On the Wrong Track

I do not recall a period of more generalized gloom in the financial community than the one we are going through now. The crisis of the New York Stock Exchange in the 1970s comes closest. At that time, the lack of confidence centered around the shaky capital structures of the brokerage houses (also disguised by faulty accounting and incompetent management), the Israeli-Arab wars resulting in an oil embargo and the lengthy bear market that went with it. Today all of these elements are present, but it is the financial integrity of the entire American business community that is suspect, together with its surrounding support system: its boards of directors, its accountants, its investment bankers, its lawyers and the media.

This occurs at a time when we had created our own American brand of popular capitalism, whose broad participation in ownership by Americans was the envy of the world. The $6 trillion of market values that was vaporized by the bursting of the dot-com bubble and by the general decline of the market that followed now affects all Americans, if not directly, then indirectly. The tax increases of state and local governments, together with their layoffs and other service reductions, are just as much a result of these events as are the direct market losses of their pensions and savings funds.

Credit is not a science; it comes from the Latin "credere" meaning "to believe." That is the underpinning of our market system and when that underpinning is damaged, the whole system is in jeopardy. As stock markets give way, credit markets become tighter and credit becomes more expensive, or just unavailable to all but the strongest companies.

This situation is not likely to be reversed quickly. Faith, once broken, takes a long time to repair. This is a reality that is not uniquely confined to the financial system; other, older institutions such as the Catholic Church, are going to be dealing with a similar phenomenon.