The Financial Crisis and our Culture

First there is this description of what is happening from a successful investment counselor:

Q Do you think political leaders and central bankers are on the right track in trying to solve the problems?
A What they are doing with these interest rates is totally cosmetic because whether the interest rate is 2% or zero makes absolutely no difference. People are scared out of their wits, scared of losing their jobs, scared that they don't have enough money to pay the rent. You see it already from the banks. All the banks want to do is get their balance sheets in shape so they won't go bust. Every corporation in the land is going to cut back so it won't go bust. That's called a balance-sheet depression because what they are trying to do is make sure that they are not going to go bust and they will do anything to get rid of costs, to get rid of debt in order to survive. And whether you give money at 1%, 2% or 10%, history has shown that people don't borrow until their house is strictly in order, they didn't go out and spend money.

Q What alarms you the most right now?
A What alarms me the most isn't just one thing. We are going into this in the worst financial shape that you can possibly imagine, where the public hasn't saved for something like five or six years, and we started out with a complete collapse of the world banking system.

Q How would you fix it?
A This is not curable the way a normal recession is curable; 1929 wasn't. It's a balance-sheet recession, not a temporary lowering in demand or the inflation recession of the 1970s. The inflation recession got rid of the debt. If you attack this the way you would a normal recession, that's exactly the wrong way.

Q Does this mean you are not satisfied with the solutions tabled so far?
A Absolutely, I never underestimate the stupidity of mankind, which is based on greed and fear and what they do when they are afraid or too greedy. When the emotions rule, you can be sure it will lead to some form of stupidity of one form or another. The idea of saving GM [General Motors Corp.] is the dumbest thing in the world. Let it go bankrupt, let it go renegotiate its wages and put them on the comparable level paid by its competitors.

Next there is this conclusion from an academic paper on why our savings rate is so small.

National saving rates have been declining dramatically in developed countries in recent decades. This paper estimates two models for the U.S., France, and Italy, with both models featuring uncertain future rates of social time-preference. In one model, current social decision makers remain in charge over time. The second model incorporates time-inconsistency under which current social decision makers can only indirectly influence future social decision makers via the amount of capital they leave for their successors.

Parameter estimates from both models show that shifts in societal preferences, which have placed ever greater weight on immediate grati…cation, are the principal reason that the U.S., France, and Italy are saving at much lower rates now than they did in the past. Of course, most future consumption and leisure will be done by future generations. Hence, our results are, in part, indicative of growing intergenerational selfishness.

This isn't a financial crisis. It's a cultural one.

Oh, but fie upon gravity! Let's make merry once more and forget our troubles. How about if we rock out to this flower child, counterculture, do-what-makes-you-feel-groovy chestnut from Crosby, Stills and Nash!

There, doesn't that make you feel better? Thanks, guys. Thanks a lot. We owe you so much.

So very much.