What to do about financial meltdown?
The recent global financial meltdown comes as no surprise if you read either of these guys (Survival blog and Mish). Their predictions are/were dreadful and horrifying. According to them, we have not reached the bottom yet, and we have a long way to go. So you can start preparing for the worst possible case, buying bullets, beans, and band-aids, or start looking for buying opportunities. I don't know if we are at the bottom yet, but I have made several moves, because I believe we are close.
One option is to Buy, buy, buy.
Earlier this year, I increased the percentage I was saving in my 401k. Admittedly, I would have taken this move regardless of what the market was doing. In this case though, I made the move with the full knowledge that the market was going to be trending downward for the next year or so. As a consequence I knew I would be losing money, in the short term. I saw this as a great buying opportunity to buy shares on the way down, through the bottom, and as things start to look up.
My new wife as an annuity she started her first few years of work. It was started out of the desire to save for retirement and not lose any money. With her change in jobs and some wise financial counseling on my part, we started her into a 403b account. We had planned to slowly withdraw money from the annuity and place it into the 403b to avoid penalties associated with moving the money. I personally think if we can dollar cost average the money in fairly close to the bottom, the penalty will be quickly made up over the next couple of years.
What has amazed me the most has been some of the comments about those who work on Wall Street. Some people have as much love for those guys, as they do politicians. Kim highlighted what he felt was the true nature of the market in his post “When Bookies Fail”. The AnarchAngel wants to turn the virtual stock market that we have today, into an actual stock market, in “Three step plan to fix the street”. Mark Cuban thinks the fact CEO’s take no risk will is the real root of the financial problem and says so in “Stock Market Meltdowns – Why they will happen again and again and again.” Meanwhile, in the crime filled capital, Congress is looking at yet another bailout. Are we seeing money go down the drain, in hopes of preventing total financial meltdown? Will they succeed? I don’t know, but God help us if they fail.
Problems as I see it
My suggestion is not meant to cover all of the problems that I see in our current financial world just the main one that I see which is causing the bailouts. This is by no means meant to cover the history of how we ended up drunk and broke on the Las Vegas strip, either. Additionally, the suggestion is not meant to keep companies from failing or to provide for an every steady increasing stock market. No institution man has every created has been perfect and I expect no less out of our financial system. I just don’t want to have to pay for others mistakes, in the form of bailouts. Bailouts or the worst investment you can make: All the risk and no reward.
The free market is the victim of…
The free market and evolution have a lot in common: Constant pressure to survive, scarce resources, and constant competition from others in the ecosystem\market. That is why I am not surprised to hear examples of ultra success stories in the market. When you have evolved kill, you do it well – and then you get fat. The free market is the victim of its own success. At a certain point in time, you become too large, to unwieldy to operate in a changed environment and you die…or get a bailout.
Break up extremely large entities
While I think AnarchAngel's and Mark Cuban’s suggestions both have merit, I would like to suggest a different approach and would prevent the “too big to fail” phenomenon, and therefore bailouts.
When a company captures over 20 percent of a market place, they should be split into two different companies.
Harsh? Yes. Will it complicate things for everyone? Yes. Will it increase the cost of goods and services? Possibly. On the positive side, it will give those busy bodies in congress something to do with their time. Instead of over regulating those willing to take a risk with their own money, they can spend their time searching for the next victim to split up.