It is very normal to hear that today’s economic woes have started with sub prime defaults. Last one week we have witnessed falling markets all around the world. Blame game is going all around. In this game we have heard financial sector wizards as drunkards. East Asian govt blame their loss of employment to lack of western consumer demand. US auto industry blames its woes on economy. Lucky few who succeeded by predicting economic gloom has blamed everybody. Recently, an IMF economist vaguely described necessary action for government is to restore confidence in the markets. One thing is clear from all this people who are governing do not understand if we are stuck in pot hole or a deep ditch. Ok so what is the point here? What is that I exactly want to convey?
To restore confidence we need bold steps and decisions. No one knows clearly what are we going to do?
1) Make banks mark down the books. No more optimistic thoughts that prices will come back up and I will be still solvent.
2) Create a process to bring all the derivative securities out of OTC domain. This way market will know the cost of unwinding and we can at least avoid market freezes after Lehman bankruptcy.
3) Loan modifications are disastrous. It will be less beneficial short term and more harmful in the long term. Investors who were supporting this market will never visit this side.
4) Auto bailout is a sham. I don’t say the 3 companies are waste asset. These companies are loaded with UAW. UAW has stifled the growth of the companies. So govt should take over the retiree benefit plans offered to the workers and in return big 3 companies should pay themselves from profits arising out of operations.
5) Last 10 years have created lot is new resource utilizing technologies and lots and lots of wastage of resources. So Govt should spend money in kick starting the production of resource utilizing technologies.
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