Monday, September 29, 2008


Erin Burnett on MSNBC just moments ago (I'm paraphrasing): "People on Wall Street are saying if the banks and financial institutions do not get some bailout money soon, it will be economic armageddon."

Uh, huh.

Let's be frank here. A bunch of banks and financial institutions lent out a bunch of money to people they shouldn't have lent money to, then leveraged themselves 40 to 1 and now that so many of these loans and mortgages have gone bad and the chips are being called in, nobody's got the money that's owed.

It's not a liquidity problem Wall Street is suffering from. It's an insolvency problem. Many banks and financial institutions are insolvent, many Americans themselves are insolvent, and the federal government printing $1.3 trillion dollars to buy up these bad mortgages and bail out these insolvent institutions is nuts. All that is going to do is a) create a huge inflation problem down the road while b) creating a moral hazard problem where these crooked hedge fund managers and greedy traders are going to say "Hey, as long as you're as big as WaMu and AIG you can do whatever you want because you're too big to fail and the government will always be there to bail you out."

Let the bad debts and bad loans run through the system. Let some banks go belly up. Let people start losing their money, their homes, their retirements.

And then maybe, just maybe, Americans will finally wake up to the fact that you cannot live for so long so far above your means before the bill comes due.

It's unfortunate that it has come to this and innocent people, prudent people (including your humble blogger), are going to be hurt in the process. But this problem was self-created.

Remember when Preznut Bush told us after 9/11 that our patriotic duty was to go shopping and buy stuff? Remember how Uncle Alan Greenspan told Americans they should trade in their old 30 year fixed rate mortgages for 2/28 ARMs and use the money to build an extension on the house, buy a car or go on vacation? Remember how salaries for the overwhelming majority of Americans has fallen over the last 8 years, adjusted for inflation, even as the consumption of those same Americans has increased? Remember how the total debt level of Americans at an individual, and municipal, state, and federal level is 250% of GDP? Remember how Americans' net savings rate the past few years is negative? Remember how we financed our "housing boom" (Ha - how's that boom look now?) with money from the Chinese while the prices of both residential and commercial real estate zoomed way above historic (and sustainable) norms?

All these talking heads on the Tee Vee and the politicians and the Wall Street crooks and even Mom and Pop American ought to stop whining about this mess, take a look in the mirror and say "What was my responsibility for this? How did I contribute to it? And what can I do to fix the problem?"

Here's a start - pay your freaking bills, stop buying what you can't afford, save some money and make any of these politicians who tell you consumption is the American way and regulation of the financial markets is communist pay at the ballot box and send 'em back to the Texas desert. Next, create a financial system that is transparent and understandable rather than opaque and labyrthine. So many of these problems started because 20-something and 30-something smarties on Wall Street created these "innovative" financial products that were so complex that even they didn't understand all the ins and outs of them (or what the consequences would be once problems started) while they paid themselves huge money for creating wealth from nothing. That's a start for fixing the problem.

Finally, hold on tight. Because no matter where you have your money now (indeed if you have any), it's worth less and less each day. And that problem is only going to get worse .

BTW, the bail out bill that went down to defeat today in the House probably wasn't going to fix the problems anyway, so forget what Erin Burnett and Jim Cramer and these other shills are saying. The problem IS the system, they're just apologists for it.

Make no mistake, these are scary times, and the people who claim to know what the solution is have been wrong about every other solution they have tried so far.

Oh, and don't forget to duck, cover and roll when you go to the bank tomorrow to get your money.
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