Tick Talk

Justin:
Everyone knows I’m the Pollyanna-esque optimist. But what does scare me is the populist rhetoric coming from politicians and commentators calling this a strict market failure. This is at best an oversimplification and at worst a fraud.

Although I’m still optimistic (about as optimistic as one can be considering the circumstances), I fear that a move towards socializing financial institutions and uber-regulation may well turn a recession into the Great Depression part deux.

Tick Talk
AGREED! The markets are doing exactly what they must do - reflect supply and demand. As for fraud, here is my 6 point conspiracy theory:
 
1. The U.S. Gov. got robbed in broad daylight by banks.
2. The lenders deliberately lent money to unfit consumers.
3. The profits from service costs and commissions were the objective.
4. The lenders plotted to force the bad debt onto the government by virtue of the implicit relationship it has with Fannie Mae and Freddie Mac.
5. Consumers got pinched by inflation (energy and domino effect) and defaulted.
6. Banks gave Uncle Sam the ultimatum: Pick up the tab or we’ll stop lending.
  
In a zero sum game, someone must lose. The lenders ran a low risk, high probability strategy: Best case senario, expansion occurs and the lenders make oodles of money. Worst case senario (and most likely), the consumers default on their loans and Uncle Sam steps in with paternal care and picks up the tab. Either way, there are huge profits in the lending transactions and it is a win-win strategy (like most dirty schemes). The actual debt instruments were never much of a risk.

“Part Deux” it is, and that is why it should have a few new twists. A recent review of The Sound of Music comes to mind: “If it was made today, the critics would pan it, the academy would ignore it, the public wouldn’t know it existed, and even the Sundance Channel wouldn’t show it. Yet somehow it endures.” The same goes for our depressed economy. We’ve seen this song and dance already. If we’ve learned from history, the predicament we’re discerning will be checked by experiential common sense and we’ll all be calmer because of the economic law of diminished returns (first roller coaster ride is great, second isn’t as great). These two principles are the ONLY reasons I harbor ANY optimism. Then again, there’s no guarantee that the current administration won’t deliver mistakes that make The Great Depression look like the Big Rock Candy Mountains.