Thursday, February 19, 2009

Recessions are healthy things

Yes indeed, recessions are the medicine an economy needs to take before it gets better.

Certainly, it has tragic consequences for many hard workers and home owners and borrowers throughout the economy as output contracts. But the underlying theme is that so many human activities and so many resources were mis-allocated towards speculative bubble activities.

The best thing about these depressions is that it uncovers all the irrationalities, myths and misconceptions that existed during the bubble period. We just emerged from the biggest credit bubble in history. The assumption was that property and share prices would continue to soar, Asian economies would continue to grow and make things cheap, the Western consumer would never satsify his appetite to consume imports and grow their debt, and the savers of the world (Brazil Russia India China and the Middle Eastern states) would fuel America's debt forever.

THATS A LOT OF RISKY ASSUMPTIONS THERE ! I say good riddance to them.

And Obama and Bernanke think this kind of process is unhealthy ?

Whenever the crunch hits and people try to pull their money out, you see just how honest and sound some of these speculative activities were. Yet another ponzi scam was just unconvered. How many years did the SEC have to investigate these guys??

Texas financier R. Allen Stanford is accused of cheating 50,000 customers out of $8 billion dollars but despite raids Tuesday of his financial empire in Houston, Memphis, and Tupelo, Miss., federal authorities say they do not know the current whereabouts of the CEO.

Of course, you can't pull off a scam without government connections. Why doesn't an angry mob form outside Washington and demand the heads of the following politicians ?

But in addition to angry clients, Stanford, like Madoff, has many friends in Washington.

Stanford's business is headquartered on the Caribbean island of Antigua. In the last decade, Stanford and his companies have spent more than $7 million on lobbyists and campaign contributions in efforts to loosen regulation of offshore banks.

Among the top recipients: Senator Bill Nelson (D-Fla.), Congressman Pete Sessions (R-Texas), Sen. John McCain (R-Ariz.), Senator Chris Dodd (D-Conn.) and Senator John Cornyn (R-Texas), one of the members who took a trip to Antigua where he was entertained by Stanford.

Look how blatantly corrupt America has become - Washington has an ever increasing budget to spend ($1 trillion stimulus anyone ?) with growing regulatory powers each year, its no wonder every business tries to lobby and bribe politicians to get on board. How can Washington have the infinite wisdom to dish out $1 trillion of payback within a few days, in an optimal way that will stimulate economic growth ?

During the recessions, you get to re-discover reality.. it can be ugly, but society is better off without all these ponzi schemes.