BY MATT HUTCHINS
Early on the morning of Saturday, September 13th, Hurricane Ike, a roaring behemoth of a storm, swept off the Gulf of Mexico, blasting the island of Galveston, Texas with a wall of sea water. As the eye of the storm passed overhead, residents who had been warned of “certain death” ventured into the streets to survey their battered community and seek high ground. What they found was a ghost town, haunted by the silently shifting flood waters and lit by the eerie glow of house fires. Those who had exposed themselves by leaving shelter might find the path they had once believed to be safe was now innundated with treacherous, dark waters. They hurried to find a way to safety before the cyclone’s full force bore down upon them once more.
The storm swept onwards to Houston, where hundred-mile-an-hour winds blasted the urban terrain. Skyscrapers designed to flex more than ten feet in each direction swayed back and forth in the howling winds so far that window panes popped out of their frames, crashing to the street below. In the aftermath, almost four million people were left without power. The damage has been estimated at $28 billion, bringing the total damage to the Gulf Coast this year to almost $44 billion.
On Sunday the 14th, as Texans gathered together to help clear the streets and restore order to their communities, a storm of epic proportions was raging in the offices of New York’s financial giants. Amidst the relative calm of the weekend, Lehman Brothers and Merrill Lynch were seeking shelter from the storm of sub-prime write-downs by securing the assistance of relatively stable firms. For Merrill, the result was a successful retreat into the arms of Bank of America. Lehman Brothers, however, was not able to find a route to safety, and was ultimately left out in the storm. When the trading week began, this swaying titan of Wall Street became the latest victim of the subprime hurricane.
The Gulf Coast is recovering from the impacts of Dolly, Gustav, and Ike, and New York is reeling from the shockwaves caused by Bear, Fannie, Freddie, Lehman, and Merrill. In both cases, the season for storms is still in full swing. Just as Atlantic hurricanes are named according to a predetermined list, investors are already short-listing candidates for Wall Street’s next financial catastrophe. The cries have already been coming from New York for a FEMA team to come restore order to the disaster area that is the nation’s financial hub, but the Fed and Treasury have stood firm with the latest round of financial collapse. Perhaps the greatest test of our government’s commitment to the downside risks of the free market is still on the horizon.
We can only hope that in its handling of the financial crisis at hand the leadership of our country will recall that every billion dollars which is set aside to preserve the bottom line at our nation’s financial institutions is a billion which could have been directed to recovery efforts in the storm-battered Gulf Coast states and the construction of roads, bridges, and levees to protect the economy of that region. We should ensure that every lobbyist and banker who is pleading for a bail-out will be matched by a letter asking for our nation to help alleviate the desparate conditions in Haiti. Most importantly, we should choose wisely this fall when we select our next leader, because the bewildered cries of those who seek protection from the troubled financial markets should be no more surprising than the cries for help from those who were warned of certain death and yet stayed in their homes. But common sense tells us that while we can forgive the foolish homeowners who choose to ride out a killer storm, confident that prognosticators are exagerrating the risks at hand, sophisticated commercial banks should not be allowed to enjoy such willful blindness.
Matthew W. Hutchins is a 2L?and Publisher of the Harvard Law Record.