Freefalling Meltdown

What happened at the beginning of 2008 was the beginning of the freefalling meltdown of the biggest pyramid game in human history. Since the burst of the Nasdaq internet bubble in March 2000, hedge funds, private equity funds and proprietary trading at banks have come to dominate money making. The new business model depended on asset prices constantly rising. Because so many wanted the same assets at the same time, demand pushed up asset prices and the model became a self-fulfilling prophesy. “Higher return” came to mean “faster appreciating” instead of “higher yielding.” Once banks started making margin calls and hedge funds and private equity had to liquidate and assets had to be marked-to-market, the pyramid collapsed.

The Bank for International Settlements said credit default swaps totaling $43 trillion, half the entire asset base of the global banking system were outstanding at the end of 2007. That is reality. Any wonder President George Bush, Treasury Secretary Hank Paulsen, Federal Reserve Chairman Ben Bernanke and Congress are panicking about how to structure a sustainable bailout package? Asking U.S. taxpayers to sign off on a $700 billion bailout package without adequate regulation or assurances as to how many more billions ─ make that trillions ─ will be needed or how it will be recouped, just because Congress wants to recess is absurd. Why should taxpayers trust the government when it is a responsible creator of the mess the career politicians and their financial backers ─ the same banks and insurance companies that pushed the “higher returns” that accelerated the freefalling meltdown ─ are now begging to be bailed out at any cost to taxpayers.

The ongoing implosion of the global financial infrastructure so dramatically exemplified by the government bailout of Bear Stearns, Freddie Mac, Fannie Mae, AIG and the bankruptcy filing of Lehman Brothers and 24 banks, with other takeovers and bankruptcies to surely follow, dictates that the government take its time and do things right this time ─ for a change.

The long slippery slope of globalization and financial deregulation has resulted in a financial meltdown that has put America where it doesn’t want to be ─ at the mercy of foreign government sovereign funds and a prolonged recession that is incurring trillions ─ not billions ─ of dollars of government debt faster than American taxpayers can acquire the means to pay it off.