess their family belongings, or put their children into foster care. As a result, this is a world in which CEOs of large companies can get anywhere between zero (which seems highly unlikely) and tens of millions of euros (which has become depressingly likely), but face no true consequences for failure. To illustrate, when- only last weekend- the banking and insurance ING Group required Dutch government aid in order to strengthen its financial position, its directors agreed to forgo any bonus package for 2008. Its unfortunate CEO Michel Tilmant now has to survive with a paltry one million euros in basic annual salary. Punishment indeed.
Even more important are the lessons about the broader global picture. Governments everywhere are scrambling to save their own territorial populations, with only ambiguous success so far. Although virtually bankrupt Iceland is an extreme case, much larger economies such Britain, Belgium and Switzerland also have dangerously high exposure-levels to the global financial markets. What is becoming clear is that this retreat towards national solutions is not adequate to the stormy present. It would be as ridiculous as fighting international terrorism by invading a particular Mesopotamian country. It simply does not work. Global problems cannot be solved through narrow territorial methods.
NY Times columnist Thomas Friedman is right when he suspects that “we will find ourselves living in a world of globalization on steroids – a world in which key global economies are more intimately tied together than ever before […] and it will be a world in which multilateral diplomacy and regulation will no longer be a choice. It will be a reality and a necessity. We are all partners now”.
We are partners in a non-polar, integrated world market. It is only by surpassing our stages of grief that we can learn that fundamental lesson. This current crisis should go down as a dark end of the past, and herald a shining beginning of the future. For that to happen, we need to mourn the victims, understand the structural failures, improve our international arrangements, and then celebrate. Celebrate that the 2008 crisis has given us the opportunity to prepare for a new world, for a new century. To misquote Martin Luther King, will we be able to face the fierce urgency of later, rather than staying trapped in the vicious failures of “now”?