Tuesday, September 23, 2008

A Transfusion to Buy Time: The Bleeding Financial Markets

How is the average person to understand the mess in the elite community of Financial Powerhouses that has prompted a complete shakeup on Wall Street, an $85 Billion loan to shore up a huge insurance company and a potentially $700 Billion bailout of two mortgage lenders? Even the gurus of Wall Street are struggling with making sense of the markets today. Congress, quite frankly, probably lacks the expertise to deal with the problems. Our legislators must rely on their staff for the expert advice on how to proceed. The influence peddlers will certainly be out in force attempting to shape the outcome.

To even begin to analyze what created the mess we are facing would require several volumes. We must examine the history of the financial markets, insurance markets and banking industry. We must dive into the history of legislative initiatives that have blurred the lines between the various kinds of financial institutions. We must look at the evolving attitude in business schools toward profit at any cost. We must examine the methodologies taught to MBA's and Financial Analysts. We must look at Federal Monetary Policy and interest rate markets. We would have to delve into the myriad financial instruments and types of financing arrangements that are the specialty of a minute few. We would need to discuss policies related to housing for low-income families and the necessary guarantees to enable availability of financing for individuals who have accumulated insufficient capital to merit loans without those guarantees. We would need to look at retirement packages and policies that regulate 401 K's and IRA's. We would need to look at the basic money management skills which should be taught to every individual passing through our school systems. We would need to investigate the investigators -- those regulatory agencies responsible for overseeing the various and complex behemoths that control the billions and trillions of dollars that pass through them. The list goes on....

The crisis is of a complexity that few fathom and none can fix quickly and easily. It is the result of the cumulative effects of decades of policies, legislation and regulation. However, we must stop the bleeding quickly. The wound may or may not be fatal. It will take much more than a Band aid to fix. It will require major surgery and years of therapy.

Hopefully, Congress will buy us some time with the bailout in order for the surgeons to begin their work. The transfusions have been started but the surgery will be long. I pray that our leaders, such as Senator Cornyn (his thoughts here), will have the wisdom to steer us through the surgery and onto the path of recovery.

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