Thursday, October 9, 2008


The unfathomable complexity of the current financial crisis has political campaigns pointing fingers of accusations. Not a finger in sight is pointing to a path out of the toxic mess. Neither of the Presidential candidates has a clue, and Congress is busy with the business of creating a new perception – that of smoking out culpability. They will do nothing, since the controlling side of Congress was on the receiving end of much financial support distributed by individuals and organizations Congressmen should have been conducting oversight on. Congress will be pained to dispense any punishment or censure onto anyone in any way affiliated with its own benefactors.

We expect supposed experts or leaders to engineer a path out of the confusion and panic. They have none. Adding to the long-term borrowing that will squarely fit on the backs of present and future taxpayers is not an answer, and is absurd. The members of the financial community that remain standing and who went along with the abuse of the system which was fuelled by Federal demands for easy money, should be required to bear half the burden rather than be able to pick-off the bargains. Unfortunately the lender of last resort is being forced by Congress to bear the whole load, fully subsidizing irresponsible institutions, no matter what is pretended.

In the face of the current international financial crisis, any Presidential candidate pretending that middle class taxes will be reduced is purchasing votes with empty promises. It is surprising that few in the media are questioning such obvious but very fallacious pandering. It also underscores a disturbing dearth of understanding. Not only will the government not be able to lower taxes, it will have to raise them.

Although very few predicted this crisis, all are surprised at the speed with which the unraveling has occurred. Accelerating the printing of dollars will be necessary to provide amongst other things, enough liquidity for banks to prevent collapses on Main Street, and such liquidity will also have to be provided to other financial institutions, and might even have to be extended to businesses. This will unfortunately impact the value of the dollar, and therefore will require a magician’s hands to find balance on the levels of intervention.

Responsibility for the evolution of the volatile liquidity crisis lies with a coalition of disparate participants, mortals and organizations. From the White House of the late ‘90s, to Congress, banks, non-bank lenders, brokers, money market funds and borrowers, the abuse spread through all levels of society. Although we may relish witnessing the spectacle of some of the most egregiously offensive abusers parading in front of Congress, we should remember that trillions of dollars were made, spent or put away throughout the period of the bubble’s creation. Whether such dollars found their way to political campaigns, oceanfront mansions in the Hamptons, or Senators’ homes purchased with favorable mortgage rates, or to Toshiba for wide screen TVs, all who participated ate from the feast. That some ate more, much more than others, is basic common human nature where egos often serve the self first and best.

Human nature also being what it is, the creativity tapped for structuring the complex financial instruments that provided energy to the economic boom, and extended its life, will in time find similarly innovative answers to solve the wreckage that it has wrought.

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