A Little Off-Topic: the Credit Crisis, the Economy & You
Let's go a tad off-center from the normal run of posts here and point to a deeper dive in the economic and credit market news. While we've posted several times on the economic outlook, both for its' own sake and because it's moved front and center as a political issue, we strongly suggest that on an individual basis this is worth your attention. Why ? Because, first, the economy underpins all the other issues we normally address. If you can't afford it you don't get it and lots of things are going to be unaffordable in the next few years. In fact the political agenda for the next President is being determined as we speak by events on Wall St. and in the Economy. Central to the accelerating economic malaise is the increased liklihood of a longer and deeper recession brought about by the unraveling of the credit markets. Now if you're like most folks you pay attention to the news that interests you, bears on your concerns and/or comes to your attention. Economics continues to be arcane and ignored. In fact my college roommates one summer, on finding out I was majoring in economics, came up with the classic summary: "as long as my paycheck shows up and clears I could care less".
Stop and think about that for a minute. If you don't see the humor, black as it is in general and specifically now, and the self-indictment the rest of what we have to say may not be meaningful. But if you'd like to at least be slightly aware of where your paycheck comes from then the health of you payor, it's "industry" and the economy as a whole matters a great deal to you. And right now the big problem is that the credit markets, which are the lubricant of the economy, and are as essential to its' healthy functioning as oil is to an engine. And fills a similar role. With all that preamble let us point you to a business affairs blog post on Bear-Sterns and the metastasizing credit market problems of which it is simply a sympton:
Run Away, Run Away: the Seriousnes of the Credit Crisis Earlier this week we put up two carefully considered posts on the cascading credit crisis and early Thur. called the attention our network to them with a special e-mail. The title of the e-mail was "Brushed by the Wings of the Angel of Death" which wasn't entirely hyperbole. The core of the e-mail is reproduced below, idiosynchracies and all. Fri. morning the non-hyperbolic nature of that description was illustrated by the emergency rescue of Bear-Sterns by a combination of J.P. Morgan and the Fed, who were acting to prevent the disorderly collapse of the credit markets, not bailing out some miscreant investment bank.
The key words here are collapse and credit markets, the sine qua non of making the economy turn over. If they grind to a halt as they threaten to do so does the economy. Fri's headlines was and will be scary, nor do the emergency fixes resolve the underlying problems. But the scariest headline would have been Bear NOT Rescued because it would have triggerred the collapse. What we're seeing here is a giant run on the bank, except this time it's a run on the system and the normal policy mechanisms, as we've repeatedly said, are NOT working. The Fed is inventing policy and mechanisms on the fly and hopefully it'll be sufficient to allow an orderly working out of these problems. But it won't prevent a downturn in the credit markets and a much more severe and long-running downturn in the economy than most think. As a matter of personal decision-making it's important, vitally so, for you to come to grips with how serious this is, what it means for your own personal plans and those of your investments and place of employment. This is being managed by competent, dedicated and hard-working people who know what they're doing as well as anyone. Which won't prevent a downturn but should mitigate it. But the risks are to the downside of the downside and you should be planning and positioning yourself accordingly.