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Written by José D. Roncal
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Wednesday, 22 October 2008 20:11 |
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There’s been plenty of blame to go around in Wall Street’s financial crisis. A lot of wagging fingers have pointed to speculators, but we’re not so sure that’s the whole story.
We found an interesting piece written last week by Anthony Randazzo of the non-profit, non-partisan think tank, Reason Foundation. In his article entitled, Financial Crisis: the Fear of Fear Itself, he writes:
"Speculation—the purely human, completely emotional drive—has been the backbone of the American and world economy for decades. The delicacy of our underpinning has not gone unnoticed, but has been accepted for the wealth it has created. Speculation brings with it the potential for corruption, for deception, and for large losses without much control. However, it has been a necessary evil because while there has been potential for loss, there has been equal opportunity for gain—huge gain. |
| Our economy has been built by leveraging assets in order to raise capital for continued investment, but the result has been the creation of invisible wealth. The stock market’s loss of over one-fifth of its value in just one week didn’t destroy a single house, car, road, or brick of gold. All our property has remained, but the subjective value of that property has disappeared. We no longer have as much invisible wealth, that subjective value, to create more wealth. Unfortunately none of this money had to go away; fearful speculation has been the main cancer of Wall Street’s collapse." |
Randazzo notes the role government has played and the self-fulfilling prophecy of doom and gloom they set in motion with negative prognostications. He observes that each time Bush steps into the spotlight to calm fears the market falls further.
While lowering interest rates may help loosen the credit markets, it seems to have decreased investor incentive. Randazzo opines that when the government throws money at the situation, it’s simply redistributing Wall Street’s money. He recommends instead, that the government encourage greater investment/speculation to get things moving again.
You can read the whole article here. |
