Quote from Lawrence Chan:
Just an after thought about the bailout.
Over the whole period of time, media has completely failed to educate the public what the so called subprime crisis is all about. The focus is simply that some financial institution sold and then some bought the repackaged mortage securities, etc.
The real issue, where the US administrator was trying to deal with, is a much bigger problem.
Think about the worldwide growth a bit. Just 20 years of growth in population in established countries equal to huge size increase in the cashflow of the biggest companies in the world, not just financial ones. Wealth are created and accumulated in trust funds, mutual funds, and various form of pension systems.
1. Those parked money having part of them evaporated in subprime related securities is bad. The system can recover from that, just the lifetime saving of many are gone, and that capital for future investment are no longer available until wealth is accumulated again.
2. The cashflow of the biggest companies having part of that parked in similar stuff affects the survival of those companies. The system can take that too by letting those companies fail and having new ones created in the process.
When the 2 things about happen together, however, prolonged depression would happen, and the people do not like that. Any one willing to live through Great Depression again?
To get out of Great Depression, war happened when the living environment got so bad, that social unrest leaded to conflicts around the world. War is a form of money printing and spending that like no tomorrow.
I am not sure if the bailout plan will work as it may solve #2, but the accumulated wealth in #1 is not replaced. On the other hand, thinking of the possible consequence of living through depression and/or another world war, is quite scary.
For ES, it will be greatly affected by econ # from now on ... as the bailout plan has to prove that it is working. We will probably see that over the next few months.
