For me, the hardest thing in watching the current financial crisis unfold is that is was entirely foreseeable and could have been avoided had there been any independent, responsible thinkers in charge. Instead we got herd-think and Bubblenomics that led the world to the current mess. Governments were horribly remiss and out of touch with reality over the past several years. Now they are backed into a corner desperately seeking solutions.
I am frustrated at the stupidity and hubris that have led to this. But I also have empathy for the difficult choices that must now be made. The same elected officials that were clueless as the problems developed are still clueless about how best to help resolve them. But they do have to try; it comes with the job. The Paulson bail-out proposal is disturbing on many levels but mostly because of its rush, rush, jump don’t look approach. Unfettered discretion by the Treasury, blank cheques and a lack of accountability are not giving thoughtful viewers any comfort. Bush, Paulson and possibly Bernanke are all on their way out, but their legacy and policies will be with the world for much longer.
I have said all along, that the bulk of the cost to clean up this mess must lie with the financial institutions that sold us the genius junk in the first place.
Yes we should allow them a time capsule to put the bad debt into so that they can write it off gradually over time. Yes, we need them to repent and reformulate themselves and they do need to survive in order to do that. But they should not get a trillion bucks from the public to fund their rehab.
Some wise voices that I respect, and who have been sounding the alarm on this crisis for years now, also have some ideas about how to move forward from here.
One of them is Robert Shiller who has a new book just released called Subprime Solution. Watch his recent video interview with the Wall Street Journal. Like me, Shiller does not support the Paulson plan, because it is too vague, and ill conceived, designed by the same principles of spend now worry later, that brought us this debacle in the first place.
This morning world markets are falling again as Talks on the Bailout broke down last night. When there finally is an announcement of a plan in the days or weeks ahead, the markets will no doubt have another big green day. But none of this emotional behaviour should distract us from the central point. The world is in its worst financial crisis in many decades and no policy can repair any of this over night. There is no quick-fix-extreme-make-over solution to our present problems. Only time, discipline and hard work will get the world economy back in healthy growth mode. Level-heads, intelligence, wisdom and realism are required.
When the US Presidential race wound down to McCain and Obama I was pretty neutral as to which man would be the better leader for the next four years. Whoever gets the job will have an incredibly tough road to travel. But recent days have caused me to lose all faith in McCain. First of all he selected Sarah Pailin as his VP. I was excited to think they had found a suitable female candidate to run for this office. But then they had to un-plug her tele-prompter and it was clear that sadly Sarah Palin is not the person we need for this important job. Vacuous comes to mind. Now more than ever, it must be substance over form, and real, independent thinkers are required. McCain himself is also clearly not the leader needed. In the past few days he seems to have transformed on camera from a potential leader into a tired old man that clearly has no idea what a mess his country is in, nor how in the world it got there. He admits he knows nothing about economics. He and others like him need to step out of the way then. We cannot afford more blind ignorance.
Some of my readers have been emailing me ideas on what should be done now. Please feel free to share your thoughts and comments here.
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I'm mostly all cash now…..
Danielle,
I am curious what your opinion of Bill Bonner's ideas are. In his and Addison Wiggin's “Empire of Debt” he also raised concerns of what was to come quite some time ago. On the surface he and you seem to agree somewhat yet ,unlike you, he is very bullish on gold and predicts a bleak future for fiat monetary system. Many of his calls and predictions appear to be right on the money so far. At the very least he seems to be a keen and passionate student of human nature. But what of his investment ideas?
Best regards and many thanks for taking the time to maintain your blog,
Marcus
M, I enjoy Bill's writing. I am leary though of having longer term theories direct our current day investment policy. He may be right that the dollar will eventually not be the benchmark currency. But right now it is, and it is relative performance of the world curriencies that I am concerned with. If gold breaks out again in our work we will buy it, if the U$ breaks down enough again to trigger our sell we will sell it. Its that simple. We do not need to guess what happens longer term. D
Hello Danielle,
If money has to be put in to bail us out, here's my 2-bits.
Have all financial institutions in the USA post all bad mortgages or foreclosures they wish to be reimbursed for on a P2P lending site. P2P refers to a Peer-2-Peer lending organization; a web site where individuals post how much they want to borrow and for what purpose. People who lend money can peruse the site to see how much they are prepared to lend. On average, a loan is about $8,000 and hundreds of lenders collectively fund one loan. Some examples are:
http://www.prosper.com
http://www.lendingclub.com
http://www.loanio.com
Now instead of the government of the USA writing a number of large cheques (checks – for your American readers) to a few banks, I purpose that the US government give a $10,000 credit (not cash) to the 70 million children the USA.
Now each child, or parent of each child, can choose which mortgage or foreclose to fund and how much they want to fund. They may choose to lend to hundreds of mortgages to off-set the risk. If the mortgage is fully funded, the US government will then send a cheque to the bank holding the mortgage or foreclosure.
The mortgage will eventually get paid out over time, either by foreclosure, monthly payments over several years or via re-negotiation. The mortgage will pay interest & principal over time to the holders of the mortgage. All funds returned to the children will be put in trust until they are of age to go to University or College at which time they can decide what to do with the funds.
If not enough people fund a specific mortgage then it is obviously too pricy and must be reissued at a lesser amount. The market will determine the value of each mortgage.
There will be no fee to the banks for offering the mortgages for sale and there are no middlemen to make millions from the deal.
The US will now have a generation of children who will be able to afford to go to school should they choose to do so.
Danielle,
This may sound like a foolish question, but assuming one keeps all his money in cash, how much of it is actually CDIC insured? I was under impression that it is up to $100,000.00 per account. As I browse through CDIC website I see that it is $100,000.00 per name, even if held in different accounts, ie. savings, chequing, GIC etc.
Considering that the current banking crisis appears to be world wide and spreading, and that over forty banking institutions failed in Canada since the seventies how does one address this potential problem? Opening accounts in ten different banks seems excessive, yet risks of not doing it seem to grow by the day.
Any advice?
Marcus
A misspelling: heard-think should be herd-thinking. I like your blog.
thanks