Our bubble behavior

When we look at the current economic situation — as it affects individuals, towns, states, nations, the world —we confront complexity of a kind few can accommodate. The ultimate lesson drawn, given our limitations: human economic systems are terribly fragile.

We are amazed at the corruption, greed and outright stupidity involved in those systems’ undoing. And we are saddened by the peripheral nonsense that goes on in its wake — in particular, the unschooled commentary that, far too often, takes partisan political turns in the road, at a high rate of speed.

Many “experts” say the current recession is not likely to spiral into a depression (though some folks would argue that places like Pagosa Country and Detroit, for example, have indeed experienced an economic depression). They predict an upturn in the near future (that future coming as late as 2011).

We are thrilled to hear the news, remembering that predictions are feeble creatures. But, we wonder — with all that we do not know, and all we do not understand — if we are headed toward another bubble, back to the same old business of boom and bust that has dominated the economic picture for some time.

We are intrigued, and somewhat amused by arguments involving accusations of ominous governmental interference and “socialism” advanced by one extreme political faction, as well as by the calls for more government input and control from the opposite faction. Looking at the situation, with our limited knowledge, and history in mind, we are naively content with government rescuing banking institutions; even the great free market advocate Milton Friedman argued that government should have saved banks in short order prior to the Great Depression. Yet we worry about government saving insurance companies and mortgage lenders, and buying into the auto industry. And we are fairly certain that, if the current administration is “socialist” in nature, true socialists are angry with our government’s agonizingly slow move in their direction.

We just don’t know enough to go deeper into the details of this complicated mess.

We do know one thing, though: the root of these economic woes can be seen in the great disparity between debt and equity and, in simpler form, in the greed displayed by lenders, investors and consumers prior to the most recent bubble bursting.

In short, way too many among us borrowed way too much, with way too little real equity and few means to repay while, at the same time, greed-monger bankers and traders, and the denizens of a financial sector that had far outpaced productive industry in the U.S., created more and more clever ways to move money around and, most particularly, to move profits to their own pockets. And we know way too many of those profiteers have little if any regret.

Too many of us borrowed too much on credit cards with dubious terms. Far too many of us purchased real estate under the mistaken assumption it was an active investment — lured by the seemingly unending uptick of value as the bubble grew. Homeowners were ecstatic as property values skyrocketed, as they dreamt of big profits upon sale. But, look at many of us, now. To understand the trap into which we fell, all we need to do is check our most recent Notices of Valuation. They are based on values set in fat times; now, homeowners are stuck with properties with far less market value. And the howling is loud and long.

Yes, it is our greed that is at the bottom of all of this. It is just that some — the Wall Street overlords, for example — were crafty and selfish enough to profit mightily and at others’ expense — while the rest of us were content with the illusion of smaller gains.

A key question now is, How are we going to behave when things get better? And how are we going to allow others to behave? Have we learned anything? Karl Isberg