Saturday, September 27, 2008

A Slow Motion Wreck

In a March, 2008 post, I was concerned that 2008 could be a very bad year for my investments. Unfortunately, the financial events since then, including a massive bailout this week, have made that concern a reality. I don't think there is any way the government can quickly reverse the financial turmoil that exists. The best I can hope for is that a massive financial failure is avoided and the economy is saddled with an extended recovery, not unlike what happened in the seventies. I hope I am wrong.

This financial crisis has been a slow motion wreck in the making since the Fed decided not to act quickly in July, 2007 with the first indications of the sub prime mortgage failures. Ben Bernanke was walking a fine line between letting some companies fail and having the economic system fail. At first, the Fed's strategy appeared to work, with Countrywide being acquired. However, in early 2008, Bear Stearns was going to collapse before being acquired by J.P. Morgan. Then IndyMac was taken over by the FDIC, followed by Lehman Brothers' bankruptcy and the acquisition of Merrill Lynch by Bank of America. This week Washington Mutual was seized by the government and the assets were sold to J.P. Morgan.

Since 1980, most of the stock market declines and economic recessions have been relatively short spikes. This one has take a long to time occur and likely will take a long time to recover, no matter what the terms of the imminent bailout are.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial advice. Please consult a professional advisor.

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