Wednesday, October 1, 2008

Slow Screw Part Two - becomes Fast Screw for You

In 10th grade I made a report on the great depression, and one of the passages I remember best was about a stockbroker, who, while watching the market tank and while losing everything he had invested, cried, "More Margin, more Margin!"

He needed more "margin," or "leverage." Credit.

The truth of the matter is that at the heart of the Great Depression was a credit bubble, much like we have today. And the truth is that only an enormous amount of financial pain for everyone will bring us back to reality. Sooner, the better, right? Dragging this out much longer through bailouts, stimulus packages, etc. only prolongs the pain and the problem. But this is the path we are choosing.

It's like having a sore tooth where the patient spends months eating on the other side of his mouth. But the tooth will not stop hurting until it falls out, or until the patient sees a dentist. The dentist causes some initial pain, but saves the tooth. I'm afraid we're in the process of losing some teeth.

Ben Bernanke knows this. He has prepared for it for decades. The irony is he's a student of the Depressionl. Why isn't he fixing it? Why is it getting worse? He's eating on the other side of his mouth.

Paulson wants to give his buddies (and himself) some Novocaine, cocaine and a get out of jail free card and splash some expensive moonshine on our collective, painful molars.

In my earlier Post, "Slow Screw", I talked about the unfortunate, declining standard of living over the past several generations. It would be sad, except for the fact that we're getting what we deserve. That makes it sad, but equitable.


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