Future negligence is being planned today…and we need to start paying for it now. In the run-up to the Great Recession, very few people saw the warning signs…and some who saw the warning signs then believed incorrectly that business leaders would act responsibly in time to avert the crisis. Today, the warning flags of our next great financial catastrophe are being boldly waved for all to see. And…recommendations are already being made about how lawmakers might prepare. It’s truly sad, however, that these preparations aren’t being proposed to avert disaster…they’re being planned to simply pay for it once it happens.
In the midst of intense debates on the federal deficit and debt…with a vote in Congress being required soon to raise the debt ceiling…Standard & Poor’s issued a report that seems to be meant as a wake-up call. Here’s how two news articles have characterized it:
From a New York Times editorial, April 19, 2011:
“…it was encouraging to see markets recover quickly from the news on Monday that Standard & Poor’s had lowered its outlook on the United States rating from stable to negative. Still, the announcement is worth reflecting on. The gist of the report is that the credit standing of the United States will be impaired unless credible political action is undertaken to address its long-term budget deficits and large national debt burden. In what amounts to a warning to lawmakers and other government leaders to get moving on deficit reduction, S&P said that there was a 1-in-3 chance that it could lower the AAA rating of the United States government within two years. That could cause interest rates to rise and to stay high, increasing the burden of paying back the debt and weakening the economy at large.”
From Shahien Nasiripour, Huffington Post, April 20, 2011:
“The financial system poses an even greater risk to taxpayers than before the crisis, according to analysts at Standard & Poor’s. The next rescue could be about a trillion dollars costlier, the credit rating agency warned. S&P put policymakers on notice, saying there’s ‘at least a one-in-three’ chance that the U.S. government may lose its coveted AAA credit rating. Various risks could lead the agency to downgrade the Treasury’s credit worthiness, including policymakers’ penchant for rescuing bankers and traders from their failures ‘The potential for further extraordinary official assistance to large players in the U.S. financial sector poses a negative risk to the government’s credit rating,’ S&P said in its Monday report. But, the agency’s analysts warned, ‘we believe the risks from the U.S. financial sector are higher than we considered them to be before 2008.’”
Now…here’s my translation: 1) systemic financial risk is at a higher level than it was just prior to the collapse of 2008; 2) mega-banks that were ‘too big to let fail’ before are even bigger now, and they are still basically unregulated in their management of risk; 3) in the event of another systemic financial failure, our already huge federal debt will make it much more difficult to absorb the shock to the global economy; 4) lawmakers and administration officials, therefore, need to significantly reduce the federal deficit and debt now to make our economy more resilient when another $5 trillion of debt is heaped on taxpayers in the next bailout. Oh, and one more thing…5) middle-class, poorer and elderly people will have to pay a disproportionately high percentage of this future bailout.
I don’t see Democrats or Republicans addressing this issue in any responsibly, pro-active way. Perhaps I’m naïve, but I believe most Americans would prefer to deal head-on with the mega-banks in their size and in their exposure to global risk. Sure…we need to work creatively to ‘right size’ our government, to share the pain across all economic classes, to reduce our dependencies on multi-national corporations and mega-banks, and to incrementally decrease our federal debt without irreparably damaging the environment or our social fabric. It is total negligence to focus so much attention on the deficit and debt while pretending that other equally important risk factors don’t even exist.
I wish I could trust politics-as-usual to get this job done, but I just can’t. I do, on the other hand, trust that the American people can accomplish all of these things, and much more…but not without a lot of soul-searching dialogue and inclusive deliberation. If the American public chooses to be actively engaged in plotting a responsible course into the future, we will grapple with all inter-connected risk factors rather than just the ones that are popular among the pundits and lobbyists. When the American people find out who’s supposed to pay for the next bailout, we may find many more people who are ready to be pro-active in finding some long-term solutions.