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Bernard Madoff, convicted of running an $65 billion Ponzi scheme, was sentenced to 150 years in jail. What’s your take on his punishment?
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When the smoke clears on the current financial and legislative turmoil -- the economic landscape will look considerably different than it did just a few months ago. Here's what we see ahead:
- A much less leveraged economy. Cash will be king. In practical terms, that means: Little financing of speculative building and higher pre-leasing hurdles for commercial real estate. More money up front on merger and acquisition deals. Bigger mortgage down payments. Lower limits on credit cards. And higher capital reserves for banks.
And less risk-taking in other ways as well. Borrowers will need squeaky-clean track records. Financial deals at publicly traded firms will be more transparent. Buyers will demand a much clearer understanding of exactly what they're getting.
- More modest rewards -- the natural consequence of less risk taking. Fewer stocks racking up double-digit gains. Slower appreciation of property values. Smaller returns on endowments for universities and nonprofits. For consumers: Fewer second homes, boats, new cars and so on. More households will live within their means.
- A feast for bottom fishers. Investors with cash, the patience to wait out a gradual recovery and a heart stout enough to withstand periodic wild swings, will be in the catbird seat. They're positioned to make a bundle, snapping up undervalued assets -- businesses, real estate, securities, etc. Even out-of-work talent will go cheap to employers savvy enough to nab it.
- Fewer financial firms, as big universal banks swallow up midsize regionals.
- More government oversight of financial markets. Better communication and coordination among regulatory agencies. Increased disclosure requirements. A tighter rein on short-selling. Closer supervision of credit rating agencies. And more.
- But a revival of private financial firms -- investment banking partnerships and boutique merger and acquisition houses, for example. Their allure: minimizing regulatory burdens and filling a need for investors willing and able to take larger risks for larger returns.
- Simpler forms of securitizing debt -- plain vanilla ways to spread risk. Secondary markets for mortgages and other assets won't vanish. But the instruments bought and sold will be less exotic.
- Greater scrutiny of executive compensation, whether mandated by Congress or not. Shareholders are sure to take on the issue more aggressively in the near term.
- Higher taxes and/or a bigger federal deficit as Uncle Sam shoulders the load of Wall Street's toxic debt. Although eventually the government may make money on the deal, in the short term, the Treasury -- and therefore, the taxpayers -- will pony up billions.
- Higher long-term interest rates. Treasury yields must rise to lure capital -- foreign or domestic -- driving up mortgage and corporate bond rates. Short-term rates will slide, though, as the Federal Reserve tries to keep the economy afloat and put banks back on solid ground.
In reality, the change isn't to a new environment. It's a return to traditional norms of the past, before cheap money inflated asset values, undermined lending standards and encouraged excess risk. It's bitter medicine, but it's necessary.
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POSTED BY: tkrop (October 02, 2008 01:49 PM)
If we are to avoid alot of the doom and gloom, we had better get behind the movement to get the FairTax passed. Check it out at www.fairtax.org. A modern day Boston Tea Party is what this country needs.
POSTED BY: Layla (October 02, 2008 04:10 PM)
Uh, actually Y. Mazurkis, you're wrong. Please don't vote. Instead, spend this time reading up on FACTS and history so that you don't add to the problem by voting for the very people that did, in fact, cause this problem. Finger pointing, unwaveringly, at the democrats. Read something, please.
POSTED BY: JeffB (October 03, 2008 02:23 AM)
Gettingby: You said, "Do the math". Do it again. 700 billion divided by 200 million is $3,500, not $425.
Of course, most of the money will be paid by those who earn the most, so the per-person figure isn't very relevant.
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