Read two essential blog posts about what's happening right now in the economy. Seriously - these two summarize critical points that you should have in mind should you discuss the economy in anything approaching a serious manner.
Barry Ritholtz at The Big Picture writes a spot-on piece about the conceptual problem of mistaking confidence as a cause, rather than a symptom, of the macroeconomic degeneration.
Forget Confidence - Fix What's Broken First (The Big Picture)
One line summary: "Fix whats broken, namely the financial system. When that’s repaired, confidence will improve."
Karl Denninger at The Market Ticker skewers the leadership on tehir treatment of the financial crisis and offers a list of what needs to happen to restore the "confidence" (and, keeping Ritholtz's point in mind, by "confidence", Denninger really means transparency and effective law enforcement.)
It is a very angry and correct prescription.
Hello Mr. President; How 'Ya Like This? (The Market Ticker)
In summary, he recommends the following dramatic steps:
- eliminate CDS market
- send FBI after everyone involved in CDS embezzlement
- reinstate Glass-Steagall
- force the Fed to comply w/Bloomberg's Freedom of Information Act request/lawsuit and disclose who is receiving funds from the various lending facilities, and what assets are being taken as collateral
- eliminate a ton of FHA programs that incentivize fraud, and go after the fraudsters.
- force every company trading on a public exchange in the US to produce a consolidated balance sheet and financials - no more off-balance sheet stuff
To that list, I might add organized bankruptcy for a few problem financial instituions and large corporations (Citigroup and GM). Safeguarding bondholders is going to take more money than God or the US Treasury can raise. Keep in mind that unlike previous debt-related financial crises around the world, the majority of US debt is private, not public.
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