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Post details: Financial Quicksands

Financial Quicksands

Quicksand is a region filled with fine granular matter (sand, clay, dirt) whose lower layers are richly saturated with liquid (water, brine). The lubricated particles underneath lose most of their natural friction and become unable to support any significant weight. Since the liquid does not usually reach all the way to the top, the surface of the area looks dry, innocent and safe, wherein lies its danger. While the ground may easily support twigs and minor pebbles, do not dare to step on it. A minor change in the stress on the quicksand will cause a drastic decrease in its viscosity, and before you know it, your body will get a ringside seat (or rather a ringside bed) to a process known as sinking in a non-Newtonian fluid - an experience well worth avoiding.

As we recapitulate our economy in 2008, the words "financial quicksands" come to mind as a suitable epithet. Tons after tons of cheap credit that sloshed into the system over the past decade thanks to tireless efforts of Maestro Greenspan have drastically changed the support characteristics of the once solid economic ground. Liquidity, much like fire, is a good servant, but a bad Master and it looks increasingly inevitable that our hubris is going to get a much needed lesson in elementary physics of colloid hydrogels. On the outside, the venerable financial firms live up to their name and appear firm and solid, but when you step closer - watch out! One by one, like a flock of strayed vacationers, once mighty powerhouses and household names are disappearing underneath the treacherous surface.

The one thing to know about quicksands is that panic will make things worse, usually much worse. The more you flounder in them, the faster you sink. After cruising through much of the credit deterioration in 2007 and 2008 with poker faces on, Team Bernanke&Paulson made a series of panicky moves culminating in their bursting into Congress one Friday night in September and dramatically demanding an outlandish bailout to avert an impending doom, although just a few short weeks before that the same power-duo blithely maintained that our economy is fundamentally solid.

Pumping water into ground does not usually make quicksand safer, and neither does pouring more easy money into bottomless pits of institutions' balance sheets, especially if their overpaid leaders display all the business acumen of a pack of autistic possums licking poisonous mushrooms. Was the slapdash sweep of the struggling companies under the governmental rug supposed to calm anybody? Why don't we just put up a huge sign over the Wall Street: "The firmness of this ground is now guaranteed by the full reputation and integrity of the Bush administration". I am not sure what we are smoking, but do we really realize that the reins of our economy are being turned over to the team who gave us the Katrina Debacle?

Fortunately, the nights of Bush are numbered. So here is hoping that Obama's Team will think hard before dispatching whales of money into voracious financial maelstroms, that they will have the balls to stand up to the credit junkies, who think that borrowing for your happiness is the coolest thing since the Nasdaq bubble. Here is hoping that they will have enough common sense to prune the dead industrial branches, rather than put more gaudy Christmas trinkets on them; that they will steer resources from investment casinos to companies producing useful goods and green energy and in doing so drain some water (and hot air) out of the system. Only then we'll be able to slowly reclaim the firm ground on which to build the next recovery - not only for our economy, but also for our beleaguered currency, so people can earn their living and save it without fear that their nest eggs and rainy day funds will be nuked by the greed of clueless banksters. It will be a bitter medicine, but if we don't swallow it, we will have it shoved down out throats in the financial wastelands.



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