People need to stop freaking out over the economy.
Don't get me wrong. I understand that America is in the throes of a situation that has never been seen before. But understand the facts.
The money you have in your local bank? It's safe. It is federally insured, so no worries there.
You want the heads of the big shots on Wall Street? Stop, you don't want their heads. You need them, especially at a time like this.
Without Wall Street there is no Main Street, which means that the ability for you to get a car loan or a house loan will disappear.
Sadly, the problem is slightly more complex than watching a Wonder Hostess discount shop on Clinton Street.
The most important thing in the world of finance is confidence. With it, we experience booms that put smiles on the faces of all.
Without it, we see panic, like today, and markets cease to function. The stock prices of Wall Street firms have plummeted; especially firms that are massively leveraged with excessive debt.
The government can't get control due to the speed of the crisis; Furthermore, policymakers and the public they serve have failed to fully grasp the depth of the problems.
There are two sources of pressure on the banks, and government intervention has focused on one or the other but never both at the same time.
The first source of pressure is solvency and the ability of banks to withstand loss. The unexpected stall of the American bailout plan by House Republicans on Sept. 29 led investors to doubt the tools used to remove the "bad" assets from banks.
Now the bailout has been passed, and it hasn't stopped the cycle of losses. They have continued as bad economic news continues. WaMu and Wachovia failed not because of market losses, but because of the horrible quality of their loans.
The second problem is liquidity. Even the most stable-looking banks are having trouble raising capital. As their debt matures, they are refinancing with short-term loans, increasing costs and making them susceptible to withdrawals. If banks have enough funding through deposits, problems in the markets should be managed.
Most government interventions are extremely necessary, but it makes it harder for private investors to heal money markets on their own. Shareholders are losing both money and good standing as stocks and banks fall in value.
The risk of the sudden infusion of funds by governments makes it harder for industry recapitalization. Creditors have also become far more risk-averse now, thanks to the failure of Lehman Brothers.
Oil prices have plunged to lower than $90 a barrel, which allows the worry of rampant inflation to calm down. Central banks are working together, but governments must follow in order to stabilize markets. We must shift focus on how to fix the problem and stop calling for the blood of Wall Street's "Masters of the Universe."
This downturn falls on every American. All Wall Street did was create financial securities that allowed Americans to live the dream. They provided the ability for every Joe Six-Pack to own a home and new car. Let's remember, Wall Street bears the brunt of the blame and enjoys the fruits of its success.
The ones we should blame, credit-rating agencies, were supposed to keep us from poor choices but led us to where we are now. Mortgage brokers extended loans to people doomed to fault on them. And we, the people, approved the deregulation of our government, disenabling it to watch over the whole system.
Society, as a whole, is to blame for this mess. We overlook education, give out free passes and teach greed and selfishness.
We made these mistakes because we didn't stay informed on what was happening in order to improve society. We decided to be blissfully ignorant because we were driving our new cars and used credit we couldn't account for. We kept looking the other way and ignored the old saying, "If it's too good to be true, it probably is."
Photo: Courtesy of Laron Fomby
