A Crisis in Economic Confidence: The Truth about the US Financial Markets
Scratching your head wondering what’s going on in the financial markets in the US and around the globe this week? You’re not alone.
While the underpinnings of the current economic crises are, as is true of all things economic, quite complex; the reasons for the actions of Treasury Secretary Henry Paulson, and Federal Reserve Chairman Ben Bernanke, are simple to understand.
Here’s a simple analogy. Imagine our world, our solar system, our universe, without gravity. Everything comes apart. Planets swing out of orbit and crash into each other, the sun goes wandering off and leaves us behind, and as for life on Earth, as they say in Manhattan: “fuggitaboutit.”
Well, confidence is to financial markets what gravity is to the movement of heavenly bodies. Take away confidence and the financial world you know, the value of your paper money, your home, your savings, is all thrown into a dark void.
Just like gravity, confidence is something you can’t see, smell, touch, or feel. But take it away, and you’ll know that it’s gone in a nanosecond.
Thank God that in the heated rhetoric of a campaign season, that well experienced individuals like Paulson and Bernanke have had the smarts and the courage to throw themselves into the middle of this impending crises and get the legislative and executive branches of government on the same page.
Many conservative Republicans, like a handful of reactionary Democrats have been barking recently about government bailouts. It’s easy to see why they dislike floundering fat cats getting what appears to be a free ride. Had they spent a little more time in school reading their Econ 101 textbook and a little less time trying to figure out if their left or right profile is their most flattering, however, they would have learned that when governments do not intervene in an impeding crises of confidence, that’s when we have an economic meltdown. The last full meltdown of the American economy began eighty years ago in 1929. A deep gash in the financial life of America that did not really heal itself until World War II some twelve years later.
Unlike the loss of gravity, there is life after the loss of confidence. The road back, however, can be very long and very painful. While some of these political blockheads are wringing their hands over the cost of Federal intervention to the taxpayers, the ultimate cost following the Paulson, Bernanke path will be pennies on the dollar. The cost of doing nothing is much, much higher.
This week investors by the millions were within days, perhaps hours, of fleeing money market accounts held by our largest financial investment houses. With the meltdown of Lehman Brothers, and AIG; Merrill Lynch‘s sale to Bank of America, Morgan Stanley‘s stock values plummeting, and much more, you could here the stampede to the doors gathering momentum. Let that stampede break to a point of no return and confidence vanishes. And that is Econ 101.
In an age of hands-off government, Paulson and Bernanke had the courage and vision to realize that someone’s hand needed to be on the ship of state. Sarah Palin would have suggested that we pray for a solution. Always a good answer for would-be leaders who were out hunting bears, or making out in the back seat, when they should have been home studying.
I believe that God helps those who help themselves. This week, thanks to solid thinking at the top of Treasury and the Fed, we truly helped ourselves.