[updated title as kafkananda wisely put it below]
With all the talk of Moral Hazards and Assymetric Information, I too am pondering the "reality" of the situation with my partners. Several of us (some MBAs and forensic business types reengineering failed Cos -- with me the least numerate ;-) are asking what's the downside of actual market correction rather than the assisted fall down the stairs that this plan resembles.
My side of the business is reclaiming Brand Equity or just building it from scratch. We view Barack Obama as a half realized brand that has yet to pivot from the soaring "Why we are Americans" to the necessary complement of "...and this is how we roll" with resonant specificity. I work alot with stark polarities, since folks under pressure don't do meandering complexity well. But creating this simplicity requires a bunch of human understanding from our group. I'll cut to the chase. A term we use is Moonshots and Tsunamis. It takes what seems hopeless or threat and refashions it into optimism that even practical jaded and overeducated types can grasp and vest into. [Kinda like 700B Wall Street Shocks.]
Follow me if you want to ponder how Barack Obama ought apply his talent, now, to do the necessary cementing pivot - to supply the inspiring how to his soaring why.
That Moonshot & Tsunami© idea is one we share with businesses and soon to be a book. But for clarity, its core example is how the Sputnik shock and Cold War threat caused us to move from unproductive fear and infighting to a useful recalibration of our definitions and thus ending up on the moon. The "Red Menance", Christmas Tsunami (and 9/11 or Katrina, our missed opportunities) prove to us that we can bind and come together despite differences in the face of threat. If you think back, FDR had similar mythopoetic polarities in his summations of the problem and in his solutions. But back to today....
The practical clutter cutter: When old ideas cease to work, you change. The old ideas, and their baling wire, have failed -- this is a trust problem, a deleveraging problem, not a financial meltdown.
Seems the core of all the misdirection is asset valuation projections that when tested were off the mark, and that the magnitude, not the kinds of failures is all that happened and to people who thought that they'd skirted the laws of financial gravity much like Webvan and Pets.com did.
The question is, who gets to own a dollar that was really worth 60 or 70 cents in risk adjusted reality?
1. These companies all have better performing sectors and assets within their overall businesses.
2. Their models are not structured to carry this much load of underperforming junk, but if they were so structured they'd keep it and lobby to reformulate the GAAP applying. It was weird before, but it worked because of complexity and quick adoption by big money houses. It's still weird but too scary is all that's changed.
3. They know that the Ratings Companies, much like the accounting firms of 2000-01 are now in reputation rescue mode themselves and are no longer easy marks for a fee.
4. These Financial Sector companies want to preserve/recover their asset values and their balance sheets without admitting that their principals and staff abandoned, or never had, sustainable principles.
That the market is choking off "liquidity"--cashflow and credit flow--is a symptom of its overdue diagnosis: too much play, too many lies, too little seriousness. The problem is limbic and fundamental. Stop lying, stop avoiding responsibility, stop hiding behind the cleverness; it's over. Admit the failure you knew was coming long ago, and that which is still half under the rug. Take your medicine like a real frontiersman not a kid in a Roy Rogers outfit from WalMart.
Fine. Now, Obama begins to put muscle and definition on his vision of Real Change....
If 700 billion is gonna be doled out, the question is, to do what? Do you augment the self esteem of a narrow sector of Wall Street and Scale Investors to get a dubious ROI or ROA? Or do you turn away, create several receiving federal agencies as firewalls such as HOMC or HOLCs, and start investing the rest and more taxpayer dollars in immediate infusions to infrastructure and other projects. Given that roughly 1 public works dollar multiplies to 6 private sector dollars of activity and velocity, you'd do the other side--the correct long term side--of what the housing bubble was mostly about: Making jobs when other manufacturing is fleeing these shores, and which jobs will allow the income expansion that never happened these last 10 years. Why were these miracle mortgages sold? Ask what need all the crazy RMBS instruments were supposed to answer? Circa 1999, owning a house became a presidentially-declared mark of US birthright while the wages to pay for it stayed flat. Enter the financial magicians.
This is a trust problem, a deleveraging problem, not a financial meltdown. 700 billion will not make sudden saints out of sinners, nor silk out of their shit. The big boys tried "clever" and failed. Spend the money on long term, commonwealth investments--Stuff you can touch and use. Lower Manhattan is desperate about several tens of thousands of lost well-paying jobs right now. Boohoo. Job cuts have been their metric of "good" business plans up to now. They punish wage growth and worker empowerment in companies such as Costo as being weak, and exalt the models of WalMart working poverty as being admirable.
It seems so simple, but the stickiness of accusations of elitism are the response of people maligned and ignored by the prevailing culture of celebrity, finance, and celebrity-finance. Any elitist will do and it's a jump ball as to who uses that rhetorical device. FDR was a definitive northeast moneyed elitist. Folks in Tennessee or Ohio didn't care. He exalted their work and their worth and put those ethics and talents to use when others seemed uninterested in doing so. The key is to find the pivot, such as our current 700 billion dollar McCain/Bush/Paulson botox/enema prescription offers.
The depression was a Tsunami of shock, failure and disillusionment. His New Deal was a Moonshot that said so much about what we wanted to believe about ourselves--resilience, resourcefulness, goodness. Hope. And given the chance, Americans proved him and themselves right in believing that.
Obama has been given this moment of clarity as have voters. He seems to get Tsunami, let's hope he knows what a moonshot requires. He could call it The Real Deal. I would.