Monday, January 28, 2008

The Crisis of Credibiltiy

The Fed’s surprise rate drop of 75-basis points last week was done somewhat blindly—they were not aware of the $7.1-billion write-down bombshell dropped by French Bank Societe General on MLK Day. Suddenly the game board changed, and the crisis of credibility US financials had been wallering* through had a little company.

If misery loves company, we’re in for an orgy of government posturing and political bandaids to cover multitudes of sins: The Chinese government is now faced with $119-billion in banking “irregularities,” a figure that’s been described as three-times the profits of China’s top five banks.

117 bank managers have been invited to leave their offices, and over 12,000 people are facing fines. Good thing China’s becoming more modernized. In the old days, they would have just executed them. We may still see some hari kari resulting from Chinese financial hanki panki.

The US government wants to give back $150-billion to you and me in the form of tax rebates. Some who do not pay taxes at all will receive these windfalls, which are hoped to stimulate spending, and thus revive our economy. The bandaid is intended to cover the skinned knee we got when mortgage brokers’ poor decisions caught up with all of us. It does not address the root cause.

Sarbanes Oxley wasn’t enough to make the captains of commerce more courageous in their defense of doing the right thing.
Wonder if China’s corrective measures will be as inspiring?

* Wallering is an East-Texas term that accurately depicts the condition of becoming entirely immersed in slop and slime by lying prone and rotating either clockwise or counter-clockwise on one's longitudinal axis.

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