Mark Twain believed “it's not worthwhile to try to keep history from repeating itself, for man's character will always make the preventing of repetitions impossible.”
I think of this quote whenever I see comparisons of the roots of this economic crisis to those of the Depression. And it came to mind during last month's Water Environment Federation annual convention whenever I heard about projects postponed or halted in midstream due to tight credit. The situation in which we find ourselves feels very familiar to one that happened two decades ago: the savings-and-loan crisis.
I learned all about that adventure in avarice, which produced the nation's worst economic crisis since the Depression, in P.J. O'Rourke's Parliament of Whores. A former managing editor of National Lampoon magazine, O'Rourke styles himself a “conservative satirist.” Whatever his political leanings, his book taught me more — while making me laugh — about the federal government than any school ever did. (O'Rourke does the same for economics in Eat the Rich.)
I recently reread his chapter on the S&L crisis, provocatively titled “Setting the Chickens to Watch the Henhouse.” There, in all its cynical splendor, is a beautiful explanation of the legislative bootlegging, creative accounting, and corruption that resulted in the liquidation of half the nation's savings and loans. Although some key elements are different from today's scenario, the process was remarkably similar to the one that allowed financial engineers to gamble with worthless mortgages. Both arose from a perfect storm of factors that smoldered for years before igniting.
“The idea seems to have been to let the disaster grow until only the taxpayers could afford to pay for it,” O'Rourke wrote.
And we did. U.S. taxpayers picked up the tab for 81% of the $153 billion spent to fix what one economist called “a risk-reporting failure on a grand scale.”
From the media coverage at that time, you'd have thought the end of the world was nigh; and getting a mortgage was much more difficult in the aftermath than it had been beforehand. For awhile.
Gradually, though, our herd mentality and greed overcame our caution, and here we are today: proof of the truth of Mr. Twain's wisdom.
Editor in Chief