Mid-September 2008 on Wall Street was like late August 2005 on Bourbon Street. Locals watched the calamitous floods sweep away institutions and destroy jobs while they helplessly wondered: Will the levees hold? The government made sure to provide reinforcements in both cases.
Both the market meltdown and Katrina were storms of biblical proportions. But now that the storms have passed, we’re left to wonder: When will the next time come, and what will happen then?
That’s hard for financial publications to predict, let alone Catholic newspapers.
What we can do, however, is look at the storm on Wall Street, at least in its broad outline, and take a few lessons from it. And where else to look for lessons about a “biblical” storm than in the Bible?
First lesson: Joseph was better than Greenspan.
In the Book of Genesis, we read the story about the Alan Greenspan of ancient Egypt, Joseph.
Joseph was a lot like the former Federal Reserve chairman, who retired in 2006, but whose spirit animates Wall Street as we know it. Joseph got his job running Egypt’s grain-based economy by interpreting Pharaoh’s dream. Greenspan got his job by “interpreting the dreams” of the key players in the market.
Where the two diverged was in their approach.
Joseph saw that seven fat years would be followed by seven years of famine. During the fat years, he methodically saved grain to use during the lean years.
Greenspan managed his tenure differently. To use the analogy of ancient Egypt, Americans didn’t store their grain during the fat years. Instead, they vastly improved their tents and huts based on the assumption that the next seven years would be even fatter. And then, during the seven lean years, they didn’t curtail their lifestyles. If anything, they escalated them, this time using IOUs as their currency instead of grain — IOUs that assumed the fattest years ever were still to come.
And the Egyptian traders didn’t just trade grain for goods. They found ways to bundle IOUs together and trade them with each other so they could fund their own lavish lifestyles.
Greenspan, as Joseph, decried “irrational exuberance” even as he encouraged it by playing with IOU interest rates. What more could have been done is unclear. But more should have been done.
In Pharaoh’s original dream, skinny cows devoured fat cows. On Wall Street, eventually, the skinny cows stampeded, trampling what they didn’t devour.
The lesson? Save more grain. The “Greatest Generation” that won World War II understood the importance of savings. Kids got savings accounts at first Communion time. Personal finance self-help books said: first, save. You only bought what you couldn’t pay for if it was an absolute necessity. When you got a house, you put 20% down and started a 15-year mortgage.
The baby boomer generation started to play with the rules. Their kids took it a step further still. Soon, the economy wasn’t only about trading real goods and services — it was about trading debt. After that, it wasn’t the power of a good idea and the strength of a better business that drove economic numbers. It was the power of a good interest rate or a better-leveraged business.
We need to go back and learn again from Joseph.
A second lesson: Joseph’s brothers were right about that coat.
The other incident that Joseph is known for, of course, involves the beautiful tunic his father had made for him back when he lived with his brothers in the land of Canaan. Joseph had wild dreams of becoming more powerful than his brothers. The tunic became kind of a visual representation of his great expectations.
The emphasis on dreams and fancy clothes provoked such outrage in his brothers that they tossed him down a well and ripped the tunic to shreds. It was only through the humbling experience of being sold into slavery and having to do the real work involved in organizing an Egyptian household that Joseph became the great financial leader he was in the end.
One icon of the Wall Street meltdown was the Lehman Brothers’ flashy Times Square headquarters. “Rumor has it that Lehman Brothers,” reported Fortune, “recently wanted to turn off the firm’s signature Jumbotron, the giant panels that flash the Lehman name day and night at its headquarters in New York’s theater district. Running the lights, the story goes, was costing Lehman $500,000 a year.” The city wouldn’t let them, because a flashy Times Square is important to Manhattan’s image.
It’s a symbol of the strange world we have become, where the appearance and dreams of greatness are so often confused with real greatness, and we demand the image be maintained.
Modern professional sports has become a strange phenomenon, with men in pajamas making millions of dollars for playing games. But athletes at least produce an audience willing to pay to watch them.
The overcompensation of players on Wall Street is far weirder. It has produced the kind of figure represented by Sherman McCoy in Tom Wolfe’s Bonfire of the Vanities. He’s a bond trader who considers himself a “Master of the Universe” because he gets rich on the “golden crumbs” that fall from the table of legitimate business. But he produces nothing.
The insane envy of Joseph’s tunic is like Lehman’s money-draining Jumbotron, which stayed on even when the company went under, or Sherman McCoy’s ill-fated Mercedes: too much attention paid to the visual symbols of a status that has yet to be earned.
There’s a reason the Old Testament compares love of money to idolatry and the New Testament calls this love “the root of all evils.” When mammon becomes the real master of your universe, you can expect cruelty and ruin.