Crap Shoot

As I watched Ben Bernake speak in front of Congress I couldn't help but to notice the separation in responsibility for negotiating our current crisis that was clear. In two occassions the fed chairman had dodged direct questions, and told Congress to take it up with Secretary Paulson. Let's not forget that the role of the Federal Reserve Bank is to maintain monetary supply/demand, monetary policy and inflation. From my point of view the feds should have had the data to support the type of shifting of on balance sheet equity to debt with the tools that they use. To pose the idea that the feds don't have any input into negotiations is like saying that the government has no place in the financial markets. We are at a point were if we do nothing we will fail, and not only must the taxpayers, lawmakers, and the government have to come together, but there should be some worthy efforts to make things right, in the U.S. economy on behalf of the federal reserve bank.

A couple of days ago I did think that this market bailout was a bad idea. But let me take another approach in saying that although I do not agree with the type of "11th hour" pressure being placed on us, I do believe it's something that needs to be done. There is definitely going to be moral hazard in the long run that will effect the market forces and although I think investors will see the auction facilities as a boost to get them out of the red, I don't believe that it will have an immediate effect, possibly not any effect on main street. Chairman Bernake did say that this will help to keep businesses afloat, create jobs, create confidence, allow banks to lend once again, there is still alot of banking deregulation changes that needs to be done.

There needs to be more transparency in the derivatives market, and changes to loan syndication, as well as investment banking practices. In my opinion there needs to be stricter qualifications as an "accredited investor", including institutional investors to be able to manage risk, and to be able to understand the highly structured products they invest in. I believe that these types of high risk hybrid structured products should be left to hedge fund companies, and that there should be more emphasis on "know your customer". I don't think that this is only my opinion. I believe that there will be more of a "hands off" approach and more of a "turning their backs" approach of investment banks to consumers.

It's unfortunate that market forces have literally shut down creativity and opportunities for consumers. I feel that consumers in the long run will be the ones that will hurt. It doesn't seem quite apparent at this moment that the shift of deregulation will revert back to regulation, but after the past 12+ months, what do you think the attitude will be towards the consumer? I would speculate that there will be less opportunities to buy homes, stringent credit qualifying requirements, strict income ratios and less assistance. Not to sound like I'm "flip flopping" but to make another point, yes, I do believe that consumers did buy more than they could afford, but at the same time, opening up the market to these opportunities should've came at a cost of ensuring that there wasn't a point where things got too heavy to handle. Former General Electric Chairman, Jerry Welch, likened this mess to a bunch of railway cars all attached. In one car you have the banker, in the other car you have the insurance company, in the other car the bond rating agencies, in the other car the institutional investors, etc., etc., etc.

It's clear that the U.S. economy is "outdated" and is now setup for some upcoming changes. In the meantime, I hope that this auction facility the government will setup, will ensure changes, at least for the better. In California, the unemployment rate is 7.7%, 1% over national unemployment which I know is hovering in the 6%. There is definitely a "swiping out" of the middle class and should we sit and do nothing, the downward spiral will lead to jobs in either entry level positions, or highly skilled college degree employment opportunities. So for now, there are an abundance of opportunities, that's if your credit hasn't "crashed and burned". Stock prices are really affordable, even for a beginner. But I would wait for a sign that things are turning around before I would involve my money in the stockmarket. Hopefully, by 2010 we will see another fire "brooming" in our economy, where jobs will be more plentiful, and hopefully an eye on better days, will be, in fact here again.