By Zachary Karabell
The financial markets are again getting pummeled, both domestically and globally. The nearly $800 billion stimulus package signed with fanfare by President Obama has done little to alter the mood. In fact, if you read through financial websites and assorted blogs on politics, economics, or anything related to those, you will find a nearly endless sea of misery. The level of anger, pessimism, despair, and sheer hopelessness seems to reach new highs every week, in inverse relation to the movement of global equity prices and the size of individual retirement accounts.
It’s been said but bears repeating: global economic activity fell off a cliff after October last year, and has remained there. The implosion of the credit system—built as it was on the flimsiest of foundations, layered as it was onto a few million sub-prime mortgages of homes predominantly in Arizona, Nevada, Florida, and California—led to a near halt of buying, spending, and investing.
But bad fundamentals are only one aspect of what is going on. What makes the present that much worse is a complete meltdown of confidence about the very possibility of a more balanced future. And it’s not just an erosion of confidence. It’s the flourishing of our destructive instincts, the opposite of the “better angels of our nature,” the demons, the whispers in the night that all is about to go up in flames.
We all have our fears, whether we admit them or not. But this has gone too far. In the financial world, there is a game of one-upmanship to find more dire adjectives, and any who dissent and suggest that yes, there will be a tomorrow, and yes, there will be a future of growth, moderate and different but still motion forward and movement upward, they are treated with contempt. Indeed, contempt on the order of those made to walk the streets during the Cultural Revolution with dunce caps and signs of shame around their necks.
Those who bet that the market will go down until there’s nothing left to lose, who are convinced that value will be permanently wiped out—the shorts and the traders—they are enjoying their moment in the sun, and some are undoubtedly profiting from the collective misery. There’s nothing wrong with that in small doses, and almost everyone can benefit from hedging their bets in the market. But you can’t be short forever, and you can’t ultimately profit from everything going down. A few can make money for a while, and if you believe that it’s all survival of the fittest, then you probably don’t care if 99 percent suffer as long as you’re part of the 1 percent that prospers. The sheer delight in “burn, baby, burn” is hardly unique to our age. We’ve been there before, and it leads nowhere, except to a whole world in flames.
So yes, millions are losing their jobs and their homes and we are struggling to figure out what is real and what was fueled by debt dreams. And yet, there isn’t mass starvation, mass homelessness, imminent physical danger, certainly not in those parts of the world that are suffering the most from this credit crisis—the United States, Europe, Japan. The fears and hysteria are based on more intangible issues, though the fear of total loss of home and livelihood and health is just as intense.
While we need to respect that this is a pivotal moment for us all, we also need to halt this pernicious slide into unrelenting negativism. We need to say “enough already,” and recognize that we are hardly the first generation to face challenges, and that a dysfunctional financial system is not of the same order as war, pestilence, or social chaos. The economy contracting by 4 or 5 percent for a few months is a shock, but it is not an excuse for announcing our collective obituary, unless, of course, we want to dance on the abyss and court disaster.
So enough already. Our problems are real; but we are pulling ourselves into a vortex of gloom as powerful and destructive as our one-time belief in our endless capacity for reinvention was powerful and constructive. We can make this better, or we can make it worse. It’s a choice, not a destiny.
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Zachary Karabell is President of River Twice Research, where he analyzes economic and political trends. He is also a Senior Advisor for Business for Social Responsibility. Previously, he was Executive Vice President, Head of Marketing and Chief Economist at Fred Alger Management, a New York-based investment firm. For more information go to www.rivertwice.com.
Photo of Zachary Karabell by Joanne Chan.