The Big Picture for the Week of September 16, 2012

As a follow up to yesterday's post a reader made the following comment;

Without their [he means the Fed] actions, we would be in a huge depression at the moment. IMHO,

I think there is a different outcome that could have been possible. Things happened the way they happened so it is all that we know but all along I supported taking a tougher route but one that I believe would have been much faster.

There were several instances in the early aftermath of the crisis the Fed/Treasury bailed out equity and debt holders of financial institutions. There was an instance where Goldman Sachs got 100 cents on the dollar for AIG paper that it held (I believe it was on AIG paper, please leave a comment if I have that wrong) as just one example.

I would be all for bailing out depositors through FDIC or SIPC as the case may be but not market participants aka equity holders and debt holders. I would also be for bailing out people whose brokerage accounts get caught up in a firm that shuts down which is different than bailing out someone who owned Wamu, Wachovia, Fannie and Freddie.

Iceland took the most difficult path (let the banks fail) and started showing signs of natural demand coming back a couple of years ago. Depending on how you count we are four or five years in and the Fed has essentially said there is no end in sight in the effort to try to avoid whatever it is any of us think they are trying to avoid. The example of Iceland merely shows that biting the bullet can result in a faster turnaround not that it will result in a faster turnaround.

Whether for political reasons or other reasons our Fed and our Government have tried to repeal the economic cycle which has only delayed a resolution until who knows when. To make a rather blunt comparison, I have disclosed in the past that when I was in highschool I had a very rare form of cancer--thank god it was easily treated. The best treatment back then was 48 very rough weeks that went by quickly an a couple of years later I was going to college in San Diego and playing a lot of beach volleyball and being sick was a speck in the rearview. The tough treatment was clearly the best treatment.

Collectively we are not willing to do the tough thing. People seem unwilling to endure hard times (for not being able to look forward to the other side of the hard times?) and politicians seem unwilling to tell voters about doing the difficult thing because obviously they care more about getting reelected than anything else.

Occasionally in life we need to do difficult things and that is just how it is. My own life experiences tell me that short cuts or things that try to avoid doing the difficult thing only makes it worse.

As for the picture; a heavy post so a light picture.