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Lately I have been reading lots of blogs and news sites from both left and right leaning critics. Though democrats and republicans have wildly different views on how to handle to economy, both critics have been using the DOW index as a barometer to measure the success President Obama’s policies. I think that is a big mistake.
The economic crisis is so big in scope that just about everyone has no idea what is going on. We have to take our leaders at their word when they have a steady hand on the tiller. However, the one part of the crisis that everyone can site as a major contributor to the economic disaster is the incredible amount of toxic assets on the market. I suspect that the bailout money, particularly the TARP money from the initial bailout before Obama’s inauguration is aimed at paying those assets down. However, if there are that many bad assets on the market, then it stands to reasonable logic that most every business wasn’t worth the money CEOs reported in their fiscal reports. I can’t help but think that the DOW was never really worth 14,000 points as it was in August.
Looking at it this way the problem actually seems simple to me (keeping in mind I am no economist by any means). America for the past six to eight years was like a teenager with an American Express card – we engaged in no limit spending for far too long, sporting Dolce&Gabbana sunglasses, Prada bags, and a $10,000 watch with a $20,000/yr salary, pretending we were richer than we actually were. It was the culture of the time, and most every one of us is guilty of biting more than we could chew. Now the credit card is maxed out, and we are paying interest on interest.
Our system is completely deflated now. The 7000ish marker where the DOW currently stands is probably closer to where the market was supposed to be all along. It is sad that 700 Starbucks closed and something like 2,100 of those workers lost their jobs, but is the closing of these stores an indicator of a failing economy, or rather a company that way over extended itself? I kid you not that the Third St. Promenade in Santa Monica has at least 2 Starbucks on the same street – not even 2000 ft of each other!
So the solution as I see it is twofold. First, we need to directly help homeowners who got caught in the bad assets game, as they have the most affected by this crisis. Fixing that problem would seem to simultaneously repair the bank system as well. We need to create and enforce very strict regulations to ensure everyone is playing by the same rules, and enforce strict punishment for rule breakers. Second, we have to let the infection bleed out. I have a suspicion that after we stop the bleeding (helping home owners, fixing the healthcare system, and revitalizing manufacturing in America and not rely so much on imports, and in the long term, fix education in American), the markets will begin to heal itself. Investors, CEOs and the American publics have to realize that the top 2% wealthiest Americans are in denial. As Jon Stewarts piece on CNBC indicates, I think (to give the benefit of the doubt) these financial news commentators were operating on bad intel or (not giving them the benefit of the doubt) there was a great deal of cronyism going on behind the scenes, and they thought they could pull up from a nosedive before we realized we were crashing. They refuse to believe that their companies are not worth as much as the ledger indicates, and they damn well know that government regulations mean a few of them are going to jail. These people are the proverbial puss, and we need to squeeze it out of the wound. When these people are gone and businesspeople with integrity replace them, the market will heal on its own. I am endlessly confident in American ingenuity and resiliency. What the American people have to realize that the infection is deep, and its going to take a pretty long time to see a “return to normalcy.” If we want to watch the DOW to measure our economic prosperity, we’ll have to wait at least 9 months for to deliver a remotely accurate reading. Still, the DOW surged 349 points today… Obama had a good day. =)
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Lately I have been reading lots of blogs and news sites from both left and right leaning critics. Though democrats and republicans have wildly different views on how to handle to economy, both critics have been using the DOW index as a barometer to measure the success President Obama’s policies. I think that is a big mistake.
The economic crisis is so big in scope that just about everyone has no idea what is going on. We have to take our leaders at their word when they have a steady hand on the tiller. However, the one part of the crisis that everyone can site as a major contributor to the economic disaster is the incredible amount of toxic assets on the market. I suspect that the bailout money, particularly the TARP money from the initial bailout before Obama’s inauguration is aimed at paying those assets down. However, if there are that many bad assets on the market, then it stands to reasonable logic that most every business wasn’t worth the money CEOs reported in their fiscal reports. I can’t help but think that the DOW was never really worth 14,000 points as it was in August.
Looking at it this way the problem actually seems simple to me (keeping in mind I am no economist by any means). America for the past six to eight years was like a teenager with an American Express card – we engaged in no limit spending for far too long, sporting Dolce&Gabbana sunglasses, Prada bags, and a $10,000 watch with a $20,000/yr salary, pretending we were richer than we actually were. It was the culture of the time, and most every one of us is guilty of biting more than we could chew. Now the credit card is maxed out, and we are paying interest on interest.
Our system is completely deflated now. The 7000ish marker where the DOW currently stands is probably closer to where the market was supposed to be all along. It is sad that 700 Starbucks closed and something like 2,100 of those workers lost their jobs, but is the closing of these stores an indicator of a failing economy, or rather a company that way over extended itself? I kid you not that the Third St. Promenade in Santa Monica has at least 2 Starbucks on the same street – not even 2000 ft of each other!
So the solution as I see it is twofold. First, we need to directly help homeowners who got caught in the bad assets game, as they have the most affected by this crisis. Fixing that problem would seem to simultaneously repair the bank system as well. We need to create and enforce very strict regulations to ensure everyone is playing by the same rules, and enforce strict punishment for rule breakers. Second, we have to let the infection bleed out. I have a suspicion that after we stop the bleeding (helping home owners, fixing the healthcare system, and revitalizing manufacturing in America and not rely so much on imports, and in the long term, fix education in American), the markets will begin to heal itself. Investors, CEOs and the American publics have to realize that the top 2% wealthiest Americans are in denial. As Jon Stewarts piece on CNBC indicates, I think (to give the benefit of the doubt) these financial news commentators were operating on bad intel or (not giving them the benefit of the doubt) there was a great deal of cronyism going on behind the scenes, and they thought they could pull up from a nosedive before we realized we were crashing. They refuse to believe that their companies are not worth as much as the ledger indicates, and they damn well know that government regulations mean a few of them are going to jail. These people are the proverbial puss, and we need to squeeze it out of the wound. When these people are gone and businesspeople with integrity replace them, the market will heal on its own. I am endlessly confident in American ingenuity and resiliency. What the American people have to realize that the infection is deep, and its going to take a pretty long time to see a “return to normalcy.” If we want to watch the DOW to measure our economic prosperity, we’ll have to wait at least 9 months for to deliver a remotely accurate reading. Still, the DOW surged 349 points today… Obama had a good day. =)
