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Sometimes, life hands you a metaphor which is just absolutely perfect.
I think that's the case with the current meltdown in the financial markets -- it's a wonderful metaphor for the ecological sustainability mess we've gotten ourselves into. Or it would be, if the average American stopped to think how we came to the brink of a (the?) new Great Depression.
It's not really about sub-prime mortgages. There have been sub-prime mortgages for decades. There's nothing wrong with a sub-prime mortgage -- nor any sub-prime loan -- if it's properly underwritten, properly priced, and properly managed. "Sub-prime" is merely a code word for "high risk", and risk can always be priced.
The problem with the recent batch of sub-prime mortgages is that they weren't properly priced, based on their risk characteristics. The lenders lied about the pricing -- to the borrowers, to themselves, and to the financial institutions to which they then sold the loans. They got sloppy about underwriting their product, because they thought they'd externalized the risk by selling well before the rates adjusted -- well before the default risk became significant.
Bankers (investment and otherwise) who bought the loans also lied to themselves and their shareholders. They got sloppy about the underwriting on their purchases, because they thought they'd externalized the risk by swapping securities which commoditized the costs of potential default. And they were able to do those swaps with no underwriting because US law had been changed (at their behest) to eliminate any form of regulation. With no adult looking over their shoulder, financial institutions were able to pretend not just that debt was an asset, but that even the risk of default on debt was an asset. Buy it now, carry it on the books at an inflated value, appear to be highly profitable, and get a big bonus at the end of the year!
Of course, when the music stops playing -- in this case, when mortgage interest rates adjust -- it becomes harder and harder to justify the inflated value at which you're carrying those putative assets. The results are only too clear to see. There just aren't enough chairs for everyone, no matter how hard we pretend otherwise.
It didn't take a rocket scientist to know that the US economy was being turned into a house of cards. For years now, the government and the media have been talking about the "strength" of the US consumer -- how US consumer demand was carrying the economy. At the same time, reports made it clear that US consumer debt just kept going up -- people were borrowing to finance day-to-day purchases (even on days when they didn't buy 54-inch flat screen TVs). The more reflective commentators predicted that there would come a time when the US consumer would be "unwilling" to take on more debt, and that this would lead to economic slowdown. Meanwhile, anybody with a three-digit IQ knew that consumers weren't going to become unwilling to take on more debt, they were going to become unable to service the debt they'd already taken on. Predatory lending and punitive bankruptcy laws only made the situation more dire. The rules were consciously rigged to encourage lending to folks who didn't have a snowball's chance in hell of ever paying off what they owed. But the short-term profits generated by that irrational lending behavior blinded the professionals. They looked, they saw that it was good, and they were absolutely wrong.
So what happens in the long run? Well, the real costs of this fiasco (these fiasci?) fall to you and me. And lots of other folk. Costs don't disappear, they just get externalized -- that is, imposed on some third party. That's true with the financial disaster (where do you think the $85 billion to bail out AIG is going to come from? The bailout fairy?), and it's true in the ongoing ecological disaster. The folks who have gotten rich profiting at the expense of our ecosystem (and who are bellowing that their ability to get even richer on the same terms is being threatened) are imposing tremendous costs on all the rest of the world. Those costs are now just barely starting to come due, but it's getting to be whirlwind-reaping time.
Folks like to quote Mark Twain: "everybody complains about the weather, but nobody does anything about it." They use their conviction that we can't affect the weather (and so, the climate) to maintain a state of denial. But NASA has recently confirmed what has earlier been reported in Asia and eastern Europe -- weekly patterns of human activity do affect the weather.
Sustainability wonks like me talk about a "triple bottom line" -- sustainability as existing simultaneously on ecological, economic and social fronts. I'm hoping that the combination of metaphor and scientific fact will present us with a societal "teachable moment". I'm not a scientist and, as this post adequately proves, I'm not much good at metaphors. But if my reach exceeds my grasp, at least it's in service of the only physical environment we've got. Depressions come and go (after all, the one in the 1930's was the "great" one because there had been many previous). Depressions we can survive. Ecological disaster might well be a different story.
