Dazed and confused by the moneymen

November 20th, 2008 at 08:00pm Annette LaCross

Published Nov. 10:

Every day, the news gets a little bleaker.

Like you, I watch the markets, I keep an eye on economic indicators, and I pay attention to the interaction of business and government. I try to read between the lines of balance sheets and press conferences to determine whether what they say is true.

And I watch the headlines.

Let me recap a few from last week: “Government to borrow record funds.” “Lack of credit leads to mounting manufacturing losses.” “Banking industry tightens lending.”

Right about then, I became supremely irritated. Because by now it’s clear that too many of the big lenders are still trying to hide behind the illusion that Wall Street built.

And we all know what happened there.

The wreckage littering financial markets these days — the detritus left behind from the collapse of too many companies to mention — was inevitable, given the amount of risk they allowed themselves and the self-enforced blindness that drove their reasoning.

But I remain in a state of dazed disbelief over the events of the past few years. I find it stunning that so many smart people would sacrifice success for easy money, would mistake the growing demand for questionable securities as a solid foundation on which to build wealth.

A few weeks ago, former Federal Reserve Chairman Alan Greenspan was roundly criticized for some of his testimony to the House Committee of Government Oversight and Reform.

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity are in a state of shocked disbelief,” he said.

I’m with him.

I also believed that Wall Street’s smug preoccupation with its own invulnerability would ultimately protect it, particularly in a place where hours and days are measured in dollar signs. I’m no genius, but even I know that allowing my employer to fall apart just isn’t a smart business strategy.

So it took me a while. But I get it. Alas, that fundamental reality seems to be eluding the remaining big lenders.

Last week’s headlines revolve around one irrefutable premise: Banks must start lending again to keep what’s left of the economy from a further free fall.

The government’s doing its part: borrowing more than $500 billion right now — and that’ll just get it through December — to keep up with the bailouts that have been promised to banks, not to mention the billions more promised to various other groups, including Freddie Mac and Fannie Mae (whose executives marked the occasion by going on a $6,000 golf outing).

The $700 billion bailout promises that the feds will provide much-needed capital to banks as long as those bankers start lending it.

It’s also sending the country’s debt into the stratosphere; some estimates put it at $2 trillion by the time we save everyone who made a questionable decision five years ago.

In the meantime, banks are, for the most part, reneging on their part of the bargain. They’re still not lending.

Oh, they’ll take as many billions as the government offers, but they’re not going to jump back in the game.

They’ve spent all the time they can handle in the game, and every one has been singed — some more than others — because they all got taken in by the same siren song: bad investments cloaked by slippery accounting.

So I have a suggestion for the federal government: Let’s hold off on that loan.

Throwing good money after bad didn’t save all those Wall Street guys. It won’t save the American taxpayer, either.

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