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New year is a good time to learn old verities

WASHINGTON — The Great Depression seared some life lessons into my parents' generation. My father hasn't had a mortgage in decades, even though his children keep telling him about the tax advantages. He buys store-label brands, clips coupons and wears well-mended suits he bought 50 years ago.

Frugality is a lifestyle for his generation. Their pleasure isn't consuming, but in creating and saving. And their abiding conviction is that you have to take care of yourself, because no one else is going to bail you out.

What lessons, I wonder, will the great downturn of 2008 teach our children? Obviously, the answer depends on how bad things get. This is a global cataclysm that's more vivid in the headlines than in most people's pocketbooks. Unemployment remains below 7 percent, and gas prices and mortgage rates are down. The crisis is still more like a thundercloud than a hurricane.

So let's assume, first, that the bailout actually works. Under that strategy, Ben Bernanke and Henry Paulson have, in essence, offered free credit to anyone who can use it. After spending the first nine months of the year hosing Wall Street with cash, they are now turning the spigot toward Main Street.

Weirdly, the sharpest criticism of Bernanke and Paulson is that they let Lehman Brothers fail, without understanding the cascade effect this would have, as financial institutions realized they, too, could be liable for the toxic paper on their books. Paulson & Co. scrambled to pretend this wasn't so, with ever-changing offers to provide capital for banks or buy up assets, or whatever — but the frozen credit markets showed the level of panic.

But what if the bailout policy "works," and prevents the deep global depression that many analysts had feared? What would be the lessons?

The first precept would be that bad behavior brings a rescue. If Wall Street investment banks can get away with it, why not auto companies? And if auto companies, why not the guy who bought a house he couldn't afford, or who maxed out his credit cards without a hope of repaying the debt? As a prominent foreign investor observes: "In America, loans have gone from 'something to be repaid' to 'something to be refinanced.' "

A banker friend decided it was time to quit the business a few months ago when borrowers with enough money to cover their mortgage payments were defaulting on their loans anyway. I shudder to think about a world where it's assumed that people will walk away from bad debts and get away with it.

A second course is that the bailout that's in place won't work — and that a major new recovery program will be needed from the Obama administration. And here is the chance to shape the lessons for our children in a positive way.

A cornerstone of Obama's rescue policy is likely to be reinvestment. That will cover infrastructure projects, to be sure, but the power boost will be new technologies to retool the failing auto industry and dozens of others. Visit universities and you realize the wealth of new ideas ready to be put to work — in every aspect of energy creation and consumption, and in most other sectors of manufacturing and distribution.

Thanks to my parents, I grew up with an idea of FDR's New Deal as a golden age of American togetherness. You'd travel across the bridges that ribbed the country and look for the date they were constructed, and it always seemed to be in the 1930s. The defining images were of a country down on its luck, but always pulling together.

That's what I hope Obama will teach our kids in this new year: talking not of rescue, but of shared sacrifice; reminding us that bills come due, and have to be paid; ending the bizarre period of national denial that is Bailout America.

David Ignatius' e-mail address is davidignatius@washpost.com.

© Washington Post Writers Group

New year is a good time to learn old verities 01/01/09 [Last modified: Friday, January 2, 2009 1:25pm]
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