Too few lifeboats
In 1912, White Star Line Chairman J. Bruce Ismay proclaimed the Titanic as “unsinkable.” On its maiden voyage from Southampton to New York, and despite warnings of icebergs in the North Atlantic, the ship’s captain recklessly ordered “full speed ahead.”
The rest is history and movie fare.
Of the 2,220 people aboard, 1,513 perished. Everyone had been issued a life vest, but when the time came, there simply were not enough seats in the fewer-than-required lifeboats. The arrogant belief that nothing bad could happen to the Titanic ultimately led to its demise.
Last week, this same arrogance raised its head with the prospect of a Wall Street meltdown. Congress threw a life jacket to the financial institutions and to those who had gambled to make money on mortgages they could not afford. But was it enough to relieve the severe suffering of ordinary men and women and the lives of many small businesses?
Many people panicked.
The yield on Treasury bonds fell dramatically as investors fled from equities, corporate bonds and even money market funds into government bonds.
Other investors went further by investing large amounts in gold exchange-traded funds (ETFs), bullion and coins. Indeed, the fabricators of gold bullion bars and coins worked around the clock to make enough to meet the new historically high demand for their products.
The initial unwillingness of Congress to support the Treasury’s pleas for help illustrated a deep-seated distrust of the administration. It was the same government that sowed the seeds of the Wall Street crisis by flooding the world with excess dollars at below-inflation rates and overrode the anti-predatory lending laws of individual states.
Far from accepting blame for causing the current financial crisis, the government has sought to blame the property crisis, which is merely a symptom. In 1912, the owners of the Titanic blamed the disaster on an “act of God” rather than on their own hubris-inspired mistakes.
But by “saving” Wall Street, everyone is given a life vest. Will there be enough places in the lifeboats if the economy sinksâ¢ What about the hundreds of millions of honest, hardworking Americans who have lived within their meansâ¢ They appear to have been pushed into the lower decks of second class and steerage.
The Treasury plan might save Wall Street, delinquent house occupiers and even foreign holders of “toxic” investment waste. But it is unlikely to save the real economy where hundreds of millions of ordinary men and women live and work.
Despite its enormous size, the Treasury package is too little too late. The American economy appears headed for deep recession, if not depression. Wall Street financiers will survive and even make fat salaries while executing the government plan. But, with a fast-shrinking economy, many small businesses will go to the wall and millions of people will be laid off.
Just how filled with hubris and unaware of reality our leaders are was illustrated vividly in the president’s praise of the Treasury bailout. “(E)veryone needs access to credit and this package will free up the credit markets.”
Understandable in times of expansion, it is ridiculous to think that earnings can be replaced by credit — when sales are falling, businesses are shrinking and unemployment threatens.
Furthermore, it was cheap, excessive government credit that caused the property bust in the first place. To offer yet more credit as a solution is yet another Titanic move.
What America needs is a gradual return to the profitable practicality of an economy that is producing more than it consumes. But that requires the temporary acceptance of lower living standards and leadership of the highest caliber.
The captain of the Titanic was frozen in the belief that his ship was unsinkable. But even the largest ships and economies can sink.
Inspired leadership would organize lifeboats with space for all passengers, including the majority of folk in steerage. It is only in this way that our ship of state truly can sail on.