Monday, March 2, 2009

Economy On The Rocks With A Twist

In many corners the nattering over The One's stimulus bill grows ever shriller but in all but a few libertarian fever swamps not many argue for the course of action that will in all likelihood prove as efficacious as any putative governmental attempt at reviving an economy by flinging trainloads of cash at it. That course is--to do nothing. Nothing in the sense that unless and until the ocean of bad debt can drain from the financial sector in a "normal" fashion, i.e firms crashing, burning, and bankrupting, will the hyper-leveraged investment landscape return to sanity.

Mr. Ponzi himself would blush in the face of how high the speculative pyramid has grown, and how wide has become its base. Bets piled nearly endlessly on top of bets on top of etc. etc. etc, whilst somewhere down there, two, four, or maybe six layers removed, the whole shaky business crucially depended on several million unsuspecting schlubs paying their over-financed mortgages on time. Add to that insane scenario the endless shilling of complex, arcane, likely purposefully opaque, financial instruments--derivatives, hedge funds, credit default swaps, ad nauseum--speculation quadruply removed on everything from credit card debt to insurance premiums, fund performance, bond earnings, and probably the take from the New York three-card Monte syndicate

Now one Fannie/Freddie sub-prime default too many and AIG, Lehman Bros., and virtually every pinstriped man-jack in the financial hustle is in the hole for the equivalent of about 478 Astrodomes crammed full of hundred dollar bills.

The whole business makes the fatal over-leveraging of the infamous 1929 market look like small spuds indeed. We are about to see if a dozen trillion dollar economy can handle a debt sucker punch of about those same dimensions. This thing is so big that the "stimulus bill", gigantic as it seems, may well be like turning a garden hose on a burning gasoline tanker. It is sobering, to rather understate the case, to realize that however perversely huge the wad the government can fling at this debt monster it may well be not even slightly better than doing nothing. Worse the "oversight" being demanded by livid liberals is likely to do far more damage than merely deferring the debt management to decades hence. Uncle Sugar's feckless meddling in the day-to-day operations of large financial firms bids fair to nudge the situation from the merely catastrophic to the irretrievably cataclysmic.

And oh yes cries of more and more regulation resound in the salons of the left. Peachy. Regulation and increased oversight in response to a crisis almost always is cursed by the "fighting the last war" syndrome. Who the hell can know what kinds of risky esoteric holes the financial community will contrive to dig for itself in years to come?

Golly gee the financial landscape is in nuclear blasted ruins. What to do, what to do? I've got it. Let's take the situation out of the hands of the hubris soaked suits who leveraged their way to ruination and hand it to a group famed in song and story for its selflessness, econometric competence, and sterling rectitude--Politicians.

Sure. Why not? After all what could go wrong?

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