Assigning Blame for the Economic Crisis … [9/30/08]

And Other Pointless Exercises.

(I run out of space on the title bar).

While you can make a case that we’re facing another Great Depression, it’s really hard to make that case using real numbers and any kind of historical perspective. A 7% drop in the Dow is significant, but hardly the end of the world. We’ve seen bigger drops when the tech bubble burst, and just after 9/11. Those, however, are still small compared to the 23% single day drop in 1987. That day is only rivalled by the Crash of 29, and only if you add both Monday and Black Tuesday.

Do you remember the Great Depression of the late 1980’s? Of course not. The underlying economy continued to function.

The root problem turned out to be leveraged buy-outs using junk bonds (risky loans funded by small investors, because real investors wouldn’t touch them – sound familiar?) and some new and complicated stock management schemes (such as portfolio insurance) which, like derivatives, didn’t work the way they were supposed to, and appeared largely based in magical thinking. Also, naked fear and herd mentality clearly played a role.

Then the next day, the Federal Reserve moved some piles of money around and stopped the bleeding. Which is exactly what it was designed to do. (Kind of like how FEMA was designed to expedite disaster relief). We had a bear market for a while, but the economy limped along as if this were only a problem for investors.

Our fundamental problem is that most Americans, instead of cash savings or stock investments, have invested their discretionary wages into their house, which, by the historic numbers, is a relatively sound place to put your money. Right now, though, the housing market is flooded with foreclosed or distressed properties, which is lowering the housing values for everyone. That’s the actual threat to the economy.

Whose fault s that?

Your neighbor who took out a mortgage he couldn’t afford.

The mortgage “professional” who made that loan, even though we have known for a long time what the odds are for person X paying off mortgage Y. This is 2nd year business school stuff.

The investment “professionals” who would take these loans and package them in beserkly complicated structures to attract investors (because the banks, knowing the formulas, wouldn’t touch them). (And this is why Chase and B of A are buying distressed assets right now instead of selling them).

The investors who plopped down big money on financial schemes they did not understand.

The “professional” regulators who allowed investment banks to go deep into debt, sometimes 40:1, over these schemes.

The investors who, now confronted with their own incompetence, suddenly became liberals and demand that the government bail them out or the sky will fall.

The Bush administration, who never encountered a corporate bail-out they didn’t approve of. Honestly, I wonder if they don’t see the central purpose of the federal government as redirecting tax money to large corporations.

Congress, who have collectively humiliated themselves 5 weeks before election day, primarily, it seems, because they were called upon to be adults 5 weeks before election day.

The media with still plays along with the “sky is falling” scenario, instead of doing a little math and checking a little history. Seriously, if I can put this togerther while waiting for the dryer to buzz, full time professional “journalists” ought to be able to note that in percentage of equity lost, this “historic crisis” barely makes the top 10.

And the rest of us for ensuring that Nancy Grace, rachel Meadows, Keith Oberman, Bill O’Reilly and all the other blowhards consistently get better ratings that any rational, temperate news outlet.

And the rest of us for consistently electing the biggest blowhard running for congress, so that they have no real expectation of being rewarded at the polls for behaving like adults.

And the rest of us for not remaining informed, engaged investors and citizens of the Republic. A lot of people saw this coming a long way off [just one example], and we were not at all interested in hearing about it.

The moderates have abandoned the political process. The inmates run the assylum.

Or do they? As much as I’d like to leave on the line above, wide public outcry halted the rush to corporate welfare. So there’s hope.

Of course, they will still probably pass The Bailout. This country is still run by the property owners. It will be a great boon to investors and hopefully have some minor benefit for the rest of us. Properly managed, the feds might end up turning a profit. They would certainly be left with an incentive to try and prop up real estate values.

If you want to cry over big, stupid, expensive legislation, your window was the Farm Subsisdy attrocity they passed a few months ago, a straight-up give-away to the ADM’s of the world.

Obama hestitantly supports this plan, which is why his lead is still within margin of error. The voters are 90% opposed to this thing. Step out front with soeplan we might actually have confidence in, and he could be sitting on a doule-digit lead by mid October.

But just like all serious presidential contenders, he’s a millionaire who owns stock. We can only hope for so much change.

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2 thoughts on “Assigning Blame for the Economic Crisis … [9/30/08]

  1. Pingback: DIY Earthquake Detection on a dark and stormy night [10/1/08] « What Have We Learned?

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