Location: Pantego, Texas, United States

Thursday, December 04, 2008

The current recession is not the ususal business cycle. This recession was caused by many years of creative financial instruments that increased the velocity of money to incredible rates. Some deflation seems inevitable now. The crash that has happened was also inevitable, and was predicted by many people, but no one knew exactly when it would end. Over the past 25 years I have thought it was unsustainable. But, it was almost impossible not to be invested during this period. After all, a lot of people lived high and died before the crash. THat was part of the problem as many CEO's took the attitude that they would get theirs and get out before the crash. The CEOs who got out won and the current CEOs would seem to have been the losers left holding the bag. They knew that was a possibility, which is why they negotiated such huge 'golden parachute' packages. Congress may take the golden parachutes from the CEOs that are still standing. Personally I think the 'golden parachutes' were a major part of the problem, along with the goofy financial instruments. If the executives had not been guaranteed a big payout they may have paid more attention and not leveraged their companies at 50 or 70 to one. (Citi was about 50 to one, and Fannie Mae and Freddy Mac were about 70 to one. No one could tell what the actual leverage was becasue of the goofy financial instruments.)


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