Intended Consequences

After two years of studying the cause and effects of what is now labeled the great recession, one of the most frequently used terms dealing with the damage inflicted on investors and our economy is unintended consequences. I find this terminology a form of hypocrisy for the mere fact that one would have to assume that those individuals in control of making the decision that resulted in the negative consequence were oblivious to its potential damage. I would contend that they are not only fully aware of the situation, but deliberately choose these moves because the perceived short term reward out ways the long term risk. In one of the books i am currently reading the crash of 2008 and what it means by George Soros, he refers to this aspect as the theory of reflexivity, where a battle between the cognitive and manipulative mind occurs and investors usually side with the more speculative and risky position therefore exposing themselves to the downside. They are in constant pursuit of what he calls perfect knowledge which few achieve. I think this same theory applies to not only the stock markets worldwide, but is currently at the root of many of the worldwide dilemmas we are witnessing today. For example our government seems quite content with bolstering our debt load to offset the effects of this recession, BP looked away when it was fully aware of the potential catastrophe looming in the Gulf, and this administration as well as others in the past have deregulated our markets so that the derivatives market worldwide is left to spread its systemic damage. But as Thomas Friedman states in his book Hot, Flat, and Crowded that the real game-changer will be Mother Nature herself by imposing such harsh restrictions upon the worlds inhabitants, as the result of our repeated rejection of embracing the renewable energy market today with the same passion as we did with the information technology sector in the past.

Debt Debacle

As the stock market continues on its volatile path reoccurring themes are played out daily as contributing factors to its impotence in maintaining an upward run. One of the most popular of late is the sovereign debt crisis in the European block countries. The civil unrest is understandable as citizens hear the cry for Austerity policy implementation by these governments. The IMF or International Monetary Fund has called for the reduction of government spending on subsidies and other public spending programs as an equalization strategy in an effort to stem the continued devaluation of the Euro. I believe that this crisis is a sort of economic petri-dish experiment for the United State's inept fiscal spending policy's our administration has adopted, yes i am implying that it could happen here as well. Now that our National Debt has surpassed our annual GDP at fourteen TRILLION dollars, the writing is on the wall. There is in my opinion an even bigger destabilizing force in wall street and that is the derivative market which is now a forty five trillion dollar market worldwide. Just to give you some perspective on its size the U.S. stock market is estimated to be around fifteen trillion dollars, and all U.S. mortgages wrapped together only equal seven trillion dollars. As long as we enable speculators to bet against government, corporate, or private interests with the unregulated abandon we have all witnessed of late we will see continued unprecedented wealth evaporation worldwide.

Moral Hazard

With this weeks revelation that we now have the ability to grow computerized synthetic cells the question can now be asked, have we as a nation passed the threshold of moral hazard?. We seem to be on an accelerated path that is unsustainable in so many ways. I believe our unadulterated greed and desire for short term gain is the underlying problem in making the poor decisions we see by our government, and contributing to the decline of our economy, environment, educational system and society as a whole . As World leaders other countries have mimicked these shortcomings and are now feeling the effects of systemic damage just as we are. Our leaders have looked away as an elite group of speculators known as Quants have used a system of high frequency trading to wreak havoc on our markets and the result has fostered an environment of bubble creationism and wealth evaporation at unprecedented levels. We have deregulated our system so that petro-dictators are able to pollute our shores, illegal immigrants are able to pilfer our resources and come and go as they please. This type of situational thinking must somehow be changed and be replaced by a sustainable mindset if we are to correct the negative inflection point we are at today. Would it be such a bad thing to return to the roots of common sense that our fathers and their fathers taught us. Just as our World War Two Veterans will undoubtedly go down in history as the generation that saved the World, let us go down as the generation that changed it for the better. We can begin by mitigating our current problems and embracing the renewable energy market as a World leader in Education and innovation again by exporting our sustainable ideas for a brighter future for our children and their children.

