What is Going on With Our Economy (Part 2)

I think the corruption on Wall Street — that is to blame. And that violation of the public trust. And that contract that should be inherent in corporations who are spending, investing other people's money — the abuse of that is what has got to stop.

And it's a matter, too, of some of these CEOs and top management people and shareholders too not holding that management accountable, being addicted to, we call it, OPM — O-P-M, "other people's money."

Spending that, investing that, not using the prudence that we expect of them. But here again, government has got to play an appropriate role in the stringent oversight, making sure that those abuses stop.
Sarah Palin on Fox News

The volatility we saw this past week was crazy. The US stock market had 4 days were the DOW moved up or down by 3%. Watching the London exchange go up by 8% on Friday just capped the week of craziness.

I still believe what I wrote previously about the state of our economy. I think it is fragile but it could be much worse. I think the root of the current problems exposed this week was driven by greed. (Gordon Gekko played by Michael Douglas the movie Wall Street summed it on greed - but it is still a great movie and I believe in capitalism. The former CEOs of Fannie Mae, Merrill Lynch, AIG, and Lehman should be vilified like Gekko.)

If you tried to introduce a new food product to sell in the grocery, the government has certain standards for quality and labeling. (If someone introduced a new product that was made with liver and it was 100% of your daily allowance of fat it probably would not sell very well - I would not buy it!.) The government is trying to protect the public and make sure people understand what they are buying.

This should have been true with financial instruments as well but the government let us down. People were sold mortgages they should have never received. Financial firms tried to pass off risk through credit rate swaps. In the end, risks were not clearly identified (or labeled). No one really understood who would be holding the bag if things fell apart. Now that it is falling apart, borrowers and investors both are now paying the price.

Ultimately this will lead to more government regulation (that is up for debate as far as the merit of it). We will probably see foreign governments pressure the next President into adopting a Basel like framework (like Europe has today) to asses and report risk. We (the taxpayers) will wind up footing the bill for several generations to come.