ON OLD NEW IDEA FOR CRISIS

SECRET SAUCE

Surprise, surprise, the market didn't seem to like the plan of action rolled out by our new Treasury Secretary Timothy Geithner today, and the re-assuring statements made by our Fed chairman in Congress.  As the WSJ notes:

"The strength stocks showed last week vanished on Tuesday after Treasury Secretary Timothy Geithner did little to slake traders' thirst for details on the U.S.'s plans to aid ailing financial institutions.

Investors also shrugged off the Senate's approval of an $838 billion fiscal stimulus package and testimony by Federal Reserve Chairman Ben Bernanke, who assured lawmakers that 95% of the Fed's nearly $2 trillion balance sheet is "gold-plated secure."

Reading through these news reports, just feels like more of the same old debate we've been having for months now, as we wait for the water torture of the inevitable to end sometime soon.  The media-circus optimized "debates" around pork and political agendas masked as "stimulus", all tucked into an unprecedented trillion dollar plus blank check, are disconcerting to most citizens from either side of the aisle.  And this is especially true if you're an investor, large or small, public or private, U.S. or foreign.

If you compare this bear market to the last three big ones of the last century (see chart), we seem to be a about where we were in the '73-'74, and '00-'02 bears, but only half-way down as compared with the Big ones of '29-'32.  It's really tough to say whether this is the bottom, or it's still a lot further down.

The frustrating thing for the markets, is not hearing any new "stimulus" solutions, and seeing more and more being added to the tax-payer's tab.  Which of course should make us extremely uncomfortable as citizens and parents.

So even out-of-the box solutions like the one proposed by Thomas Friedman in a tongue-of-cheek sort of way in a piece titled "The Open-Door Bailout", is a bit of fresh air*:

"Leave it to a brainy Indian to come up with the cheapest and surest way to stimulate our economy: immigration.

“All you need to do is grant visas to two million Indians, Chinese and Koreans,” said Shekhar Gupta, editor of The Indian Express newspaper.
“We will buy up all the subprime homes. We will work 18 hours a day to pay for them..."

While his tongue was slightly in cheek, Gupta and many other Indian business people I spoke to this week were trying to make a point that sometimes non-Americans can make best:
“Dear America, please remember how you got to be the wealthiest country in history. It wasn’t through protectionism, or state-owned banks or fearing free trade. No, the formula was very simple: build this really flexible, really open economy, tolerate creative destruction so dead capital is quickly redeployed to better ideas and companies, pour into it the most diverse, smart and energetic immigrants from every corner of the world and then stir and repeat, stir and repeat, stir and repeat, stir and repeat.”

Obviously this idea seems a non-starter in the current anti-immigration environment in this country, not to mention non-intuitive in the face of one of the worst recessions in recent memory.
I've been noodling along these lines for some time now. 
And something as seemingly crazy as this, changes a lot of the global rules, and just might work. 
Food for thought.
* Image source.

Comments

[Alex Tolley]

For the plan to work, it would also help to remove the protectionist attitudes to well connected industries.