Depression

(some observations, which I’ll hopefully clean up and form into a coherent post)

Some say the financial crisis is a market failure, fixable by regulation; others, that it’s a regulatory failure, fixable by the market. In any case, someone took a risk, and lost. Once bitten, twice shy? Not if the losers don’t feel their losses. Again, their risk is passed on to me. Why should I accept that when I do not profit from it?

It’s very difficult for politicians to do nothing and let the disease run its course. So they give Typhoid Fannie drugs which cover up the symptoms, and allow her to infect the rest of the population, when quarantine or execution would be better for the public health.

At times like these, you would think that the politicians, of all stripes, would also stop planning to spend more on entitlement programs whose costs can’t be controlled. But it’s very difficult for a politician to get elected without promising the voters 40 acres and a mule (and his friends, perks). And there will be no cost at all to this. We can do it all without raising taxes. We can lower taxes without cutting services. And who will pay for this, I ask?

Our mortgage is half of my net pay. Our other expenses consume the remainder. Because I’m paid twice a month, and bills come due throughout the month, we bridge the gap with credit. This works as long as our expenditures on credit do not exceed my earnings. Others do the same, but on a larger scale.

If they do, then we take funds from our savings; we borrow against our future. I think the questions we all need to ask ourselves now are these: Are my sources of credit sufficiently diverse? Is there such a thing as sufficiently diverse in the current circumstances? Assuming that I remain employed, can we live on cash?

For what it’s worth, historical data maintained by the FDIC shows that during the Great Contraction, many fewer banks failed than did during the Savings and Loan Debacle of the 1980s. I’m sure that’s reassuring.

http://www2.fdic.gov/hsob/SelectRpt.asp?EntryTyp=30