How we got here, what we can learn and prospects for recovery

I've written several columns in recent weeks about hope.

Subjects included a New Hope manufacturing owner who refused to lay off workers; a promising, cost-saving med-tech company that recently went public despite a tough market for stock offerings; plans by Juhl Wind to raise $100 million, and a couple of fast-growing software firms focused on more-efficient medical clinics.

I hope that our pending economic recovery will be rooted in next-generation manufacturing, home-grown energy, less oil consumption and a universal health care system that focuses more on health than on red-tape-laden, procedure-driven medicine.

Most Americans want this president to be successful and this economy to bloom for wage earners, although there understandably is less support for the transaction-oriented financiers who made their millions fueling the housing bubble.

Conversely, it creates just as many jobs and as much wealth to build wind turbines and long-life hybrid car batteries, to refurbish existing roads and houses in Minneapolis and schools in Richfield as it does to build new roads and tract housing on what were farms and woodlands.

I still hope we'll start to sniff signs of a bottoming housing market, an upticking stock market and better times along with spring flowers. After all, the recessions of 1974-75 and 1981-82 also boasted prolonged market downturns and high unemployment. They also are distant memories which, at the time, lacked the depressingly magnifying effect of 24-hour business news that bombards us today. There is a well-deserved desire for stories that focus on our generosity, hope and a better future, as NBC anchorman Brian Williams found when he solicited positive stories recently.

I was struck over the weekend by several articles and columns that summarized how we got here, what we can learn and prospects for recovery.

Footnote: When Warren Buffett, a critic of the excessive use of derivatives such as credit default swaps, bought General Re a decade ago, he slowly bought out the contracts or let them expire because he feared the results in bad economic times. Now we know why.

Meanwhile, Karen Ho, an anthropologist at the University of Minnesota has published a several-year study of the Wall Street investment-banking industry, the guys who brought us the credit crisis.

"Investment bankers are structured toward the next bonus," Ho told the Star Tribune's Kara McGuire. "They're compensated on how many deals they can push through, not on the quality of the deals or long-term strategy. Investment bankers have tons of job insecurity; they are a total revolving door. But what's interesting is that because of their fairly elite biographies and kind of privileged networks they move in, as well as their lavish compensation, the way they experience downsizing is very different from that of the average worker." Bingo.

In a New York Times column, Ben Stein had good suggestions to aid the recovery. And federal regulators are considering at least a couple of them.

First, the "mark-to-market" accounting rules need to be relaxed for fixed-income securities that are being held for the long-term and which, in many cases, are performing pretty well. Yet many of these issues are trading at cents on the dollar because they are caught up in the mortgage-backed securities market. Buffett favors keeping the rule, adopted in 2002 as a result of the Enron and other accounting scandals, but allowing some forebearance for cash-flow accounting of these assets.

Stein and others also argue that speculators shouldn't be able to buy credit-default swaps on bonds. That's for long-term holders with insurable interests.

Alan Greenspan, the onetime "maestro" of the economy, now is relegated to interviews, where he claims he didn't understand what was happening nor could he have reined in the mortgage bubble. That should make the rest of us feel smarter and hopeful of an improved economy -- with fewer burst bubbles.