New Economy, Old Mistakes: Lessons NOT Learned From The Great Recession

Last Updated Apr 6, 2010 12:31 PM EDT

A year ago, I was in a meeting with some media bigwigs, proselytizing how the financial crisis was going to change consumer behavior and remake Wall Street--"you won't recognize it!" I exclaimed. Um, WRONG--as Yogi Berra would say, "it's déjà vu all over again". A year later, I fear that short memories are dominating the landscape, making me uptight about the future.


Someone recently accused me of being a "buzz-kill" when I made this pronouncement, especially as the Dow approaches 11,000 and Jeff Frankel, who sits on the NBER's Business Cycle Dating Committee, says the recession is over. Don't get me wrong--I'm happy to say adios to the Great Recession, but in our desire to have the worst behind us, are Americans slipping back into bad habits?

Last spring, when everyone was anxious about the economy, the savings rate peaked at 6.4%. While that was not welcome news to retailers, it was absolutely essential to consumers, whose balance sheets become bloated with mounds of debt. People were talking about the possibility that we would finally heed the wisdom of our parents and grandparents, who saved 10% of every dollar earned.

Not so fast--a scant year later and the personal savings rate has dropped to 3.1%. There may be good reasons that the rate is dropping--out of work Americans have been forced to deplete savings; many who have finally gotten out of debt, either through diligence or negotiations with lenders, have a good deal of pent-up demand; and then there's the "wealth effect, where asset prices (investment and retirement accounts, houses in some areas) are increasing, which in turn makes us feel richer, so we spend more. Still, I can't help but think that we still can't make savings a priority. Isn't that what helped get us into this mess in the first place?

And speaking of contributors to the financial crisis, I'm bewildered by Wall Street's complete inability to learn its own lessons. If you get a chance, watch this Bill Moyers interview with NYT columnist Gretchen Morgenson. She describes Wall Street's intense lobbying effort on lawmakers and the business-as-usual mindset that has evolved 18 months after nearing the brink of a total financial melt-down. Her description is what makes so many bearish on the prospects for substantive regulatory reform, let alone changes to compensation structures throughout corporate America, especially on Wall Street.

Bad enough the financial geniuses won't come clean on their role and reinvent themselves (although I love the idea of this anonymous blog, written by an insider who supports serious regulatory reform), but to watch the agonizing re-writing of history from former Federal Reserve Chairman Alan Greenspan and current Administration official Larry Summers was nothing short of nauseating last weekend. Not even a near-Depression could help these two leave the land of denial. It's shameful and more worrisome, it doesn't help us prevent the next crisis.

So is this it? Are we going to let the moment slip by and not change? Aw shucks, maybe reform will occur and maybe Wall Street will come to its senses and maybe people will better manage their financial lives and maybe the NY Mets will win the World Series...I'll be ecstatic if any of those events really does occur.

Image by Flickr User Rubenstein, CC 2.0
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    Jill Schlesinger, CFP®, is the Editor-at-Large for CBS MoneyWatch. She covers the economy, markets, investing or anything else with a dollar sign. Prior to the launch of MoneyWatch in 2009, Jill was the chief investment officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.

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