About fifty years ago John Kennedy challenged the nation to "Ask not what your country can do for you; ask what you can do for your country." In that relatively short lifespan since, America recently was choosing between candidates who were bellowing various slogans the gist of which were "Ask not what you must do for yourself; ask what your government will take from others and give to you."
From promises for free health care that will not be free and removing the risk from risky investments, to undisclosed plans to change the American nightmare back to the American dream, voters turned out in record numbers to cast about ninety-nine percent of their votes for one of the two party candidates whose policies have virtually collapsed the American economy. It is as if our cars have four flat tires because of the nails we left in our own driveways, and we voted for the candidates who promised us better cans of Fix-a-Flat at someone else's expense.
About the only thing not being proposed to fix the US financial sector is allowing the US financial sector to heal itself.
However, that is understandable since we Americans have grown accustomed to buying homes with no money down, and the latest technology on promises to pay with future income. We are, after all, prudent as demonstrated by our shopping savvy of making sure we pay the lowest price, and then complaining about dealing with outsourced customer service. After all, placing the blame on ourselves means that we may have to change our habits, and why should we do something so difficult when someone else is promising to allow us to remain ignorant even if we do not understand what the plan is? Folks, that is not resolution; it is compounded ignorance.
When AIG was given an $18 billion bail out, my inbox was flooded with forwarded e-mails suggesting that amount of money divided by one hundred million people was $180,000 per person, and how much more we each could do with that amount of money. I replied to the first few to ask them if they checked the math, but it works out to $180 per person. Soon I was dumping those without reply along with the promises to enlarge part of my anatomy.
So what is the answer? To determine that, we must first understand the problem.
If we were to use a story problem, we might consider it like this: if the government were to bake ten pies, and cut each into eight equal pieces, how much pie would be left if they gave equal pieces to 8,000,000 people?
And therein lies the problem. We have consumed more pie than our government has baked.
The answer is not to wait in line until the government bakes more pies, or takes pies from those who have pies, but, rather, to seek our own fruit, roll our own dough, and bake our own pies.
So how does that relate to the financial sector of the economy? The problem the government faces is that it has provided incentives to banks and businesses to provide credit to keep the economy growing in the form of guarantees. Rather than providing oversight into how these guarantees were being utilized, the government was complacently content watching numbers roll in that indicated the incentives were working. In fact, banks and businesses were falsifying applications to circumvent prudent underwriting standards, and were rewriting loans on which consumers were on the verge of default to make it appear that the consumer could afford the loan. Consumers bought into this by running up their credit cards, and then refinancing those cards into new mortgage loans and running their credit cards up again.
Faced with the realization that free market principles were going to collapse both the stock market and banks, Ben Bernanke and his marionette known as George Bush pushed for increased liquidity (producing money that does not exist) in order to keep interest rates artificially low so consumers would keep consuming more pie than actually existed. Those policies kept the natural free market cycle of money moving from the market into banks in the form of savings accounts from occuring, which is a natural recessionary cycle. The consequence is that we have converted a few natural recessionary cycles into an impending long-term, full-blown depression. Call me an optimist, but I believe that America can overcome this depression without tremendous loss of life through World War III.
If necessity is truly the mother of invention, then it is necessary that we, as consumers and voters, understand that we cannot turn nothing into something. We must, instead, take something and turn it into something better through our own education, labor, and creativity. We have no more land we can steal from Indians for expansion, and the resources we take through interventionist policies for our own reckless consumption will only lead to the aforementioned war.
We must recognize that our own reckless consumption and irresponsible investments have caused the problems we now face. We must tighten our belts and reduce that reckless consumption, whether it is in the form of turning off lights in rooms that are not used, or continuing to work past the time we intended to retire on funds that were not really there except in the world of manipulated bookkeeping. We must use our incomes to repay our debts, and to purchase products that help keep our neighbors employed with the hope that they do the same. We must rebuild our retirement incomes and assets through hard work and intelligent planning. We can no longer accept that errant math works provided fifty-one percent of the people believe it does.
The best alternative to fix the problems in the US financial sector is to allow the US financial sector to heal itself. We have the equivalent of broken arms. Bandaids will not heal us, nor will the amputated arms of others be of much use to us in the long run.
If we do not sling our own wounds and allow our broken arms to heal, then my optimism for resolution without World War III will merely be more pie in the sky.