Chris Carter
eVolV equity

I agree, though: bankruptcy, corporate and personal, is what really erases the debt and clears out the system the “right” way. That said, when Lehman failed the government stared the impending consequences of immediate total systemic unwinding in the face and found they had no balls; we’ve been living in the Groundhog Day Japan-style zombification process ever since. The “right” way to clear out the system is to force the banks to suck up the losses, fail, and make sure the default, cleanup, and rebuild process is as smooth and unobstructed as possible: pretty much the exact opposite of our learned approach.

As for the end of the recession, I wish I could be more optimistic, but I’m fundamentally a rationalist, and I just don’t see it. There’s no business opportunity now outside of government or government-distorted capital allocation areas (eg: capitalizing on agenda-spending); and as we observed, with the rules in constant flux, the only “safe” way to operate in that context is to utilize and rely on government connections, which is a sucker’s game for private equity. Add to that consumer and B2B spending evaporation and no meaningful private business support (indeed, probably more burdens with carbon credits and higher taxes), and I see nothing but contraction in the private sector, until either consumer spending eventually picks up (a long time), or we get more private sector friendly leadership (a long-shot in a Depression). Contraction in the private sector means less jobs (which is already happening), which will compound on itself until you get a game-changing event (revolt, outright Socialism, world war, etc.), with the possibility of other secondary effect (eg: hyperinflation) in the interim. To paraphrase the 8-ball: signs point to “bad”.

Pushing through all the foreclosure inventory and personal and corporate bankruptcies which are pending would help the problem, and be a step in the right direction, but it wouldn’t be enough to make up the real gap in consumer spending. Even if the government wasn’t compounding the problem with every single action they take, I’m not sure we’d recover in 2009. I wrote what I think would be the correct government approach to help the situation here; with that approach (and elimination of all the bad policies), I think we could have a real quicker recovery, at the expense of borrowing against our future. Without that, though, we’re going to overshoot to the downside of normal in the private sector, and we’re not even to normal yet; beware, we’re going to live through interesting times.

Want to have an opportunity to blog here? Love the thought process….

However, bankruptcy is what wipes out that debt. The MBS and consumer credit markets are telling us what you just said, and banks are living in this reality: many Americans will need to file bankrutpcy, and therefore the debts are nearly worthless.

But, people still have their incomes for the most part. What our country is doing is turning a financial crisis into an economic crisis. If banks that made bad debts would be allowed to fail, new, more prudent banks would be able to step up and provide the lending for good investments. As it is, banks getting preferential treatment means that other banks are not playing on a level playing field; rather the table is tilted in favor of the mega banks that are mega insolvent.

The faster we unwind our debt through bankruptcy and foreclosure, the faster we come back to a growing economy.

Think about it this way… those people struggling under large payments need to get out from under them so they will have some discretionary spending money to put into the economy. Our current central bank chairman and president believe the best way to do that is to renegotiate outside of foreclosure and bankruptcy… the exact solution to the problem.

It’s like the story of the guy sitting on his house roof during a flood. Several people come by to save him, but he’s waiting for God to save him. When he dies, he asks God why he didn’t save him. He responds that he already sent several people to save him. Our lifelines are already there and waiting for us… we just need to latch on to the idea to face our fears and let people go bankrupt. It’s what’s best for them.

PS. the end of a recession is not when we’re back to where we were before the recession, but rather when we stop shrinking. With the pace of our shrinking, I think we’ve already overshot fair ground and that there’s plenty of opportunity for people to start businesses if people will stop changing the rules. If we just flush it out, we could definitely hit bottom before the end of 2009 (perhaps 4th quarter). In my opinion. Maybe I’m just optimistic. Maybe I’m not seeing the structural problems that can’t be dealt with in bankruptcy and foreclosure.

I totally agree with the basic premise of the article and your analysis, of course, as I suspect every rational person with at least a few functional brain cells would. However, there is virtually no chance (in my mind) of a recovery this year, next year, or even in the next five years: there’s just no rational basis for that belief. Let’s look at the factors aligned against recovery:
- Americans are in debt: lots of it. Until debt is eliminated and savings are restored, you won’t see confident consumer spending, which is the only kind of consumer spending you’d expect during a recession. This will take a long time.
- We have socialist leadership, and more socialist laws and initiatives on the way. As people suffer, their knee-jerk (and horribly bad) reaction is to demand the government intervene more. Politicians use this impetus to enact stifling new regulations, expand government controls, push their own party agendas, and abuse the laws and foundations of the country under the guise of “extraordinary times”. Every one of these is already happening, and they are all bad for the economy and financial stability.
- Private businesses will fail, and private business activity will hugely decline. This is possibly the largest contributor to a prolonged Depression, so it makes ironic sense that virtually everything the government is doing contributes to this problem. From increasing unemployment handouts, to increasing regulations, to creating capital imbalances with agenda spending, to bigger government, to changing the tax laws, to creating inflation, to strengthening social support programs while increasing coincident costs (eg: socializing health care), to subsidizing less productive workers (eg: supporting some unions), to failing to support private industry at all: every one of these hurts private industry. Less private industry leads to less jobs and less tax revenue, which leads to less business and consumer spending and more government debt, which leads to a deeper downturn, which leads to more government actions, which reinforce the cycle.
- We’re jumping through hoops trying to find more “innovative” ways to socialize the Ponzi housing market losses onto the taxpayers while avoiding explicitly saying we’re doing that. Every new scheme wastes more money and creates more economic distortions and opportunities for abuse. If we’re going to socialize all the losses eventually anyway, it would be much cheaper and much less destructive long-term to just print $61+ Trillion and buy all the MBS’s, derivatives, mortgages, houses, used toilet paper, and anything else any other insiders want the government to buy. Years of stumbling around like a blind epileptic retard trying to feel your way into the politically correct way to perform a morally deplorable and financially suicidal absorption of every failed gamble made by every underhanded corporation with a lobbyist or individual with a vote doesn’t help the economy or “bring a renewed sense of transparency and accountability”.
- “Restart lending” is utter BS; lending is not frozen because it’s cold outside, it’s frozen because it’s financially ludicrous to lend to people or businesses while your looking over the precipice of the largest Depression in US history.

Anyway, that’s my take; hopefully the negative outlook was tempered at least in small amount by the entertaining presentation. Viva la Obamanation.