“In God We Trust” first appeared in 1864 on a now-defunct two cent coin, the result, according to the U.S. Treasury, of a rise in religious sentiment during the Civil War. “No nation,” Treasury Secretary Salmon Chase wrote then, “can be strong except in the strength of God, or safe except in His defense.” In time, the words were emblazoned on more coins and written into law in 1956 as the national motto. The following year, the government engraved the phrase on paper currency, beginning with silver certificate dollar bills and reaching $50 and $100 bills in 1966. This centurylong process of deification finished just in time for the great run on the dollar in 1971, when the government abandoned the gold standard and Americans were left to wonder just who or what stood behind their currency.
Here we are again — at the brink of global financial and economic meltdown — and the question of the hour is: In whom should we place our trust? And make no mistake: This is a crisis of faith and confidence. Whom should we believe? The banks and investment banks that most immediately brought the financial system to its knees? Sleepy regulators who cast a half-blind eye over the market? Politicians who have done the bidding of interest groups? The market itself, whatever that may be or become?
It is surely a confusing time. Words themselves fail us. If this is a “liquidity” shortage, why do we need a “bailout”? American voters are assured that the rescue crafted by the Federal Reserve Board and Treasury is not for Wall Street but Main Street. In truth, too many of us lived for too long on Easy Street, with nary a care or complaint about where our overblown sense of prosperity came from. Dedicated government officials like Henry Paulson Jr. and Ben Bernanke may be working hard to prevent complete collapse, but they must overcome the legacy of predecessors whose loose regulation and easy money fueled this crisis, and their solutions have felt maddeningly impromptu and vague. Yes, they must be flexible, but hurly-burly and hasty promises don’t inspire most folks —in the markets or not. To solve a crisis brought on by excessive borrowing, the government now must itself borrow excessively. The $700 billion seems like a lot until you consider that, with Fannie Mae, Freddie Mac, AIG and Bear Stearns tucked under its wing, the government is already supporting bailouts that could climb well over $300 billion — and that’s without the authority of Congress or the explicit support, or understanding, of the taxpayer.
Trust us, the Fed and Treasury seem to be saying. We’ll buy damaged assets, though we don’t know yet at what price, or quite exactly how we will value them, but if we don’t buy them things will get a lot worse. So in for a penny, in for a pound.
My oh my, from Ed McMahon’s house to the House of Lehman, this has been one strange year. In March, long ago and in another era, while Bear Stearns collapsed and the erstwhile corruption crusader New York Governor Eliot Spitzer was discovered with his pants down but socks still on, we learned that veteran TV pitchman McMahon faced foreclosure on his multimillion-dollar home. How could this be? we wondered, followed shortly by: Am I next? No, but 158-year-old Lehman, which could not get a bailout, as McMahon did from Donald Trump, was. Then the doors of Armageddon swung open.
Lehman’s bankruptcy, some say, was the thread that, once pulled, unraveled the financial system, helping to take down AIG, send Merrill Lynch into the arms of Bank of America, and put Goldman Sachs and Morgan Stanley up against the wall, before they succumbed to the inevitable and, presto chango, became commercial banks one magical Sunday night, while the children of Wall Street’s centurions prayed there’d be no school the next day and their parents wondered if they could continue to pay tuition.
What can be stranger than this sequence? Before embracing its inner commercial bank Morgan Stanley briefly turned to Wachovia as its savior. Hardly a week later, a suddenly barely breathing Wachovia agreed to sell itself to Citigroup, previously thought to be at the brink but now proclaimed by its leadership to be a bastion of safety and strength. Not long ago, the overstretched Citi was prohibited by federal authorities from buying any more companies — and that was before it posted the first of what will soon be four consecutive multibillion-dollar quarterly losses. But, then, before the ink could dry on that $2.2 billion deal — arranged by the FDIC, with Citi agreeing to absorb the first $42 billion in losses! — Wells Fargo swooped in to buy Wachovia in a stock swap valued at $15 billion, in which Wells says it will need no government assistance at all.
How can an institution like Wachovia be valued in such wildly different ways over such a short period of time? How can anyone be confident of a market where such things are taking place?
And yet trust and confidence are the underpinnings of any market system, and they must be restored, which is why, like it or not, government — in the U.S. and around the globe — must intervene one way or another. That alone will not be enough, though. Systems that seem preordained, like governments or markets, are not: They depend on the continued willed consent of their participants. The test of faith for markets now comes, in America anyway, at a time when faith in government is also at a low ebb. This means, in effect, we have lost faith in ourselves.
How to restore faith and confidence? Perhaps we should first acknowledge that we have all — from Wall Street titan to government bureaucrat to homeowning citizen — had a hand in the madness that led to this crisis. Now, of course, we want to blame anyone but ourselves, our firm, our political party. But if we want to build a system in the future based on openness, we should be honest; if we want accountability, we should accept our own. A friend, who happens to be a Buddhist, says that to truly forgive another is to know and accept that that person will commit the same offense again. It is our nature, after all. We should think of ways to manage our worst impulses in the future, but we should start now with forgiveness — and not just of our debts.
