As I head out the door for a week and a half away, I thought I would espouse in short bursts on the macro economic issues facing all of us. (My grandparents are celebrating their 70th wedding anniversary next weekend so thought it would be a good chance to spend a week with family.)
- Interesting piece of data: the financial sector of the economy now entails 8% of GDP, up from 4% in 1960. Scary thought, actually, that something that creates nothing is almost 1/10 of the entire U.S. economy.
- Do I know if Secretary Geithner’s plan for these toxic assets will work? No. I have no clue. It seems like the latest gambit in a long list of “the last thing didn’t work, so let’s try something new.”
- Of course, this isn’t new at all. From what I’ve read, it’s pretty close to the same way the Savings and Loan situation was handled almost two decades ago.
- There’s been a lot of consternation over regulation. It’s a giant pendulum, isn’t it? First we have too much regulation so we de-regulate. Then we have too little regulation so we regulate. The pendulum is swinging back the other way now, from too little.
- I’m no fan of big government and I’m no fan of regulation. But it strikes me that the ONLY thing that makes a capitalist society work is regulation. What happens when the banks lie about their holdings? What happens when investments tell tall tails about their potential returns? What happens when big companies can hide assets “off the books”? Regulation is the only thing that keeps these companies honest. If Balance Sheet for Company A is built different than for Company B, then how can we make smart investment decisions?
- I’m a big fan of regulation when it ensures competition and transparency. Enron and Worldcom were huge breakdowns in transparency. The same is true of today’s crisis. A major problem with these securitized debt instruments is that no one can tell how they were built. Not very transparent.
- And as for hedge funds and the like whining about being regulated. Shut up. You shouldn’t be above the law either.
One final thought: there are an awful lot of people who are saying the U.S. will never be the same. I’m counting on it. The beauty of this country is that we evolve, we become stronger for what we have learned rather than tearing down and starting over.
We’ll recover, just as we did in the 1890s and 1930s and 1960s and 1982 and in 2002.