Complacency in The Eye of the Financial Hurricane

On the scale of natural disasters, few events can match the sheer scale and destructive capacity of a hurricane. Big, lumbering, and unimaginably powerful; and on average, over 400 miles wide! Hurricanes have leveled entire cities, changed the direction of rivers and permanently altered the things we, as humans, believe to be permanent.

In 1900 the city of Galveston, Texas, had grown from a little settlement to an international destination. Its natural deepwater channel made it a prosperous seaport. Its position along the Galveston Bay, proximity to the Gulf of Mexico, and link to the railroads, made it a natural trading point. For a time it was Texas’ largest city. Its wealth and stature at the time rivaled San Francisco and New Orleans. It was considered one of the wealthiest cities in the country. With wealth comes technological development and social refinements. According to The Texas State Historical Association (TSHA), as cited in Wikipedia:

“During this golden era of Galveston’s history, the city was home to a number of state firsts that include the first post office (1836); the first naval base (1836); the first Texas chapter of a Masonic order (1840); the first cotton compress (1842); the first parochial school (Ursuline Academy) (1847); the first insurance company (1854); the first gaslights (1856); the first Roman Catholic hospital (St. Mary’s Hospital) (1866); the first Jewish Reform Congregation (Congregation B’nai Israel) (1868); the first opera house (1870); the first orphanage (1876); the first telephone (1878); the first electric lights (1883); the first medical college (now the University of Texas Medical Branch) (1891); and the first school for nurses (1890).”

But according to David G. McComb, “Handbook of Texas: Galveston,” the TSHA handbook and also cited on Wikipedia, “With this prosperity came a sense of complacency.”

Now, Galveston is never mentioned in the same breath as Dallas, Houston or even San Antonio, much less San Francisco or New Orleans. It was, in an instant, obliterated from the map on September 8, 1900, by a hurricane, indifferent to human perceptions of permanence.

According to the, it is estimated that between 6,000 to 8,000 people were killed. “Pictures taken after the storm show empty streets. No people. No animals. No trees. No personal belongings. Only piles of debris that buried families beneath the remains of their homes. Bodies occasionally hang outside the debris piles. But, for the most part, an eerie emptiness paints a picture few words could describe.”

Galveston in 1899 is much like America in 2012. We have been prosperous to this point, were a nation of many firsts, pioneers in innovative technology and social refinement. And just as the good people of Galveston could not anticipate that unseen forces could permanently destroy their city, Americans, too, are blissfully unaware of their hurricane, a financial hurricane, which is barreling towards our shore.

Just as the wealthy citizens of Galveston ignored pleas to build a seawall, their wealth having made them complacent to the grave forces churning off their coast, Americans and our political leaders are likewise complacent in tending to our nation’s immense and growing financial problems.

The first winds of the hurricane have already come to shore in the form of the Great Recession, the housing bubble, the zombie banks, new waves of regulations intended to keep banks from losing money, QE1, QE2, the soon to be announced QE3, the Twist, a misguided effort to lower interest rates even further, insolvent banks buying Treasury notes and a growing storm surge of municipal and state bond defaults.

Galveston, the day before the storm hit, was a growing and prosperous city, its community, and business leaders, were focused and dedicated to growth and expansion and were enjoying the fruits of wise investments. New trolleys were operating, new causeways were built, new bridges and railroad links expanded its importance.

The America that is about to be hit with the real winds of the financial hurricane is not so prepared.

We are entering into financial turmoil, already insolvent and overextended. Our finances a mess, our cities in decay, our banks propped up by the government; every aspect of our financial lives regulated and administered. The real unemployment rate instills fear and doom. Growth is stagnant, wealth has been destroyed and every major economic indicator is heading south. Stagnant is the new normal.

It is against this battered shell of our formerly great nation that the sharp winds will begin to pound. The implosion of the euro, the eventual rise of interest rates, the return of high fuel costs, the bursting of the current stock market bubble, the moribund housing market, the major default of a state or municipal government bonds – or all of the above, as well as the usual bevy of unforeseen events – has the potential to do to America what the Storm of 1900 did to Galveston: reduce it to ruin.

Destroyed by complacency.

The dire financial consequences of trillion-dollar deficits are unheeded by the intelligentsia. Run-away government spending. Too big to fail, artificial interest rates, stimulus and billion-dollar bailouts, mete out their inevitable outcomes: a teetering financial system and economy. A financial system that has been hobbled together with government trickery and schemes, which cannot, at this point, weather even the stiff breezes of a moderate recession, stands little chance of surviving any one of the myriad of potentially lethal financial calamities heading our way.

The relative calm we have enjoyed since the collapse of Lehman Brothers in 2008 is not the end of the financial crisis, but almost imperceptibly is the eye of the hurricane. The financial hurricane is slowly churning our way, fed by ignorance and complacency.

Galveston finally started building a seawall in 1902, too late to prevent the city from being smeared from the map and denied its rightful place in history. Today in 2012, we have work to do build our economic seawall: Shuttering the insolvent banks and selling of their assets; canceling “too big to fail”; reinstating the Glass-Stegall Act, holding bank officers and directors responsible for criminal activities; forcing those who invested in or sold shoddy mortgage-backed securities into suffering the losses that they deserve; readjusting interest rates from the artificial rate of zero to prevent new asset bubbles from forming; and doing all the things that make first-rate economies. We no longer do any of them.

And soon will pay for its folly of ignoring the signs of the impending calamity. Isaac Cline, a meteorologist, “watched the swells rise, the barometer drop and the winds grow stronger. He rode up and down the beach on his horse urging visitors to go home… but his warnings proved fruitless.” (

Today, mainstream economists who were wrong in predicting the housing bubble, the Lehman collapse or the euro’s doom, who never saw the financial collapse coming, and whose remedies have weakened us further, are once again complacent.

They can’t even see the swells and there is no seawall.

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