OT: Financial Crisis (long)

I have been glued to the TV and the intertubes over the last week. This downswing in our economy has been the best reality show I've ever seen.

I cannot wait for Ron Paul to verbally bitch slap Ben Bernanke this afternoon. Set your TIVO's.

Blinders recently made a post on the current situation and how we got here. I respect Blinders very much - he is a super nice guy and entrepreneur (not to mention an A+ poker mind). However, I disagree with him on the financial mess in many ways.

I'm not for the "bailout" - or whatever you want to call it. Obviously, I'm not heavily invested in the stock market and neither is my (rather lacking) retirement plan.

People who invest in the market have to understand there is risk. If the markets "collapse" (contract is the preferred term) - your investment lost value. That is a possible outcome of your investment.

It doesn't matter what caused the contraction: fraud, terrorism, incompetence - you assumed the risk when you invested. Period.

The markets haven't contracted significantly since 2001 and the financials haven't caused big contractions since 1987. IMHO, we were probably due. Just like poker, downswings are inevitable.

Which brings me to the finger pointing. Who's to blame? Blinders seems to think the distressed homeowners lack personal responsibility on this issue. I disagree.

When a home buyer takes out a mortgage, he/she has a choice for the duration of the mortgage: Make payment and retain ownership, or default on the mortgage, surrender the property and take a hit on their credit score. It is a loan, with the property as collateral. Car loans operate the same way. If you don't pay, they repossess your ass.

For many people, walking away from the disastrous collateral loans IS taking personal responsibility. It is their legal option and in everyone's best interest.

If the financiers didn't manage the risk or sold the mortgage in packaged securities, that's on them. They can't point the finger at anyone but themselves.

Home values have pretty much appreciated for my entire 42 year existence. We have been conditioned to buy homes by our environment, because it was considered the safest investment. But when housing prices dropped, some people got unexpectedly burned and now they think the sky is motherf*cking falling.

If you overpaid for your real estate, or you invested in too much real estate and got burned, you did not diversify your risk very well. Poor bankroll management, as I like to say.

I don't like the idea of a government assistance package (bailout) for the financials. I'm actually a socialist leaning guy when it comes to basic needs (i.e. health care, education). However, free markets should be free from this intervention.

Warren Buffett just invested $5bb in Goldman Sachs. Are there not 199 other entities on this planet that could invest the same? That would be a ONE TRILLION dollar investment in the financial sector without a dime from the taxpayers. (BTW, If there aren't 199 other potential $5bb investors on this planet, then the financials need to contract.)

The Treasury secretary, Henry Paulson, is requesting a minimum of $700bb to buy "toxic" debt from the financial companies. Are we really going to give this guy the discretion on how to spend $700bb when he might not be around in four months? (He'll be gone for sure if Obama wins the election.)

This bailout package will not stem inflation and will weaken the dollar by printing more money. The very notion that this plan or the eventual global recession will cause foreign investors to support US currency is way off. There are at least a dozen other currencies that are far more stable and secure than USD.

Meanwhile, as investors move to commodities like gold, oil and foods, we will be paying more for everything while probably making less.

There is a general consensus that we will not return to prosperity until US real estate begins to appreciate again. That could be awhile. Diversify your investments and keep your money safe.

In other words, protect your bankroll.