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Why I Remain Skeptical

Wow, I suppose most people saw at least a summary of the FCIC’s report on the financial crisis.  It explained that 12 of the 13 largest U.S. financial institutions “were at risk of failure.”  Think about that for a moment so when the Fed Chairman says the peak of the crisis was the worst shock in global history, worse than the Great Depression, you get a feel of what’s occurred. 

 

Government actions certainly averted chaos from occurring, but those decisions have also thwarted the healing process and many of the policies (particularly monetary policy) that played a major role in fueling the behavior that led to the crisis have not changed.  We don’t go from the worst crisis in global history to a normal economic environment in a manner of 18-24 months, and we’re seeing that.  While the economic state of things has improved, we’ve simply saddled the public sector with even more debt; we’ve delayed the arrival of market-clearing prices within the housing market and household balance sheet repair; and we’ve certainly engendering improper risk assessment.  This is precisely why I remain extremely cautious, and skeptical that we’ve ultimately left the crisis behind.