How to screw up royally

The key lesson learned from the recent credit debalcle is that if you are going to screw up, screw up in a big way. You need to ensure that a lot of people do the same thing. This in turn triggers the government to think bailout. The problem with this is that it obviously rewards all of the wrong behaviours. In each case in the last decade, those who really screw up the financial markets typically get assistance to make it right so the wider market does not get impacted. The right way to handle the credit crisis is to allow the free market economy punish the ones that have over speculated and reward those that have managed prudently. All we have done now is artifically propped up an already weakened market. This will only prolong the amount of time until a real correction can take place. The problem in keeping people in homes they know they can't afford is that it prolongs the time until they are sold. The housing market is stagnant right now. So until those homes begin to hit the market, nothing will really move. It sounds harsh but some kind of correction is in order. The problem with a housing correction is that since houses are so heavily leveraged, even a small change in value can wipe out all of your equity. Since home equity has fueled the economy for the last five years, losing home equity would suck all the wind out of the US economy. So what we really have here is the perfect storm of economic situations. Weak dollar, high oil, housing crisis, threat of inflation, gold soaring.

The good news is usually when you can't find a single thing to feel good about, real change starts to happen.