Financial Crisis 2008 - Blame Game, Washington VS Wall Street

Here's my take on blame game:

Washington VERSUS Wall Street

50/50

It's a tie!

WASHINGTON

Washington is designated to be a policing body. I think abolishing the Fed is not good, becos they are needed to make sure the economy is healthy. Sure, they didn't do a good job, but I think it's not becos of the Fed itself generally speaking, but specific problems, e.g. greed, inefficiencies, wrong person for the jobs, and personally, a biggie for me, ideologies. 

Erm, I'm talking about?Alan Greenspan's "laissere fare" school of thought...very much U.S. style capitalism. Sorry, not sure if I spelt it correctly, haha. His school of thought created the bubbles. Free and self-regulating markets - cheap money leading to easy access to financing and inadvertedly, soaring housing prices. Of which bundled up happily into financial products floating around the financial markets.

Back to the point - maybe more of a voting system needs to be in place to have checks and balances even on ideologies!?

Washington's fault - ideologies, power of lobbyists over Washington, other problems....I suspect, many people not doing their job properly, etc.

Wall Street

Greed is wat drives Wall Street. Tat's wat it is. I think greed is ok, as long as it's not abused. And greed WILL be abused unless there a serious and strict regulations. I mean, wat do u expect Richard Fuld to say? Of coz, he's gonna pimp up the compensation structure and maximise his gains (bonus), no? I mean, to them, isn't that what working like a dog is all about? 

But for the record, I do agree too, that bonuses should be severely taxed (AIG) if these very people are not performing like they are supposed to. The general public needs to be appeased. Although it's quite a shame becos I don't think it's all their fault. It's really the macro factors, the state of the markets. They are just unlucky....their predesuccessors were alot luckier!

Wall Street's fault - created by the creation of derivatives known as the sub-prime loans, and greed, etc.

Love/Hate Relationship Between Wall Street and Washington (this conflict needs to be addressed)

It's all about power. Power defined as money and decision making powers. Both of which, the cards are held by the govt (decision making powers) and the big-ass corporations/private sector (money). In my view, the power balance is 50/50. I would even say, it's a love-hate relationship. Both sides need each other although, there's a serious conflict of interest. Conflict of interest mean - no checks and balances on how much govt officials and lobbyists can influence each other. For e.g. can a lobby group give US$1bn to a govt campaign? Is it legal? I believe there are some changes on this area with the Obama adminstration. This is crucial to Ron Paul's "changing the culture of Washington"

I think lobbyists will always have power and greed, simply becos they can. Forget about changing this part of human nature, regulations need to be changed. Not more regulations, NEW regulations, to limit the power and greed.

Pauline's Solutions To Financial Crisis 2007 - 2013

Ok, so I read and read.  After all that reading, I agree with Warren Buffet's view.  Claire Tang is my marker for when the economy will fully recover.  5 years from 2008 = 2013.  Not shy eh, but this is my estimate.

All in all, these are my proposed solutions, after all that interesting reading:

1) Stimulus package 

U.S. stimulus package is needed.  However much.  Print money if u have to.  As much as possible. Don't be shy k....go on! When the shit hits the fan, throw theoretical economics out the window can?  A drowning man clutches at straws.  First up, is cashflow.  You ain't got cash, you're dead.  It's as simple as that.  Who you go to?  Big Daddy aka The Government.  I mean, seriously, do you have another better choice?

And fortunately/unfortunately, some companies ARE really too big to fail.  No matter how much you throw bricks at the shameless CEOs trying to make a run with their ridiculously fat bonuses, I'm sorry, but AIG is just not allowed to fail.  I would be rather pissed if it did!  But my big daddy wouldn't allow that, that I'm sure! (Singapore government.  Suddenly, I'm thankful for the kiasi and kiasu mentality)!

Anyway, to me, it's just common sense.  And everyone seems to forget that money and economics is man-made.  Which means, it can be changed along the way.  Like what Bernake JUST said on TV, economics is not economics if it cannot applied to real-life.  Dunno what else he said, but he made alot of sense.  Something about more regulations on banking sector, etc. Another day, he also said something along the lines of AIG.  My analogy - AIG was quite naughty - behaving like a slutty hedge fund, when it should be a conservative fund....I mean, we are talking about insurance here!

2) The "N" word - nationalization

Anyway, before I digress further, stimulus package brings me to the next point.  To me, Big Daddy was quite kind.  He did more than just give money.  He saved the banks from collapse.  I mean, not like he had a choice anyway.  Please note that these so-called giants would have been dead by now ok, if not for Big Daddy, the cashflow saviour.  These so-called financial Titanics...are well, sinkable, apparently.  And it includes Merrill, which I just heard on TV, that the 11th board meeting is under investigation now - something along the lines of biggies heading off with last minute bonuses, just before the crash/buyout from Bank of America? They knew??  Oooooooohh.....what sluts!  

Anyway, I read an interesting article in the Straits Times yesterday.  About the government nationalizing banks.  Temporary buffer (govt guarantees on a zombie bank) VS a real nationalization.  I agree with the author that a real nationalization is necessary.  Simply, to flush out dirty policies - aka ridiculously fat bonuses, etc.

The article mentioned that nationalized banks generally do not perform well after nationalization.  Fair enough.  But Sweden had a similar scenario and what they did, was to nationalize one of their banks.  And when the storm is ridden out, sell the bank back to the market.  I think it's a brillant idea.  And there will be vultures and funds waiting, no doubt.  Especially if these companies/banks are good businesses at the core.  

3) Creation of bids/asks

Bernake today mentioned too, that "marked-to-market" valuation would have to be re-evaluated.  And I did mention it in my other post alot earlier.  To recap a little, how the hell can u mark to market A to B, when B 's valuation doesn't even properly capture the real valuation? Wait a minute, what IS real valuation?  I think this is the real question.  I think it's perception and an accumulation of events that happened to give that thing a price.  Note, it's NOT fact.

The govt can help to liquidify (is there such as word) the markets.  Lubricate it with bids and asks on MBS (mortgage backed securities).  Instead of "mark-to-market" it to zero, create a value.  Underwrite some of these assets if necessary.  

I mean, at some point, Americans do need to stay in a house, no?  So, shouldn't that give some value back to the MBS?  I mean, mark-to-marking it to zero (basically, writing it off), is really the worse thing you can do.

Ok, so far, these are my proposed solutions.  Will write more when I come across anymore worthwhile points to take note of....

Funny Quotes

"I am puzzled by reports of a recession.  Shopping malls and food outlets are always crowded" Straits Times, 10 Mar 2009. 

My reply to this: This writer apparently underestimated Singaporean's love for shopping and eating!!  haha!