Shared Sacrifice: Call for New Leadership

Shared Sacrifice: Call for New Leadership

It all started the day the world ended. The world as we knew it that is. September 15, 2008, the day Lehman Brothers, the fourth largest investment bank in the modern world, came crashing down. On that day, we began a fast and furious downward debt spiral. Panic set it, fear took over and the rest, as they say, is history.

We could really claim that the end of the booming world we knew began its deep slide even before that – on April 28, 2004. That was the day that the Securities & Exchange Commission lifted a small and innocuous “rule” that led to enormous consequences. The “net capital rule” allowed the markets to grow by leaps and bounds levering upon levering, 10-20-30-40%, higher and higher soaring up into the financial stratosphere. Only to fall where all giants fall…on the ground with the rest of us. Within four years, the little rule would help bring an end to investment banking as we once knew it.
 
Yet we could say there were other days too on which the world we knew began to crumble. There was a particular day in the last session of the 2000 Congress when the Commodities Futures Modernization Act put credit default swaps on the table without limits or conditions. Ultimately this seemingly insignificant event contributed to the collapse of AIG. Then there was the day in 1999, when the Depression Era Banking Act commonly known as Glass-Steagall was reversed leaving only the FDIC intact—thereby guaranteeing the future of highly leveraged too-big-to-fail speculation. These “days” did not by themselves cause our current economic crisis, they were helped along by an out-of-control mortgage lending industry and voraciously hungry American public who hoped they too could profit from overinflated home prices.
 
As Warren Buffet points out to Charlie Rose, the bursting of the housing bubble brought our economy to its knees and continues to keep it there. When 67% of the American population’s greatest asset is their home, a steep decline in market value is dramatic and dangerous.
 
And so here we are in the summer of 2011 paying the high price for our lack of collective caution with a deleveraging and over-indebtedness that threatens the stability of the modern world. The growing debt crisis in Europe, the dysfunctional U.S. leadership, the tightening of Congressional purse strings—in a time when credit and capital are already anemic—all confirm that the pre-2008 market euphoria is not coming back anytime soon. We could view it as the end. And hopefully it is the end of a reckless disregard for the unintended consequences of our actions. Yet at every end, there is also new beginning.
 
Taking Stock
Where do we go from here? Beyond the numbers, economic forecasts and macroeconomic theories, something else is at work. Underneath the market talk lies a schizophrenic moral dilemma between shared sacrifice and “what’s mine is mine and what’s yours is mine too.”
In America, our current conundrum lies in the fact that only a portion of our population believes in doing their fair share to help others. They stand in stark contrast to the remaining population who simply refuses to shoulder the burden for anyone other than themselves. Nowhere is this more pronounced than in Washington. U.S. lawmakers have reduced the argument of shared burden and sacrifice to the ultimate in self-interest. They forget that short-term foolery is how we got here in the first place.
 
If we learn nothing else from the mortgage market meltdown, we should learn that the market regulator of “self-interest” that former Fed Chair Alan Greenspan held so close to his heart is (in his words) deeply “flawed.” Our regulators took the dive for the short end money back in the mortgage euphoria days – rating agencies, SEC, OTS, OCC, Federal Reserve, FDIC and every other organization charged with oversight failed in their mission to maintain balance in the system. We are repeating history once again. Self-interest cannot fix the system that was damaged by the competing self-interests of market makers.
 
The American psyche is hard-wired for short-term memory loss. We tend, as a culture, to forget where we came from and think only of the moment at hand. What do I want now, we ask? Our oversimplification forces us into a box. Thinking out-of-the-box requires us to stretch our minds beyond our comfort range.
 
The obvious manifestation of this is revealed in our current economic policies. The “either-or,” “yes or no,” “black or white” philosophy that brought us to this economic brink continues to leave us vulnerable. We want things to fit into nice neat packages. For example, do we cut spending and entitlements or spend more to stimulate job growth? Do we tax more to increase revenue or tax less to spur investment? Yes, no, maybe….Somewhere in the grey lay the answers.
 
In a recent Op Ed by Warren Buffet, the billionaire investor declares that the U.S. government should increase taxes for those earning $1million or more. That means 236,883 wealthy households would bear the burden for all. Billionaires such as WB, (8,274 U.S. families) should pay even more he says. Critics claim that this tax burden would inhibit investment. Warren counters that in 60 years of investing, “I have yet to see anyone—not even when capital gains were 39.9 percent in 1976-77—shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off.”
 
The issue that Buffett brings up in his argument is one of “shared sacrifice.” While we ask union workers to reduce their wages and benefits, can we not ask billionaires to contribute too? In Warren’s mind, the only people who are asked to sacrifice are poor and middle class soldiers fighting our battles in the Middle East, and the rest of Americans who “struggle to make ends meet.” He calls on the “billionaire-friendly Congress” to create a more equitable distribution of responsibility.
 
Buffet claims that many billionaires (and millionaires) “wouldn’t mind” paying more taxes to help “fellow citizens [who] are truly suffering.” He may be right about that. Yet the question they would surely ask Congress would be: What are you going to spend my money on? If Congress answered that it would stimulate job creation, lend to small businesses and spread the wealth through the middle class to boost spending – they might say yes.
 
It is not so much that Americans are unwilling to “sacrifice” for others. It is more that our policymakers are unwilling to sacrifice. The “what’s in it for me crowd” seems to have hijacked our political system. Shaving off “entitlement” programs like Social Security, unemployment and Medicare that would create more hardship for those already struggling not only results in increased resentment, it jeopardizes the system. In America, our economy functions most efficiently on a shared prosperity model. Yes, unions are called to sacrifice; yes, workers who are lucky enough to have a job are asked to contribute, but they are not the only ones.
 
Warren Buffet is making a clear and bold statement to our nation: it is up to all of us to share the burden for the mistakes of our past. The reality is: we are in this together and must be in this together to get ourselves out. Still the message of self-interest rings loud and clear. Lawmakers and their constituents continue to ask, “What’s in it for me?”
 
Don’t Ask Me
During a Bloomberg TV market hour, broadcaster Margaret Brennan read an email response to Buffet’s call for help. It said simply: “Write your own check. Don’t ask me for more money.” Ostensibly the note was from a millionaire or billionaire telling WB where to stick his altruism. Yet why would we even entertain this primitive mindset? What does this kind of self-centeredness and lack of insight really accomplish?
 
We are a pivotal point now in the evolution of American culture where we are called to be greater than we have ever been before. We are forced together in a state of economic emergency where our actions—collectively and individually—will determine our future. So what’s in it for you if you pay more taxes, shave off some health benefits, or pay into the system that stimulates job growth for others? A healthy America—that’s what. Why would anyone at either end of the spectrum say no to that?
 
So here we are at the end and also at the beginning. The world we knew is over, yet a new one rises before us. Our choices are simple. We can repeat our old mistakes and use blind self-interest as our guiding light. Or we can create a new system where each of us bears a bit of the burden for the sake of the other.
 
It’s not about carrying others who refuse to help themselves. It is not about paying the price alone. Rebuilding the nation’s broken economy is a shared journey for anyone who lives here. We may not have destroyed it personally, but it is up to us collectively to repair it. After all, this is our home. This is our future. This is America – the land of hope and plenty. If we don’t fix it as Warren Buffet suggests, who will?