Phil 2

It seems that whenever there is a crisis in our capital markets, the obvious explanation for that is that the bankers are all greedy.  But this unprecedented collapse in the American fixed income markets has not, I believe, been brought about as a result of greed.  The problem is that we as a society have grown accustomed to assuming too much.

Many people think that the problems that we see in the capital markets are the result of subprime mortgage loans going bad.  They are not.  The problems in the capital markets are not that subprime mortgage loans have failed, but rather the problems we see are the consequences flowing from our collective assumption that it was impossible that subprime mortgage loans would fail at these levels.  Our major financial institutions assumed that subprime mortgage loans would not fail at such levels.  Financial institutions would assume that other similarly situated financial institutions would not fail.  Everyone assumed that the monoline bond insurers would not fail.  These assumptions were largely cemented through complicated financial instruments called “derivatives” in which each financial institution tied itself to the fate of the other financial institutions.  From a macro-economic perspective, this does have the benefit of diffusing risk throughout the whole system.  But when the capital markets as a whole made substantially wrong assumptions, instead of diffusing risk, these derivatives have the effect of bringing down the system like a set of dominoes.

For me, the lesson of the last year is that we as Americans assume too much.  We assume that we will not get a serious illness.  We assume that we will not die young.  We assume that we will live a reasonably comfortable economic existence.  We assume that there will always be a job for me out there.  We assume, assume and assume.

It is time that we, as Christians, recognize that there is nothing in all of creation that is certain.  For us, there is only One who is certain.