The Madoff Effect

Now that disgraced fund manager Bernard Madoff has been sentenced to 150-years in federal prison, and must return 171-billion dollars for running the largest ponzi scheme in history by bilking thousands of investors worldwide of their retirement accounts, its high time to shine the spotlight on the hundreds if not thousands of fellow rats within the walls of Wall street. This would be the perfect time to bailout the taxpayers in our country by disclosing the means and funds in which an elite group of mainly hedge fund managers worldwide manipulated the stock market, destroying our banking system and sending the U.S. economy into a tailspin. The CREDIT DEFAULT SWAP market and other mechanisms have enabled these fund managers access to TRILLIONS of dollars at our country's expense. By establishing a National Economic Security Council, and labeling all trades made within the last fourteen months as subversive activity, in which it can be PROVED that institutions or corporate entities were brought down by these individuals. Transparency and an audit of these stock trades would put several trillion dollars back into a depleted economy and revitalize a scenario desperate for solutions. All offenders could still keep their jobs and assets made outside the fourteen month time frame. The National Economic Security Council would of course RE-REGULATE the process that caused the damage to these entities, as to prevent any future occurrences.

Prime Time

As we move towards one hundred percent burn through in the sub-prime mortgage market, another wave is mounting as it approaches the shores of banks balance sheets in the form of prime loans, these loans were eerily similar to those loans made to individuals with bad credit in there qualification and adjustment structure, but these clients had good credit scores. The mortgage industry labeled them as JUMBO loans, or PAY OPTION loans referring to the typically sizable loan amounts usually exceeding the six hundred thousand plus range. Who wouldn't be attracted to the NO MONEY DOWN, NO INCOME VERIFICATION pitch on a million dollar mansion in the unprecedented appreciation wave of just two years ago. The fact is that just as many people fell victim to the predatory practices of these unscrupulous individuals within the mortgage industry, all the while the enabler, the U.S. GOVERNMENT turned a blind eye in the form of mortgage deregulation instituted in the late 1990s. The majority of these loans adjust upward in the next twenty four months A trend of defaults occur due to income parameters and unemployment figures leading to foreclosure, the loans land as toxic elements on bank balance sheets. This drives down the price of financial stocks instigating a sell off and market volatility. The government throws massive capitol into the banking system in an attempt to absorb these bad loans, and the cycle repeats itself. why not just implement the strategy of the 1980s savings and loan fiasco where a bad bank is established to harbour or de-leverage this bad debt, it worked well in the past and could work again in the future.

A Future Of Bubble Creation

As we speak the Government is quite possibly working on implementing new and aggressive strategies that will create new artificial bubbles within the stock, credit, and real estate markets, in a desperate attempt to drive us out of this relentless recession. The problem is that we have been there done that, and will undoubtedly return at some point to the negative feedback loop and systemic economic problems we are experiencing presently. It is now clear that the stimulus programs have made little positive impact in their intention of freeing up capitol for loans within the banking industry, in addition job creation, and loan modifications have all but failed and the stock market continues its highly volatile path. This administration will have to artificially re-inflate real estate values, deleverage massive debt loads, and somehow inflate the credit scores of those with bad credit in order to right this economy. Even stable consumers are now hording capitol and savings are the highest in decades. The net result of all this activity will cause one of two effects deflation or hyperinflation neither of which is a desirable scenario. It is now time for the fed to look at common sense indicators such as GDP, EARNINGS, UNEMPLOYMENT, and other core economic data before it throws more liquidity in the form of TARP money at the all consuming toxic mortgage market. Recent stock prices in steel, aluminum, durable goods, and diesel supplies show continued contraction not expansion, even an individual without any formal education as myself can figure that out.

State Of Emergency

The actions of California's highest elected official Arnold Schwarzenegger are not only irresponsible, they lack common sense and display several other unenviable traits all at the expense of California's weakest and most vulnerable citizens. To think that children's services, the disabled, homeless, and education will feel the brunt of this economic tsunami that Arnold is leveling against them is inconceivable. Those that elected this individual will also suffer from the lack of essential services such as fire protection and law enforcement. The Sacramento sheriffs department alone plans to cut patrol officers by over fifty percent, and is now endorsing the concept of concealed weapons permits so that citizens can protect themselves. The Governor also believes that the legalization of marijuana is a viable solution in solving the states deficit problems. This guy makes Grey Davis look like a genius and a saint to boot. But the fact that a bad motion picture actor from Hollywood has HOODWINKED Californians into believing that he was capable of performing the tasks of his office is no reason to except his incompetence.