Dear Federal Reserve Board,
Why can’t we stem this crisis by working with FASB, the SEC, FINRA and others to change US Accounting laws? It would solve much of the death spiral we are in and it would save the treasury trillions that it is going to have to print to keep the system afloat. Seems to work OK in Europe, and it might even give US corporations even footing in a global economy.
After the brokers, then we’ll see large hedge fund failures, more bank failures, auto, airlines…etc. The end of capitalism ought not be socialism as the US Treasury buys American companies, selectively. Or from another point of view, should the US Treasury become the world’s largest hedge fund? We need to find a more social set of economics that protects us from ourselves. I think removing mark to market accounting will seriously challenge the current death spiral we are in, if done appropriately. Mark to market is backfiring, furiously. While intended to protect shareholders, it is now having the opposite effect. I understand that part of this is resulting from the fact that the global economy has been overcapitalized for too long, however leverage, in moderation is healthy. The massive global unwind underway is only going to lead to massive under capitalization that will cause pain that will be felt for generations.
Under the circumstances I think uncle Ben has done an excellent job navigating the unknown. But what was unknown a year ago is now clearer than ever. This is not a crisis of capital, it is now a crisis of confidence. You can’t keep throwing money at a crisis of confidence and expect it to go away. The problem with the system is no longer capital, it is in fact the system itself, or said more specifically, the rules that govern it. They no longer work, the system has failed. The treasury needs to collaborate with regulators and the private sector to help engineer a more modern system for the 21st century.
If not Uncle Ben’s life long journey to understand the Great Depression will have been more prophetic than practical.