Prescription: ‘Take 2 4 Aspirin’
Seeing as how the current approach doesn’t seem to be working out so well, I hereby propose a “do-over” in dealing with the aftermath of The Crash of ’08.
Exactly what do I have in mind?
Instead of:
-Rewarding the perpetrators with bailouts;
–Punishing savers with the double-barreled whammy of zero percent interest rates and currency devaluation; and
–Continuing to turn a blind eye towards what Warren Buffett called “financial weapons of mass destruction” (credit derivatives);
How about the following . . .
Plan B
One. Shrink the Too-Big-To-Fail financial institutions.
George Shultz, former Treasury Secretary and long-time member of Ronald Reagan’s inner circle, said — back in the ’80’s, for God’s sakes — ‘if they’re too big to fail . . . make ’em smaller.”
No, it’s not possible to “unbake a cake.”
But if you cut it into slices . . . it’s a lot easier to dispose of.
Two. Reinstate Glass-Steagall.
There was a reason Depression-era financial reformers made the citizenry’s savings off-limits to Wall Street: they tend to blow it.
Or steal it.
Or leverage it to the Heavens, steal a chunk of it — and then really blow it.
(Sorry folks, but I call it as I see it).
Three. Throw everyone with Wall Street connections out of government for a decade — preferably longer.
The argument for letting Wall Street-types decide financial policy — if there ever was one — was that it was too complicated for mere mortals.
Well, guess what?
In the wake of the biggest financial chain reaction crack-up in a century, 55 mph speed limits are appropriate for awhile.
And so is simplicity.
Peter Lynch, of Fidelity Magellan fame, recommended investing in a business that “any idiot can run ” because sooner or later, any idiot probably is going to run it.”
That’s the principle that should guide the (yet to be undertaken) redesign of the U.S. financial system (vs. the vulgarity known as “Dodd-Frank”).
Kindling and Tinder
“All of the foregoing is well and good,” I can hear some say.
“But in a financial emergency, immediate action must be taken. What do you do first?”
So that’s why . . .
Four. Financial authorities should summarily shut down the $600 trillion credit derivatives markets. See, “Number of the Week: $600 T-R-I-L-L-I-O-N.”
In a financial conflagration where the risk of contagion is so high, the first order of business should be to get rid of the tinder and kindling.
No, that doesn’t contain the fire.
But it deprives it of fuel to become even bigger.
Which just begs the question:
Are those four steps enough?
Certainly not.
But they’re a start.
Only once they’ve been undertaken will a second, deeper policy (and societal) response be possible.
