The Good News, and the Bad News
16 June 2009The good news is so obvious that half of the stories in the media are completely missing the point:
We have likely avoided global economic oblivion. The Republicans, who are largely at fault for this horrible experience, have been incessantly whining about spending, self-dealing, and anything else their focus groups can come up with: how truly ignorant, and dangerous to the world.
We, the world, owe a debt of gratitude: first, to Ben Bernanke, who came in modestly, faced a completely frightening task, and did it well, while ignoring the many partisan voices that had no backing in intelligence or data.
Second, to Hank Paulson, who also was and remains a subject of criticism, for many imagined wrongs, while he, at the time, was the only officer awake on deck. Imagine having been Paulson, surrounded by economic idiots like Bush and Cheney, and staring over the edge into what not only seemed like, but really was, the Abyss. Thank you, Hank, for scaring DC just enough to get their jowls out of the troughs and do some meaningful things to avoid disaster, without scaring the world so much that the sky fell in.
Even more to the point, we have Barack Obama, and his hand-picked team of professionals, who since the early days have quietly, every morning, looked into that same Abyss, and reduced its depth by a few miles. No one is getting any thanks for this, so I would like to go on record for appreciating the difficulties, intellectual, emotional and political, that these chosen financial professionals are experiencing dailly, and conquering as they go.
So that is the Good News: by accident, we had an expert in place in a Bush administration riddled with amateurs. And we chose Obama, who did what we hoped, and picked the best people in the country to take the wheel.
The Bad News: it isn’t over. We’re about at the half-way point now. We are not going to repeat the Great Depression, I think, and that is great, but this is the moment of second-greatest danger, as everyone assumes we’re OK, when we are not there yet. What I mean by this: there remain plenty of actors on Wall Street who were doing intellectually dishonest things to “make money” without creating value, and who are ready tonight to go right back at it, hammer and tongs, without a second thought. Wow! Really?
One example of this is in the oil pricing story, where the same schemers are now back again, driving up prices without a thought: why should they care if their personal antics, worth a few bucks in income, put a heavy tax on the global economy? They just don’t get it. Since they don’t, I hope someone in Washington will, and will decide that price manipulation of energy is a federal felony worth prison time. More to the point, that they will seek out such miscreants and put these white collar criminals behind bars for a very, very long time.
Given that the worst is over, but the battle is not, now is a good time for our subscribers, members and blog readers to be vigilant, careful, and not to act as though risks are now history. Plenty of small banks will fail in the next year (watch out, Georgia); California will likely go bankrupt in some form within 90-120 days. More people will lose their jobs, and retail in the U.S., our largest economic input historically, will be in the gutter.
But for those who are careful and paying attention, there are already opportunities, globally and locally, in U.S. real estate, in commodities (copper in China, anyone?), in large scale opportunities in alternative and clean energy. The world is changing in fundamental ways, and that is always the best time to make money.
So, again: Thank you, Hank, Ben, Barack, and Tim. The world owes everything to you, after we twice ran the Monkey in the Cockpit test.
Whatever the angry men on radio and TV are shouting out this week, you saved us from that darkness over the edge that Hank saw the weekend after Lehman failed.
For those who are serious about making money, there are today more ways of doing so than there have been for many years, and these are real, rather than fraudulent. And for those who are serious about world affairs, we are back in adult, professional hands, and none to soon. Now we just have to be very, very careful.
7 Responses to “The Good News, and the Bad News”
June 17th, 2009 at 2:37 am
In the grand scheme of things how will people look back on the Crunch Years? Will we have learnt the lessons that we needed to? Will we be better, stronger and more economically robust?
http://news.bbc.co.uk/1/hi/business/8103746.stm
June 20th, 2009 at 8:42 pm
I think the BBC writer’s concern is valid, and her point that, once markets return, there is no incentive to change on banks’ side, a real problem. Even so, we have serious effort being made by Obama and Geithner, who already cautioned his critics this week in the Senate that the hard work had to be done now, and not at some later date. The EU is going through a similar conversation.
June 23rd, 2009 at 12:25 am
A real problem indeed. See below.
