Wednesday, February 11, 2009

Geitner gets a C- from the financial markets

I am a graduate of Economics and Commerce at Melbourne University, which includes a major in economics. I have a very modest qualification and have not been following economics all that much since graduation - it really is quite a boring subject. However, since the middle of last year I suddenly find that I have to sit up and pay attention, because of the collapse of the financial markets all around the world.

It is outside of my almost non-existent expertise to give any form of in-depth analysis of the present crisis. I can barely understand all of the critical factors that has led to the crisis that occurred first in the USA and then sent shock waves around the world. A new word has been created - "toxic debt". Getting around what this means is quite difficult. It is not as claimed by Barak Obama and his sleazy bunch of cohorts something that resulted from Bush policies. The fact is, the "toxic debt" has its roots in legislation created by the Carter Administration that led to the creation of Fanny Mae and Freddie Mac. As an outsider these are concepts that are not easy to grasp. I do not pretend at this stage to have been able to grasp all of the realities of the situation.

What I do know, however, is that as a result of policies that began with the Carter Administration, my superannuation fund has dropped by a whopping $40,000 and my husband suffered a greater wipeout from his funds because of the crash of the stock market. The nervousness within the stock-market which generated the largest crashes since the Great Depression is due to the collapse of several banking institutions because of bad debt practices and the creation of what is now called "toxic debt". This situation could have been avoided if the Carter Administration as well as administrations that followed had behaved in a fiscally responsible manner.

Whilst it is true that the Bush Administration made mistakes, that it got tax policies wrong, that it sent out the wrong signals, it is wrong to blame everything that has happened solely on G.W. Bush. I certainly think that the Carter and Clinton Administrations must share responsibility for very poor policies. Over time, as I learn more, or at least refresh my own understanding of the subject I will try to explore some of the things that are now coming to light. In the mean time the world financial markets have not responded well to the latest from the Obama Administration in the form of the Geitner package that is supposed to help with what is called "toxic debt".

In what is rapidly becoming known as Obama double speak, Geithner stated that the new bank bail-out package was vital as "critical parts of our financial system are damaged. Instead of catalyzing recovery the financial system is working against recovery, and thats the dangerous dynamic we need to change"

The new plan is allegedly aimed at restoring confidence in the damaged financial system and restarting bank lending. Despite the aims of this plan the financial market analysts are not convinced and they are in fact disappointed. As James Ellman of Seacliff Capital stated: investors wanted clarity, simplicity and resolution and what they got instead is convoluted, obsfucating and clouded. It is yet another poor start for the Obama Administration, which is struggling to get above and F for the first month in office report card.

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