Wall Street
Wall Street is again moving up, from equity and commodity prices to bonuses and attitude. By comparison, Main Street is still losing jobs and homes. It is not only in the numbers though. The notion of entitlement appears retrenched amongst those at the top of the economic food chain. On the other hand at least in the United States, Main Street is wondering what is the commitment of their government or American capitalism to their basic social and physical welfare. The social net appears not only to be tattered but with a few more holes for many who believed that they had secured the “American Dream.”
Is the current economic crisis transformational or merely transitional? It depends from whose perspective: the average American, Wall Street or government. The perspective also varies by country.
The Scarlet “D”
The most recent statistics tell of unemployment and “underployment” levels not seen for decades. Worse, home foreclosure rates continue to rise, exceeding previous records.(1 of 7 all mortgages is either in foreclosure or delinquent, as compared to 1 of 10 only a year earlier). More surprising, the highest acceleration in mortgage defaults is among prime or what were considered conforming and very secure mortgages.
That is just the data. The real story is that all those who are currently in foreclosure or possibly have been only delinquent now have had their credit standing spoiled for life, impacting future job, insurance as well as ability to obtain new loans, a “Scarlet D” inconsistent with American entrepreneurial tendencies and values. It is probably not coincidental that most new home purchases and mortgage loans have come from first time buyers, those that have not yet lived long enough to have gotten bad credit. Undoubtedly, many of these young homeowners will get caught up in the next economic downturn and thus experience their own life transforming experience.
Transformational rather than merely transitional is the nature of this economic crisis from the perspective of an unprecedented number of Americans. Some have become direct victims with futures foreclosed. Almost all Americans though have felt if not entirely understood the transformation. A few decades ago, the most common American advertisements were for cars and cigarettes, then beer and cereal. More recently it was personal computers and “dot coms.” Now it’s the consumer credit reporting services and legal advice for debt relief. It does not portend well for a capitalist oriented economy or social welfare when more than a small minority carry a “Scarlet D” into every job interview, health insurance form or credit application.
The Return of the Good Times, & The Old Rules?
Meanwhile, the capitalist markets are overripe with speculation, particularly in commodities. (Rather than home loan mortgages, it is my view that the bubble in other real assets as metals,grains and petroleum, most of which substantially rose above home valuations in percentage terms, triggered the last bubble burst and economic crisis, along with the speculative, perhaps predatory activities in a segment of the credit default swap market).
Caution is again a secondary consideration. The hunt for speculative profits, perhaps better described as “predatory” practices, dominate daily movements from commodity to the equity markets. Compensation maybe is reflective of this resurgent risk appetite, but regardless it is perceived by Main Street as out of line with what was to be a transformational event after the almost fatal brush experienced by the US economy and the massive “bailouts,” (which infusions mostly targeted the big financial institutions, even perhaps if some did not require or ask for the assistance).
A Reshaped Global Savannah
It is not only Main Street that is sending out groans of protest to what is perceived as Wall Street’s return to gluttony. US Congressional representatives along with some regulatory agencies are threatening restraining measures, from compensation limits to legislation that would pare down the “too big too fail” mammoths of the US financial system.
The US Government is not the only concerned regulatory factor though. From Asia to Europe, there is a general perception that more regulation is needed. Not that there is necessarily strong consensus of what changes are needed. Rather, the most dramatic are the challenges to the US Dollar as exclusive reserve currency and to the US bred financial system dominating global capitalism, at least until recently.
Globally Transformational
Regardless of views on US Wall Street, Main Street or Government, this crisis is already transformational in several key respects:
— The economic center of gravity is moving steadily toward Asia. (Perhaps it already has moved as China, the “BRIC” states and other Asian developing economies have been the leaders this time around in leading global economic resurgence, reversing long standing trend of US as trendsetter).
— The current crisis has seen one of the most extensive transfers of real wealth from Main Street to amorphous speculative concentrations of wealth perceived as generally representing hedge funds or Wall Street.
— The US is no longer the beneficiary of almost absolute deference regarding economic or regulatory policy. (Some have judged the US system, lauded for the last few decades, as largely illusory in terms of its stability as well as capacity to be broadly adopted and adoptive).
Do not count the US out yet though. America and Americans have proven the greatest economic resiliency in the past. Part of that is America’s economic liberalism and part is innovation. (Unfortunately both of these crucial factors could be abridged this time around: the US is losing its openness, both in terms of immigration and ideas; the US is being strangled by the weight of past failures, from legacy costs to a rapidly growing segment of population already discouraged from risk taking by an unforgiving consumer credit system. While much “bailout” money has gone into large institutional coffers, still little has trickled down to troubled mortgagors, consumers or small business).
Predatory Capitalism
The US system though does have a proven record of acclimating. Generally it works best with least government interference exactly because regulation tends to constrain flexibility and adaptability. As in all dynamic situations the ability to adapt is critical to turn a danger into an opportunity. The old opportunistic strategies though may not be well suited even as currently there is a return to past behavior. As always though, the financial markets do have a Darwinian character even as predatory behavior may not be the best strategy to survive and prosper. This crisis has not yet had the time to run its evolutionary course, but it is already proving transformational. As in past economic stresses, new fortunes will be made as well as other unsustainable imbalances subject to eradication.
