NIRI09 Keynote Talks Recession Rationale

It’s the hot topic at NIRI09. Former White House Economic Adviser Todd Buchholz delivered an entertaining history lesson about the reason for the economic crisis at the keynote address Monday evening. He stated it comes down to a major shift in the economic building blocks on which many financial “experts” placed their bets. He cited the main shift being the sudden increase in human labour supply coming on stream in places such as India and China. He also laid a lot of blame at the feet of credit rating agencies that viewed bundles of bad mortgages as “diversified” and so gave these securitized bundles an “A” rating. Incidentally, they also guaranteed that these mortgages would not be defaulted on for 90 days. (They must have really believed in them!)

He says the key mistake to avoid now is failing to keep interest rates and taxes low to maintain a good money supply. He says falling commodity prices are good and will be part of the return to good times, as they give everyone more purchasing power. This will reverse consumer sentiments about holding onto money rather than spending it, and so bring about normalcy and growth. “Everything is a good deal right now”, he stated. Other positive indicators: lack of labour power means wages can come down more easily, housing is likely at the bottom, and “inflation adjusted buying power” is up.

His main idea for where the government is failing is in lack of spending on education. The US does well in sports at the Olympics but in the math Olympics, he likens the US to the Jamaican bobsled team.

As a species, we will need to think our way out of all the crisis’s facing us.

But as Dilbert was highlighting lately, wasn’t it all the big MBA brains that got us into this?