Tuesday, 30 September 2008

Some financial musings

So, the bailout bill failed and the Dow dropped 780 points.  Egads!  There are some things I would encourage people to think about:

  1. It is not all gloomy.  Notice the price of gold.  I have written previously that gold is a good refuge investment for people in this crisis.  When the markets crashed in the Great Depression, we saw a very different pattern.  The price of gold tanked in 1931, from $20.69 in 1930 to $17.06 in 1931.  What this means is that wealth was destroyed in the crash.  The fact that gold is rising DURING our current crash means that at least some of the wealth is just moving elsewhere.  That is moderately good news.
  2. Why is it that we are bailing out investment banks in the first place?  If the problem we are facing is a lack of liquidity (nobody wanting to LOAN money), then why bail out the people who BORROW money?  Goldman Sachs et al. do not loan money, they borrow it!  We should be adding liquidity to the commercial banks instead.
  3. It is interesting that every time we have one of these bailouts, it seems that Goldman Sachs is the primary beneficiary.  This was true with the Mexican bailout in 1994 when Robert Rubin was CEO of GS (GS was Mexico's investment bank), when AIG was bailed out a couple of weeks ago, and again if this bailout plan goes forward.  Is it any coincidence that Paulsen is the former CEO of GS?  Now that all of the other investment banks have been bought up by commercial banks, they are all held to reserve requirements for commercial banks.  GS is the only true investment bank left (as far as I know).  

Just sayin...

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