Thursday, March 5, 2009

Global Economic Crisis 2008-?

A friend wrote his recipe for a solution to the latest financial crisis and I responded with most of the following:

It was a noble but foolish goal to expect that all Americans have a RIGHT to own a home, regardless! It was a Democratic goal (Barney Frank, Chuck Schumer and Bill Clinton), supported by the Republicans because it looked bad to be against that AND it was a recipe for profits!?!?! Well, that opened the flood-gates of money flow since the government was backing and guaranteeing these mortgage money programs via Fannie Mae and Freddie Mac. And yes, it is our fault for borrowing what we can't repay but who ever thought EVERYONE was responsible in the first place?! Responsible people do responsible things like go to school, get and keep a job or find another one, repay money owed, and don't spend more than they make. This created huge demand for housing which of course inflated prices. It also fueled purchases and folks were refinancing to cash out and spend on goods and services. All that spending and all that cash fueled the stock market also! Which in turn created more cash to spend (except for the foolish irresponsible dreamers that would buy stocks on margin and now owe big time AND/OR those buying goods instead of paying down their debts - borrowing to play!).

Well, what we see now is that it's all dried up! The house of cards came crashing down as it always does in cycles of every nature. What's wild is I remember in business school studying long term economic cycles and reading that 2007 was expected to be a doom period for 3-5 years. (I wish I had heeded that in hindsight but I'm a optimist despite what my husband thinks).

This contraction/recession is necessary and I believe good comes out of all downturns. It is a time to reflect and reassess, to retool and reevaluate, to reprioritize and reeducate...to get people in the right jobs and clean out the excess, and a time to appreciate how good we recently had it! This is necessary to reemerge stronger, better prepared for future growth, happier and more grateful. This is why downturns and death, however painful, are important! Yes death...Death of companies and individuals to make room for the eager, open-minded, better-adapted, more dynamic. We have to allow the cards to fall as they may, to rescuscitate is to prolong the inevitable which is expensive, foolish and counter to the way life works. We can, however, help folks and companies invest in reeducation and retooling, I'm all for that!

As for a proposed stimulus rebate for those below a specified income group (say $200,000)...it's obviously not fair. What if you make $210,000? (That $10,000 over the $200,000 threshold just cost you tons more than it was worth)? I wouldn't put large sums of "other people's money" in the hands of a disproportionate amount of people who defaulted on their loans to get us into this mess in the first place.

The government's role is to keep the markets working...to keep lending to those viable businesses and households who can repay. That's not rocket science. They just have to quit guaranteeing loans that entices banks to lend to anyone because it's the noble or profitable thing to do (not long-term it's not!). It's not even a gamble for the banks with the tax-payers backing them up!

We have little time and too many people in government to efficiently study and agree on how to fix this mess. The banks are probably best suited to assess the long term viability of current and future loans to businesses and individuals, as they know their balance sheets more intimately than anyone. It is the government who can then inturn best assess the current and long term viablility of banks and lend to them! That, and money for reeducation and retooling sounds like the best use of our tax money (and those of our children and grandchilren since we have already spent our own)!

More than ever, this economic crisis is a world problem(which of course makes the radical Muslim fundamentalists very happy!). The emerging markets need the US consumer to grow, and US companies to employ them. They are feeling this and making plans to diversify away from the USA to the best extent possible. China and India are not even close to ready to pick up the pieces...and Europe is as paralyzed as the USA right now.

That's my two cents!

Zelda

1 comment:

  1. Well said, Zelda. But, if we allow the politicians to spend our children's money for "reeducation and retooling" we might as well call the arsonist who torched our home when we discover it on fire. With the current regime, we will hire union workers to dig holes and others to fill them up. Nothing of value will be produced but the pols will claim that they "created" jobs.

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