The Party is Over!!
What happened today is the best thing that could happen for our future. In our lifetimes there are not many momentous events that redefine our lives. Today is one of them. The party is finally over on Wall Street. The fear of something terribly wrong with our financial markets became real. The filing of the bankruptcy by Lehmans and Merrill Lynch being swallowed up by Bank Of America was the final straw.
I have watched for years our nation and it’s wealth caught up in the shenanigans perpetrated on Wall Street. It seemed that regardless of what our personal realities were, it made no difference to Wall Street and it’s bankers. They just kept making money. CEO’s were getting multi-million dollar compensation packages for failing. Young turks were getting ridiculous bonuses and commissions for? Uh.. calling the right bet? Yet hardworking small businesses couldn’t even pay their rents. I know this because I am in property management.
It doesn’t take great genius or a Harvard education to understand the relationship of our home mortgages to the world financial structure. It is also very simple math to understand that if a homeowners job doesn’t make him enough money he can’t pay his mortgage. IF he can’t pay his mortgage it won’t trickle up( so much for the Reagan’s trickle down theory of economics). According to the US Census Bureau http://quickfacts.census.gov/qfd/states/06/06037.html The average income of Californians is $22,711 this is per capita, and double this for median household income which is calculated based on two wage earners. The census figure for the average price of a home is $209,300. Now, doesn’t that sound ridiculously low compared to what we know is out there. How is someone with the above stated income able to get a down payment or pay his mortgage even at these prices, regardless of the fact that in most decent neighborhoods the average price of homes had reached $700,000.00. A 2 bedroom condo converted from and old apartment was fetching 400,000.00. This means that the value of homes are inflated. The question is by what percentage is it inflated. I say by at least 50% on average. It would take very simple deductive reasoning to realize that the value of the paper Freddie, Fannie, Lehman… whoever holds is worth in reality 50% of face value. Ken Rosen thinks it will be 1 trillion in losses, http://www.marketwatch.com/news/story/wall-street-turns-fed-aig/
story.aspx?guid=94D6046F-C88F-4844-81F5-5E100929EE76&dist=SecMostRead In fact I think it will probably be around 2.5 trillion. This might not be enough wait till we hear about the commercial sector. For this we can thank the Fed and their buddies on Wall Street. The party most responsible for this fiasco is the Federal Government. Speak about greed and corruption. Print! Baby print!
The biggest losses we will receive won’t even be financial. It will be the talent that got seduced by Wall Street. The best and the brightest who were recruited away from Engineering, Math and Sciences. We lost an entire generation of talent. We have so many lawyers, accountants, actuaries, financial analysts, economist and the list goes on. A question begging to be asked is, couldn’t these geniuses have figured this out and stopped the mess we were heading to! We shipped our jobs out to the corners of the cheap labor world, so Wall Street could report better quarter earnings. These earning weren’t due to actual wealth generation but cost cutting. It just reflected better on the bottom line. The CEO’a and their circles got bonuses and so it went. As the economy looked to slow down the Fed printed more money, the party continued. The world bought our debt because of America’s sexy character, and even emulated us to a degree they too had bought into the myth.
Our economy like all economies is reliant on it’s population for wealth creation. This is done by industry and innovation. According to McCain and Bush the fundamentals are strong. I guess he meant our automobile industry? Housing… Electronic… Retail? Or maybe he meant the service sector, the ones that have Indian accents…? It seems every where we look, we have lost the edge, except for the Military Industrial Complex, Pharmaceutical and Medical Complex and the energy sector. Then again these aren’t the private sector, these are government protected businesses.
Well, the party is over, now we have no choice but to do it right. The one sure fire way is to bring back the gold standard. All this mess we got into is because of printing money. Why earn it when you can just print it. Pretty soon you even forget how to earn it and loose the skills along the way. We need to get education and R&D back up. If we can spend billions bailing out crooked bankers, we can give our children free education. If we can rain down dumb bombs at 25K a piece(these are with GPS guidance systems) then we can help Californians make a little more then a dumb bomb is worth. We have to build for the next generation, these last two generations messed things up pretty bad. We owe that to the future. We need to invest in new R&D facilities and lets take away the red tape for grants, so the lead scientist isn’t spending 50% of his time chasing money. We are loosing the R&D race. Consider the Hadron Collidor. In the past the US would have been the site and the leader in this. Instead of allowing our kids to gorge themselves on Paris Hilton, Britney Spears and the like, let’ s get some scientists looking sexy, after all the brain is the sexiest organ.
The future looks very promising to me. These events were inevitable. If anything is built on a false base it will not stand.
Filed under: Opinion