Wednesday, November 12, 2008

What's the real problem?

So all assets of all kinds are in a free-fall. Never to this extreme have stocks, bonds (conservative and aggressive), real estate, property (both commercial and residential), and commodities all taken it on the chin. Looking critically at this conundrum may give us insight into the root problem.

Narrow-minded, self-interested politicians, corporate executives, and others view only their specific realm and are pleading for assistance.

But let's look clinically at the issue. Typically when one asset type falls (whether in response to a new fundamental understanding of value, or an unfounded emotional reaction) another asset benefits.

I can see only one reason that all assets to go down simultaneously. They were all artificially inflated. How? Easy answer--by debt.

Easy enough. If debt is the problem, we just need to tell people (and the government) to be more responsible with their money and that will fix it, right? I know those who read this know better.

In a casual conversation last week, someone said (after expressing their satisfaction with their current financial person) that they ALWAYS been told to have a mortgage. I will assume that she has heard that from her broker and her banker. If we should learn anything from this crisis...

So what happens to the income of her broker and banker if she sells her investments and to pay off her mortgage? It goes down, right? So if not to them, where does that money go?

How much more financially resilient is she in uncertain times if her only mandatory expense is current living expenses (food, utilities, etc.).

Looking at individual effects of the housing market is two-steps removed from the real problem. The end of the debt ponzi scheme caused deflation of all assets globally, principally in the US mother of all debt-laden countries.

But like this woman, we all bought into the consumer mentality through conflicted advice that debt is good, and more debt is better. Now we are buying into a worse lie, that even more debt will fix it. Every plausible ponzi scheme only needs a bigger sucker than the last to keep it afloat.

What if instead financial advice was only allowed with complete objectivity, and products could not be sold with advice?

When you have an urgent medical need and get a prescription from the ER doctor for some drug you have never heard of, do you take that first pill with great fear over the possible consequences, that maybe it could result in your death or permanent incapacity? Could that be because a doctor gets paid for advice and a pharmacy gets paid to sell drugs?

Our economy is really ill and has one leg in the grave of Great Depression II. And US citizens are looking to the same people for solutions who are using the same tools that created the mess.

Are we are going to the drug dealer asking for a drug to fix the problem from the last drug they gave to us. So my question is, are we junkies who don't want to detox, just want another fix? Or are we ready for the hard work to get clean?