Economic Depression Meets Clinical Depression

I started writing about depression 25 years ago, a different kind of depression.

In 1983, one year out of law school, I began what I thought would be a very brief stint as a financial journalist. I stayed in the field till 1992. My career involved two countries (New Zealand and Australia), two editorships of two financial journals, a business editorship of a Sunday national newspaper, a feature writer position for a daily paper, various freelance gigs, and three books.

These days, we are hearing that the US is facing the gravest financial crisis since the Great Depression. No one seems to be disputing that. But then the dialogue immediately breaks down.

I do not purport to be an expert in the fine points of banking and finance, much less understand what is going on, much less possess a knowledge of even a casual follower of today's markets. But I did take away a few guiding principles from time served in my past life, namely:

1. There is no one single cause to any economic or financial crisis. Instead, we are talking about a perfect storm of converging events and trends. Invariably, these involve a culture of greed, highly irresponsible borrowing and lending, market values that bear no relationship to true asset values, misplaced faith in the ability of the markets to govern themselves, a government treasury of some sort hovering on insolvency, lack of political leadership, and regulatory authorities asleep at the switch. Add to that a host of complicating factors - such as loss of white (to add to blue) collar jobs overseas, rising oil prices, a financially squeezed middle-class, and the historic reliability of humans to act unpredictably - and we're talking chaos theory meets Heisenberg uncertainty principle.

2. Everything works fine until reality sets in. In other words, it is possible to run an economy where bird seed is legal tender - but not forever. Eventually, someone thinks things through, and when too much of that goes on panic sets in.

3. Systems tend to self-regulate. Complex systems - be it the 100 billion neurons in the brain, the biosphere, or the economy - may fluctuate, but all have a way of resetting to normal. Proponents of free markets sensibly understand this principle.

4. Every system, nevertheless, has its melting point. Leave ice cream at room temperature long enough, and it is no longer ice cream. It is soup. It is incapable of returning to ice cream, even if it is refrozen. The ice cream needs to be returned to the freezer while it is still ice cream. And someone needs to keep an eye on the ice cream. Proponents of free markets are incredibly stupid to this principle.

5. Various dynamics of smart vs stupid come into play. For instance, the people on Wall Street are incredibly smart, but their activities often serve spectacularly stupid purposes. Only a genius could have come up with the marvel of financial instruments used to generate credit based on over-extended consumer mortgage debt. Only institutional stupidity could have put these instruments into practice.