Monday, March 16, 2009

We the People

Who is the biggest culprit for this mess?

I don’t put all the blame solely on politicians such George Bush, Bill Clinton and Alan Greenspan (yes, Greenie was a master politician albeit an unelected one)

All of these men have some responsibility for the current mess. Bush’s overspending and tax cuts plus an expensive war in Iraq led to big deficits. The huge deficits, the tax cuts and all the 0% financing that cropped up after 9/11 likely caused a shorter and shallower recession in 2001 than would have been the case otherwise. This is probably leading to a deeper and longer recession/depression currently.

Greenspan also cut that recession short by encouraging an asset bubble in housing to replace the tech bubble.

Some of the current mess (Fannie, Freddie and the bank deregulation) began in the Clinton era. Also, the Mexican and LTCM bailouts were under Clinton’s watch. Those bailouts probably worsened the subsequent asset bubbles. Plus, Clinton reappointed Greenspan.

However, the biggest culprit in this depression is not the politicians or the banks, as easy as they are to scapegoat. The biggest culprit is us. We the people.

We the people were the ones who leveraged ourselves to the hilt in our houses, and stopped savings. All the subprime and leverage in the system was merely there to support over consumption.

People created a lifestyle for themselves that was unsustainable and not possible without credit and overvalued assets.

Even now, people are still clinging to a naive belief that in a few months, things will magically turn around. Things will turn around one day, but that day will be when assets are priced at a discount to their long term values (i.e. there is room for appreciation in the future) and when enough credit has been wiped out to allow the economy to grow again.

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