Fearing Fear

Good words from Larry Summers to the Brookings crowd today:

An abundance of greed and an absence of fear led some to make investments not based on the real value of assets but on the faith that there would be another who would pay more for those assets. Bubbles were born. And in these moments, greed begets greed, and the bubble grows. [Later] greed gives way to fear, and this fear begets fear.

This is the paradox at the heart of financial crisis. If, in the last few years, we've seen too much greed and too little fear, too much spending and not enough saving, too much borrowing and not enough worrying, today our problem is very different. It is this transition from an excess of greed to an excess of fear that President Roosevelt had in mind. . . . It is this transition that has happened in the United States today.

I wholeheartedly agree. Greedy people are by nature fearful. And greedy people addicted to rapid gains fear having to wait out slumps. They recede rather than invest. That then hurts everyone else. We've seen that on Wall Street. And whichever party is out of party blames the party in power for Wall Street's fear. But Wall Street needs to grow up.

Summers says Washington now must "create confidence without its leading to unstable complacency." It's a challenge, but it's doable.