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Friday, February 06, 2009 

The Financial Downward Spiral has only just begun

It is now confirmed, let the financial dark age begin... err, continue full steam ahead...

The new "stimulus" package is evidence of our new President's utter disregard for the care of critical financial truths... (as evidenced by the recent apocalyptic prophesies should the Senate not spend the money we don't have as fast as freaking possible.)

I read an article today that I think NAILS it. I'm no financial expert, but even I can see the writing on the wall and there's a Harvard Business School Prof who agrees with me... and does not agree with his fellow Harvard grad.
It began as a subprime surprise, became a credit crunch and then a global financial crisis. At last week's World Economic Forum in Davos, Switzerland, Russia and China blamed America, everyone blamed the bankers, and the bankers blamed you and me. From where I sat, the majority of the attendees were stuck in the Great Repression: deeply anxious but fundamentally in denial about the nature and magnitude of the problem.
Soon those of us who dare speak of such silliness shall be shushed...

What really is the magnitude of the problem you may be asking yourself?
They need to grow up and face the harsh reality: The Western world is suffering a crisis of excessive indebtedness. Governments, corporations and households are groaning under unprecedented debt burdens. Average household debt has reached 141% of disposable income in the United States and 177% in Britain. Worst of all are the banks. Some of the best-known names in American and European finance have liabilities 40, 60 or even 100 times the amount of their capital.

The delusion that a crisis of excess debt can be solved by creating more debt is at the heart of the Great Repression. Yet that is precisely what most governments propose to do.
Meanwhile we're told to nod smile and shut the hell up, those in DC know more than you do about this, so don't worry about it, watch your TV shows idiot...
If, say, Argentina had an excessively large domestic debt, denominated in Argentine currency, it could be inflated away -- Argentina just printed more money. If it were an external debt, the government defaulted and forced the creditors to accept less.

Today, America is Argentina. Europe is Argentina. Former investment banks and ordinary households are Argentina. But it will not be so easy for us to inflate away our debts. The deflationary pressures unleashed by the financial crisis are too strong.
Instead of attacking this problem with the freshness of thought that an Obama administration promised to bring, we're going to experience the full assault of his inexperience and arrogance in a way that will change the course of American and World history forever... favoring the crowd who believes that centralized control of all things monetary is the way to go...

It was nice knowing you Mr. Washington, Mr. Jefferson, Mr. Adams, Mr. Monroe... in only a few generations from now, you will have been completely erased from the public record. Nice knowing ya.
So what can we do? First, banks that are de facto insolvent need to be restructured, not nationalized.(The last thing the U.S. needs is to have all of its banks run like Amtrak or, worse, the IRS.) Bank shareholders will have to face that they have lost their money. Too bad; they should have kept a more vigilant eye on the people running their banks. Government will take control in return for a substantial recapitalization, but only after losses have been meaningfully written down.
Some actual short term fixes would be...
One solution would be for the government-controlled mortgage lenders and guarantors, Fannie Mae and Freddie Mac, to offer all borrowers -- including those with fixed rates -- the same deal. Permanently lower monthly payments for a majority of U.S. households almost certainly would do more to stimulate consumer confidence than all the provisions of the stimulus package, including tax cuts.

No doubt those who lost by such measures would not suffer in silence. But the benefits would surely outweigh the costs to bank shareholders, bank bondholders and the owners of mortgage-backed securities.

Americans, Winston Churchill once remarked, will always do the right thing -- after they have exhausted all other alternatives.
Those of you who are as fascinated by all this as I am, this author will keep ya busy...

I didn't like or want the one passed earlier in the fall. I understood the reasoning behind it, though.

This one, they can try to explain it away all they want. It is stupid and will just kill this country even more.

I've been trying to not watch the news, especially about this spending package. I know it will pass, whether I want it to or not. I don't need the anxiety. Sadly, and because it is reality, we will have to just sit and watch. There is little to nothing we can do.

Well, at least for now we can still talk about it publicly. How long until that "privilege" slowly erodes.

Wow we are in store for some serious political and perhaps civil drama... naaa, we're too fat and lazy... heheh

Whoa, did I just get linked on Bloomberg? Not sure what to make of that!

Hey Josh-- I watched C-Span2 and was thoroughly depressed by what I was witnessing... I don't really have anything else to say about it... just depressed...

Some people think it'll all work out, giving companies billions of dollars to "fix" the economy. Me? I'm gonna sit here, and maybe load my gun. These houses built of cards are starting to list, teetering on the edge of a fall. I'd say we're a year or three from martial law. Or simple governmental collapse.

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