The Financial Crisis: What we need to do now

1) FDR had it partially right when he said that “We have nothing to fear but fear itself.”  While we have other worries as well, the greatest obstacle to economic progress is the HUGE psychological impact of Americans watching the stock market plummet right in front of their faces.  This is going to cause consumer spending, lending, borrowing and investing to freeze like a deer in stadium lights.  When people stop spending, economies start dying.

2) This crisis was a long time coming.  De-regulation pushes down on the economic gas, but increases the chances of an economic crash.  The dramatic growth of the past 8 years was a result of the same policies that are leading to the huge challenges we are faced with today.

3) Much of the impact of this crisis is psychological.  A large percentage of the devaluation in stock and home prices is driven by the fact that the original value was incorrect in the first place. While a crisis may also be a correction, a correction is not necessarily a crisis.

4) Prepare for a period of “Financial McCarthyism” in America.  Many baby boomers are closing in on retirement, and scared to death.  To boot, many of these individuals have not properly prepared for retirement.  When Americans get scared, politicians get nasty.  We should prepare for some of the most Draconian legislation we’ve seen in a while. 

5) What makes this crisis such a concern is that even before the meltdown, the economy was already quite fragile.  With soaring gas and food prices, the economy was the #1 issue on the minds of most Americans.  The decline of many financial services firms was, for the most part, a logical continuation of the fact that many homeowners were defaulting at the start of the year.  This crisis is most certainly going to shift the political landscape and might give us our first Black president.