Monday, September 29, 2008

The Banking Crisis, Teshuvah, and Rosh Hashanah

Even in Israel we hear about the financial crisis plaguing US banks and sending shockwaves around the world. The combination of the devaluation of the dollar combined with the drop in the stock market has especially affected the poorest of Israelis, who count on donations from the US to make ends meet, as noted in this piece in the Jerusalem Post. (And not all of them learn in Kollel. Many are just poor.)
So, we all breathed a sigh of relief when the US government announced a massive bailout plan aimed at stemming the crisis, relieving the pressure on the banking industry, and returning Wall Street to normal. Many pundits - both political and financial from across the spectrum have come to agree that no matter how distasteful the bailout seems to be, non-intervention on the part of the government would bring even greater pain and calamity than the cost of the bailout.
It sounds true. But the bailout still bothers me - not because of my conservative "small-government" leanings. Rather, the bailout bugs me because of teshuvah - or the lack of it.

Rambam, along with so many other authorities, divide the process of repentance into a series of steps. First, one must regret one's past. Then I have to abandon the sin -- in essence, stop sinning. I must also confess my sin, either before God, if it's a ritual sin, or to my fellow man, if I harmed him in some way. Finally, I must definitively decide to never again return to my sinful ways. I must make a commitment never to transgress that sin again in the future. Without any one of these components, one cannot call himself truly "repentant." There is no real teshuvah. After all, can one truly call himself repentant if he doesn't regret his behavior? Or if he cannot commit himself to change in the future? Each and every component carries critical weight; without it teshuvah is lacking and faulty.
What then is the sin of the banking crisis plaguing Wall Street? Who is the guilty party - the sinner that must repent? While one might want to point the finger at some executive, who made the bad bets that sealed his or her bank's fate, that's only partly true. To my mind, we are all guilty. We're guilty of trying to transform a system designed to foster economic vitality and growth into a monetary printing press. We didn't just want our investments to grow. We wanted them to skyrocket, because normal, slow growth wasn't enough. In essence, we have been guilty of the cardinal sin of greed.
For some reason, I've always been a "buy and hold" kind of investor. My uncle bought me two shares of Dow Chemical for my Bar Mitzvah, and I've still got them. Only now they're six shares and worth several times their original value. But that type of investing doesn't really work right now. You see, investors aren't interested in slow growth; they're interested in meteoric growth. They don't want to know that you've made money for the past forty years. They want to see that you've got a plan to make significantly more money in the near future, or else your stock isn't worth holding on to -- and then it's not worth that much at all.
Shareholders get it, as do corporate executives, so they take steps that might not be in their long-term best interest to spur short-term growth. They front-end their stock options, and don't make plans for a viable long term future. I owned UPS for five years. UPS is a great company; it serves a need worldwide, and makes money year after year. And yet, its stock is worth less now than it was when I bought it. That's the world of investing in which we live today.
Banks got it too. It was not enough to make small profits by lending money to solid potential homeowners. That didn't bring a large enough return. So they started making even larger bets, and enjoying larger returns, a process that only fed upon itself. Until the whole house of cards came crashing down.
I really do feel that this crisis is something that we've all created and fed. Unless we all change fundamentally; unless we change our outlook on work and investing; unless we stop viewing the stock market as some type of slot machine that will safely and reliably keep on making payouts - we will only revisit this crisis again.
Which brings me to my problem with the government's bailout. I really do understand what it's trying to prevent: recession bordering on depression, rising unemployment, widespread misery. Who wouldn't want to avoid such a disaster?
And yet I wonder: Other than that scenario - other than real pain, spread throughout the country, and even the world - what can possibly change the underlying attitude that brought us this crisis in the first place? Where is the teshuvah? Where is the regret about the past? Where is the commitment not to commit the same sin in the future? Sure, the goverment will provide oversight, but how can government even hope to reign in a normal emotion and desire without the need to worry about the consequences?
From another vantage point, the US government is only going to make things worse: all it's really done is shown people that no matter what bad decisions they make; no matter how greedy they get and no matter how much money they lose - it won't be their responsibility. They won't have to pay the price. Someone will step in and save them.
Until someone won't.
I worry about the next time. Where is the US getting the $70 billion to finance this bailout? We're borrowing the money, of course. That's a lot of money to borrow. Who's lending us the money? What's going to happen when someone - or everyone - loses confidence that the US government - the biggest bank of all - can pay back all that money that it owes?
Then we'll have a run on the biggest bank - us - and every other bank as well. And then the "depression" that we're avoiding this year will seem small in comparison, a minor scrape compared to the terrible trauma we will then endure. And the US government will be powerless to prevent it.
I truly believe in the power of pain. No one likes pain, but everyone grows from it. In fact, pain is our most effective symbol of growth. Pain is also our natural radar system, warning us when we're going too far. Imagine a child born without the ability to feel pain. Rather than fortunate, that child must be watched and guarded at all times, because he has no ability to sense just how dangerous his actions might be. What about the parent constantly shielding his daughter from painful situations? Is that protection productive? Hardly, because his daughter never learns how to navigate life situations on her own.
And that's what's happened to us - to American society. In our unwillingness to feel any pain at all; to suffer through the relatively mild pain of a recession, we are losing any ability to sense our own limits. Run out of money? Borrow on a credit card. Maxed out your credit card? Refinance your house. Until no one wants to buy that house, and the bank forecloses. What's going to happen when the foreclosure isn't on Main Street, but on Wall Street?

It sounds depressing. It really is scary. But I cannot see how I'm misreading this situation. Am I missing something? Is there a silver lining? Is there any way that our society of debt - and living beyond our means, both as individuals and as a society - can escape unscathed? I don't see how.

But I sure hope I'm wrong.