The Excess of Fear

Today, the Associated Press reported an interview with Lawrence Summers, Director of the National Economic Council in which he stated “Fear begets fear” and that Americans are exhibiting an “excess of fear” about the economic crisis that must be broken in order to “reverse the downturn”.

Summers is all too glibly invoking FDR’s observation that “the only thing we have to fear is fear itself”. This is especially true when he says that we have undergone a “transition from an excess of greed to an excess of fear”.

Here’s my point. Summers is pretty close when he talks of an excess of greed leading to an excess of fear. But, to me the issue isn’t about fear. It’s about trust. The excess of greed—perpetrated by major financial institutions and, seemingly, supported by economic experts and government officials at the highest levels (think “Dub” and his minions) have seriously eroded the trust we have in our financial institutions, the trust we have in our economy and the trust we have in our future.

That’s even worse than fear. Fear, like the fear that a child has of monsters lurking under the bed, can be managed and can be overcome. But trust, once lost, is incredibly difficult to restore.

Banks (and by that I include everything from small town thrifts to huge international institutions) have long been a source of stability within both our economy and social fabric. The word trust has long been associated with this industry and many lenders have even incorporated that word into their names. We trust our banks to take care of our hard earned money. We trust banks to lend it out to people who will repay it, to people who are worthy of the bank’s trust. We trust banks to provide us with a reasonable return on the deposits we make.

What happens when that trust is shattered? We had all our funds at Washington Mutual. I trusted them. Then it became apparent that they were going under because they had been deeply engaged in the business of making shaky loans to shaky borrowers and had consolidated those loans into shaky securities that ultimately came back and bit the bank in the butt. We took half of our funds out of WaMu and should have taken all of our funds out. Why? WaMu is still there. Yes it is, but it violated my trust. When reports started coming out about the troubles this bank was having, we felt betrayed. Our trust had been betrayed. Greed led to huge losses which ultimately yielded a loss of trust.

Was the greed motivated by desiring to do well for the depositors of the bank? I don’t think so. I believe it was motivated by a desire to play with the “monopoly money” and to generate the biggest possible bonus the “suits” could generate for themselves.

Not to pick on WaMu—but that’s my personal reaction to this so-called “economic downturn” which in reality is an economic debacle. It’s personal. It touches us all in one way or another.

So, the issue as far as I’m concerned is one of restoring trust not alleviating fear. What has happened economically to millions in this country has been a betrayal of our trust. Unlike the 4 year old who can be soothed and hugged away from the fear of the “under the bed monster”, Americans desperately need to see real efforts to restore our trust in the very institutions we rely on to safeguard our money. That includes banks, stock markets, political leadership and our government.

Only trust will break the “excess of fear”.