Monday, October 13, 2008

Main Street versus Wall Street

I desperately wish I could write that either the Democrats or the Republicans have THE ANSWER to our financial crisis. But I cannot.

Here’s the truth: the economy is out of the hands of either John McCain or Barack Obama. For the short term, our fate is in the hands of Secretary Paulson and Chairman Bernanke. Are they smart enough, tough enough? We’ll know soon enough.

The bailout, most believe, will be a double-header. Next up – the credit crisis. One of those guys will be our next president and will get his turn at bat.

So will his grandchildren – the payoff for these massive bailouts will last a long, long time.

Unfortunately, this mess has crystallized into a national attitude of “us vs. them” where Main Street feels like we are told to pay for the excesses of Wall Street. And we are.

No wonder we are angry. This is wrong on so many levels.

4 comments:

The South Plainsman said...

The problem originated on Pennsylvania Avenue...both ends, beginning over 30 years ago. Both political parties had a big hand in it, so much so that the blame is really not divisible.

It all started from wanting to do good. Everyone saw that helping poor people get into their own housing would be a big plus, and everyone "knew" that the consumer should be encouraged to consume because that led to stronger growth.

There was nothing at all wrong with those motives, even though the folks at both ends of the Avenue were not unaware of the big political benefits that followed.

As time went by, the banks were "encouraged" to make even more risky home loans and consumption was done ever more readily on credit. At the same time we were consuming more and more foreign oil (on credit!) and more and more of our consumables were coming from China(on credit!).

At some point many people were going to get to the point where they had no more credit and not enough income to make their house, credit card, and auto loan payments.

In the meantime, Wall Street, in a effort to provide ever more credit to the system (and make huge profits for themselves!)invented all kinds of derivatives and the like, and traded them madly among themselves, without anyone knowing what the value of them was.

Then comes a perfectly normal business cycle reversal like we have with some frequency, and it creates a "perfect storm" of defaults across the whole system, and like a house of cards, it all comes tumbling down.

Now we get to see if the big wigs can put this Humpty Dumpty back together again.

Cross your fingers.

JohnSBoles said...

Maybe our government watchdogs didn't have a chance...on either side of the aisle. My apologies for the inelegance of the (non)link. Cut and paste is all I can offer.

http://www.nytimes.com/2008/10/12/opinion/12dooling.html?_r=2&oref=slogin&oref=slogin

The South Plainsman said...

That is a good site, and he makes a good point. One can take something fairly simple and really screw it up with a computer.

The way all those derivatives were structured, and the way they we traded, made them opaque. The lack of regulation kept them that way.

Now the opacity is creating the big problem....nobody knows what they are worth, and the market is not structured to handle that situation very well. If the derivatives had been required to be bought and sold in an open market, subject to regulation like other securities, we may have had a bust because of defaults, but there would have been no credit crunch like we now have.

Defaults would have presented a great problem, but the credit freeze-up has made it far worse than it should have been.

Michaelbina said...

Main Street to Wall Street: "Go Directly to Jail."

A survey of CEOs and Business Leaders on Main Street – conducted two days after the first Billion-Dollar Bailout – found that Main Street thinks Significant Jail Time will curb Wall Street’s enthusiasm for financial mischief in the future.

The Nicolet Bank Business Pulse© is a quarterly study of nearly 600 CEOs and Business leaders on the “Main Street” of the Heartland. For 29 consecutive quarters, Nicolet National Bank has been conducting Business Pulse studies with CEOs in 10 counties throughout Northeastern Wisconsin. Its recent findings:

81% of the CEOs and Business Leaders say Wall Street bears Major Responsibility for the current mess on Main Street; 54% ascribe Major Responsibility to Congress.

60% say Significant Jail Time and Fines would be effective, preventive measures; 38% prefer stricter enforcement of existing laws; 31% want restrictions on CEO incentives and compensation.

25% want to increase federal regulation of financial institutions and 13% want mandatory restructuring of boards of directors.

Clearly, Main Street is, “Mad as Hell...”
Skip the ‘Perp Walk - Go Directly to Jail!


How this Study is Conducted
The Nicolet Bank Business Pulse© is a Quarterly Study of CEOs in NE Wisconsin (Brown, Calumet, Door, Kewaunee, Manitowoc, Marinette, Oconto, Outagamie, Shawano, Winnebago Counties) and Menominee, Michigan. It is designed and implemented by IntellectualMarketing, LLC. Participants include: 27% in manufacturing; 24% in services; 18% retail trade; 4% wholesale trade; 5% finance, real estate, insurance; 5% in transportation, communications, utilities; 5% in construction; 11% in other industries. 21% have fewer than 6 employees; 34% have 6-25; 15% have 26-50; 12% 51-100; 11% 101-250; 2% 251-500; 4% 501-1,000; 2% have 1,001 or more. Methodology Questions to Dr. David G. Wegge: (920) 217-7738; david@intellectualmarketing.com

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