1) The highest inflation, and the lowest real interest rates, since the late 1970’s. For responsible citizens who work hard, play by the rules, and save their money, these past few years has been one of the greatest transfers of wealth in history from savers to debtors.
2) Record trade and budget deficits that have mortgaged the future of this country and almost guaranteed that your children will have a lower standard of living that you do. No country in history has ever borrowed and spent its way into prosperity. Somehow this basic concept is too difficult for our financial and political leaders to understand.
3) An historic bubble in housing that made buying a house at the same time totally unaffordable for most people and also incredibly easy due to loans that required no income, assets, documentation, or credit. The aftermath of this bubble is now forcing millions of homes into foreclosure, penalizing whole neighborhoods for the irresponsible behavior of those among us who were suckered into the mania either because of greed or ignorance.
4) An enormous credit bubble in toxic derivatives, credit default swaps, and collateralized debt obligations that has lead to a near total destruction of our private banking and insurance system, has frozen credit markets and our credit dependent economy, and thereby forced even more government intervention, at least in the short run. There is no telling what other unintended disasters will result from this latest round of attempts at central planning.
5) A hedge fund bubble that made a few star investment managers wildly rich and is now contributing to the most extreme stock market collapse since the 1930’s as investors rush to the exits after waking up to the reality that a hedge fund is simply a highly leveraged speculation game with other people’s money.
6) A shameful and transparent effort to cover up the obvious insolvency of Citigroup and Morgan Stanley by requiring all of our country’s largest banks, even the one who didn’t need or want the money, to take similar preferred stock investments from the government. Do they really think that anyone is fooled by this stuff? All this kabuki theater does is further erodes any remaining credibility of regulators and government officials in the eyes of market players.
7) A vicious exit from mortgage debt, driving up mortgage rates for homeowners and buyers in an already severely distressed housing market, that was a direct result of the government’s recent announcement that it was effectively guaranteeing unsecured bank debt. Sorry Hank (Paulson) and Ben (Bernanke), this central planning stuff is harder than it looks. Stalin and Mao couldn’t make it work, and they had people at gunpoint. What makes you think that you guys can pull it off? Nothing but sheer arrogance and ignorance.
8) The worst market for corporate and municipal bonds in decades caused directly because the government allowed Lehman to go bankrupt instead of placing it in a conservatorship like the GSE’s (Fannie Mae and Freddie Mac). Lehman’s bankruptcy created chaos among their bank, hedge fund, broker, and insurance counterparties. This had a cascading effect that led to the near failure of AIG, which was only saved by another extremely costly lifeline from the Feds. Many other large insurance companies, such as Hartford, Prudential, and Met Life, have also suffered extreme collateral damage from this unwinding of Lehman and AIG that is still playing out in the markets.
9) Making matters worse, investors are now running away from even the strongest municipal and corporate credits and flocking to the growing list of investments, such as GSE mortgage debt, bank debt, money market accounts, and deposits, that have virtually unlimited guarantees from the Feds. Way to go Hank and Ben. You saved Citigroup and Morgan Stanley, but you may cause California and other states to have no choice but to either raise taxes during a recession or eviscerate basic services such as police, fire, infrastructure, and education due to lack of funds caused directly by these idiotic and poorly conceived governments actions. Further, due to the unavailability of typical commercial paper, corporate debt, and DIP (debtor in possession) financing, tens of thousands of people may now lose their jobs. Even many healthy companies, such as General Electric, will have no choice but to severely downsize, and weaker companies will be forced to liquidate rather than restructure. All of this is a direct result of government constantly changing the rules and picking winners (big banks, GSE’s, automakers, and Wall Street) and losers (everybody else) instead of establishing clear rules and providing liquidity on a priority basis to those entities that were most essential to maintaining basic services and productive jobs at real businesses on Main Street rather than to those businesses with the best lobbyists and political connections.
10) All of the arrogance and ignorance on Wall Street and in Washington has created an entire generation of Americans that now sees the stock market, credit markets, and housing markets as rigged. This cynicism is justified by the events of the past few years, but it will probably take decades to be forgotten. During that time, all of us will suffer from the general public’s unwillingness to believe that capitalism can work for regular people instead of just the insiders and the "fat cats". What does it say about confidence in our markets that some of the most sophisticated investors in the world, such as SAC’s Steve Cohen, have recently gone almost entirely into cash?
