Looking back on a big year

"Reality is that which, when you stop believing in it, doesn't go away." --Philip K. Dick.

This is my 100th post, and it's about a year since the "Firing of the Bazooka", when Secretary Paulson pulled Freddie Mac and Fannie Mae into federal receivership. Seems like a good time to reflect.

Marketplace from American Public Media has a great series of stories about what we learned from the collapse of Lehmann Brothers. They highlight the fact that an almost blind faith overtook much of the world, and especially the United States, that assumed a steady and reliable rise in asset prices. Paul Krugman refers to this as Panglossian Economics, wherein we believed complicated mathematical models that showed we lived in the best of all possible worlds. As long as we believed, it worked.

But then we stopped believing that banks, their customers and other counterparties could meet their obligations. To save off disaster, the Federal Reserve "printed" $1.2Trillion in one day, and drove interest rates to zero. This wasn't enough, and the US Congress authorized the Treasury to almost explicitly nationalize the financial system by handing over $700billion to "save" the financial system. In other words, we stopped believing in the banks, but we didn't stop believing in the government or its money. And so we find ourselves engaged in a sort of "extend and pretend" period, were we hope that asset prices start rising again, and with it a return of the good days.

For those who hoped the crash and last election would lead to fundamental changes, this is kind of disappointing. A sizable majority, however, absolutely depend on their 401k's, pension plans, and property value to continue living without family or charitable support. The historically minded are certainly worried that having watched one cherished institution fail, the strength of belief in others is weaker. Certainly, there were large increases in stock prices in the early 1930's, as investors badly wanted to believe that things were better, but people could still not pay their mortgages. Sound familiar?

The reality, such as it is, is that we aren't ready to stop believing in most of the systems that delivered prosperity since the 1950s, or 1980s. In some ways, this is very good, since the social dislocation involved in ending that belief is scary. In others, it blinds us to the need to move past "extend and pretend" to a discussion of what a sustainable future looks like.

I'm fundamentally an optimist. Means and opportunity occasionally meet to provide for interesting projects that show an alternative approach to our current lifestyle. Micheal Pollan is optimistic, cautiously, that we're on a course to start addressing problems in our food system. There's a robust and civil debate about the purpose and nature of the military at the US Naval Institute blog that tries to reconcile the US fiscal situation with its strategic posture.

Oil prices are rising again, and electric vehicles are all the rage. Michigan is trying to retool to make items for public transit (you may enjoy the irony). Farmer's markets are doing very well and bicycles are steadily gaining popularity as a commuting tool. Civility is breaking out in more and more quarters. And there's a new season of the FIRST Lego League underway. The future's so bright I've gotta wear shades.