Words that give me pause:
Now let me tell you something very simple and very important: You can try to prevent a financial meltdown or you can teach Wall Street a lesson, but you can’t do both at the same time.
So which will it be?
You say you want straight talk — no spin, no bull, no sugar-coating. Okay, here goes.
First, stop fixating on Wall Street executives — there will be time to deal with them later. Even if you clawed back every dime they made over the past decade, it would come to several billions of dollars. That’s a rounding error compared with the size of the financial problem we’re facing here.
Second, we need to act quickly. The financial situation is now downright scary. Don’t look at the stock market — that’s not where the problem is. The problem is in the credit markets, which are quickly freezing. I won’t bore you with technical indicators like Libor and Treasury swap spreads, but if you talk to people who work these markets every day, as I have, they report that the money markets are in worse shape than they were last August, or even during the currency crises of 1998.
Banks and big corporations and even money-market funds are hoarding cash, refusing to lend it out for a day or a week or a month. Even the best companies are having trouble floating bonds at reasonable rates. And the shadow banking system — the market in asset-backed securities that ultimately supplies the capital for most home loans, car loans, college loans — is almost completely shut down.
People are so nervous, and there is so much distrust, that all it would take is one more hit to trigger the modern-day equivalent of a nationwide bank run. Financial institutions would fail, part of your savings would be wiped out, jobs would be lost and a lot of economic activity would grind to a halt. Such a debacle would cost us a lot more than $700 billion.
Not saying I’m buying the sky is falling analogy….but something to think about. Is the fix worse then the cure or not?
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