What's Been and What's Ben

We are in a recession. Why? Common opinion goes like this:

• the government subsidized housing because everybody should own a home
• banks give out loans they should not (and that people should not have taken)
• meta-banks sell credit default swaps (CDS, insurance for the bad loans)
• credit rating agencies give these CDSs abnormally high ratings
• a lack of regulations makes it so these CDSs can be meaningless
• surprisingly the bad loans fail
• the financial institutions holding these CDSs (think of a hot potato) lose lots of money
• the Federal Reserve Bank does what it can: lowering interest rates to the floor
• a low interest rate accelerates the rate bad loans are given out while patching the hole
• over one trillion dollars of taxpayer money is spent basically to subsidize the homes, cars, and boats that people bought and could not afford.

During the last decade the average household gained on average half a room (bathroom or half a bedroom) without any real financial improvement. To the surprise of financial analysts our economy was not able to sustain itself with a large portion of the country living further in debt than they could afford. It did fuel consumer spending a bit. Giving help for housing was putting the cart before the horse. Homes are the average family’s largest asset and a sign of economic prosperity and not something that can be artificially created. It was something that democrats and republicans can get on board with because it helps banks because they get more business (Elephant) while giving people homes gives you a warm feeling inside (Donkey).

How do we get out? Time is my guess. The houses were already built in the bubble on credit. We can’t just all move to a slightly worse house because that would leave the nice ones empty. Our credit momentum will die; moved forward slightly at the cost of the stimulus packages with interest on my generation. We will survive. America (United States of) is the best place on earth for capitalism. When fear and reactionary politics take hold of the nation’s mindset we act like a cornered animal when even a recession more profound than The Great Depression would leave us better off than most people in the world. It is not just our love of freedom, but our application of its advantages that have served us well.

What are we not mentioning? Well, science, engineering, and education are the best thing America has ever had going for it – and we have ignored it too many times. The patent system, as annoying as it is, in combination with the trend that Americans have educated themselves well have been the guiding light for us. Year after year of underfunding and ignoring the most foundational aspect of our society has made the ground fall out under us. Perhaps our relative comfort has made us lazy; a malaise induced by almost two decades of being the only remaining superpower – for whatever that is worth to a terrorist cell. Perhaps an split in education levels made it too easy for the educated bankers to take advantage of simpletons that just signed on the dotted line.