$850 Billion, Economics, Crashes
Been a few crazy weeks in the financial world and the markets what not. Discussing the bailout has been a nervously recurring conversation topic around the office ever since the news first broke that the America is well, headed towards bankruptcy? Yet somehow we continue to think that borrowing or printing another $850 Billion dollars to bail out the troubled financial corporations on wall street is the best solution. Depending on who you talk to, it seems like the conventional wisdom is that the bailout or “rescue” bill although it sucks, is a necessary evil. The scary thing is that nobody in support of the bailout has any clue on how this is all going to play out, let alone where we are headed. I can’t help but wonder if people had the benefit of additional information and stopped to digest the recent turn of events and really question them that maybe they wouldn’t be too quick to capitulate to what might be a historic change in the structure of our constitutional republic. That is, whatever is left of it.
This whole mess has been a nagging topic on my mind, call it a distraction really from school, work, life in general. Between checking up on the state of my own investments, the price of commodities, foreign exchanges, and inflation rates. I’ve taken a few pretty deep hits in some funds, others bad, but still could’ve been worse. I wish I could say that being young I still have some time to recover from all of this, but honestly I’m skeptical and anxious to what the future will bring in terms of financial security. Given the volatility in the markets lately, it seems like there is no safe haven for any kind of investment anywhere.
Tonight after work I rattled off an impromptu lesson on the securitization of mortgages, credit liquidity, and overall monetary policy for Hana on a notepad and paper napkin. I think I got a little animated in my demonstration, so much that I noticed the lady studying next evesdropping. Maybe I was making a convincing explanation? I guess to me all of this seems pretty obvious if you break things down to a smaller, more personal level, call it a combination of econ 101 mixed with some basic graduate level micro/macro from policy school, and some broader knowledge of commercial transactions, business organizations, and maybe a bit of consumer psychology. I can’t say that I predicted this mess, but I remember back in 2001 I was learning about basic economics and noticing that the monetary policy that we were following was unprecedented, setting lowest interest rates since WWII.
One of the first observations I had about the field of economics is that it seemed like a social science pretending to be a hard science between all the statistics and mathematical formula. There is something to be said about anything with numbers having an unspoken sense of credibility or certainty. One of concepts that stuck out was the concept of “all things being equal” when describing any economic system or market. I remember thinking that it could be very dangerous assuming that you could maintain laboratory/ivory tower like conditions in the real world. When you really dissect things down, economics becomes as soft a science as sociology, or psychology. Blend that with good old fashioned politics to promote a policy and feed it to a population that is largely ignorant to personal finance and you have a very dangerous propoganda tool.
Part of the problem is that lot of so called experts that we hear about that were supposed to be running all of this are actually academics whose ivory tower doctrine was rarely tested and prodded in the real world. These guys apparently got a little too cocky with their risk assessments and statistics that they fudged their numbers to convince investors around the world to make some very risky and potentially catastrophic investments.
And now with the bailout signed into law, the American taxpayers and middle-class are left holding the bag.