What Next For The Global Crisis?
by Simon Johnson
There are two views of the global financial crisis and – more importantly – of what comes next. The first is shared by almost all officials and underpins government thinking in the United States, the remainder of the G7, Western Europe, and beyond. The second is quite unofficial – no government official has yet been found anywhere near this position. Yet versions of this unofficial view have a great deal of support and may even be gaining traction over time as events unfold.
http://baselinescenario.com/2009/06/22/what-next-for-the-global-crisis/
June 23rd, 2009 at 11:17 am
You know, I keep hearing about how the Republicans screwed everything up, but it’s not like they had an absolute majority. Which means that both sides are part of the problem, because those votes were needed to pass.
Contrary to your assertions, and apparently your beliefs, the Bush Jr. administration set another record: that of addition of lines to the Federal Register, in which laws are published. That’s right – the one you blame for deregulating everything added more rules than anyone else.
Now, I doubt I can overwhelm others’ dogma with basic common sense and evidence, but it seems to me that changes to a set of economic rules take much longer than five years to have any sort of effect on an economy measured in billions of dollars. So I put forth that much of the deregulation, like allowing banks and investment agencies to merge with one another and insurers like AIG was done before Bush Jr.’s time.
But hey, don’t let me stop your finger-pointing.
What do you think one trillion dollars in bailout money will do? Good? One would argue that yet another New Deal would have the same effect as the last one: extension of the misery. More recently, Japan’s “Lost Decade” was another poster child of what happens when government kills business in the process of “safeguarding” it.
June 23rd, 2009 at 12:51 pm
Jan,
You will have noticed my original comment about Clinton also being complicit in this deregulatory fiasco; and, in fact, his administration was indeed key in removing some of the Glass-Steagall protections that we will now, once again, be re-instating.
But your comment “it seems to me that changes to a set of economic rules take much longer than five years” seems mis-stated and wrong: mis-stated, because Bush had nearly 7 years in office before everything started to unwind, at the end of 2007; and wrong, because this was plenty of time to really mess things up. Indeed, most of the mischief we have uncovered to date happened during that seven years, including the terrific international fraud in swaps, still the most dangerous remaining problem to be fixed.
While the banks paid their $1B (confirmed to me by the lobbyist involved) to get Glass-Steagall repealed starting at the end of the Clinton administration, nearly all of the subsequent misbehavior you allude to (actual mergers, AIG going off the rails into derivatives beyond their market value) happened on Bush’s watch – or rather, the lack of it.
Since a great deal of the problem came because instruments intended to decrease risk actually increased it, this was really an error of omission (regulars refusing to regulate) rather than commission (passing ill-considered laws with unintended consequences).
In other words, it is possible to forgive those who thought the laws would work, but not those who watched them not working, and who did nothing.
This isn’t about being mean, or finger pointing. It really is about describing a massive fraud accurately. Now, if only a single person had been charged with something illegal –
June 26th, 2009 at 1:57 pm
Mark,
I am honored that my reply chafed enough to warrant an answer.
While I agree that the world has gotten faster, every administration seeks to solve the problems the prior administration created. In this case, one can make one of two arguments: a) that the Bush administration failed to see the errors of the prior administration and/or to fix them; b) changes in market dynamics (individual investors with short attention spans and even less research) combined with regulatory changes since the mid-90′s made this mess.
The boom-and-bust cycle of the United States economy has always been a result of factors: the tug-of-war between two parties complete with (by definition, non-compromising) dogma, and unnecessary burdens of patchwork regulations, poorly written, poorly understood, and poorly enforced.
If Libertarians were right, Canada would have completely imploded, but it didn’t. If the ‘regulate everything’ people (liberals? progressives? what are they supposed to be called now) were right, they’d need to look no farther than Germany, whose economy has been considered the “tail light” of the EU economy for seven years out of the last ten, competitive with only France and the UK for the lowest growth numbers.
Regulation will not save anybody unless it bans them from investing stupidly, which has been tried in a number of countries with mixed success. I don’t see that happening.
You’re arguing to protect people from bets placed with their eyes closed, which no amount of regulation would have controlled.
July 9th, 2009 at 9:10 am
this is not what I want to hear from the Inspector General of FED R.
http://dailybail.com/home/there-are-no-words-to-describe-the-following-part-ii.HTML