Monday, March 2, 2009

Crisis? What, Crisis?

I believe that you can draw some profound parallels between our current problems in the economy and our recent approach to the way we handled forest fires. Up until recently, we would rush to put out a forest fire as soon as it broke out. We saw fires as a horrible destruction, instead of what they were. Then we discovered that forest fires are a natural part of natures constant cycle of destruction of the old to make way for the new. Fires are a key part of the regeneration of the forests.

But we valiantly fought them, until the old growth built up so much that when a fire did break out it was so big that it was impossible to control and much more destructive.

The same is true with our economy. It you notice that these days, big business has evolved to the point that almost any industry is controlled by "the big three". Auto makers, banks, super market chains, cereal producers... you get the picture. They are the new monopolies. The big threes are much less competitive than most people think. Together, they control the markets, and fix prices. Ever wonder why a box of cereal is $5 bucks when the actual cost to produce it is less than $1? Ever wonder why all of the companies sell their cereal for about the same inflated price? Because together they control the prices. Remember about five years ago the government started looking into cereal prices, and the big three all lower their prices... for a while?

These big threes are powerful, and block any new competition. Notice that the only the real changes in over the years in the auto industry are those that either save the companies money, are forced by government (think safety features), or they can charge a lot of money for. But the basic affordable car has not changed a lot. So where is the competition with the new ideas? Bought out or stomped out by the big three.

Like the old grow in the forest the big three have gotten so big that they block out the sun and starve out the new growth. They should have fallen long ago. But the government kept bailing them out, putting out the small fires. Now that they are so big, it's a massive fire that is required, and that in turn for kill a lot of new growth too, all at once. That also means a longer recovery time.

Do we honestly think that if the big three auto manufacturers go down, no one new will come up and start building cars? Or if the mortgage banks go down, all the houses will be empty while the people live in the streets? Or will smaller banks be able to buy those loans for pennies on the dollar, and adjust the principle of the loans to to reflect the true value of the property, lowering the debt and the payments to a sustainable amount? And with the help of the federal government (or maybe even without), and strong usury laws (remember when 30% interest was considered loan sharking?), we can get through this a lot quicker than continuing our policy of bailing out the big three. Haven't the bank bailouts already proved to be ineffective?

It is going to hurt? Yes. But if we keep on the bailout path, it will continue to hurt for a lot longer, and when we do start to recover, recovery will take a lot longer.

Maybe I'm just brave because I already lost everything in the tech crash. But on the other hand, I can say that there is life on the other side of the disaster.

Being a victim of the crash has taught me a few key things:
1) Stay away from credit except where absolutely necessary.
2) I don't have to own a house to be happy or live well.

Remember that old chant. The roof, the roof, the roof is on fire. We don't need no water let the motherfucker burn!

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