The Financial Monster Will Spawn New Financial Species

The policymakers are doing all they can, risking their reputation against growing angry constituents. Dollar is devalued, oil is kept high, rebate checks are out, FED is propping up the market and more bailouts are coming.

The health of the ECONOMY has become the central issue in 2008, dominating the platform of presidential candidates.

When all pieces are placed together, one can only shudder to contemplate the seriousness and the magnitude of the financial crisis. They are doing so much, and doing so in panics, churning the free-money printing press with unprecedented speed. ACT 1 the aggressive rate cuts and liquidity measures from supposedly omnipotent FED may are seemingly and unbelievably dwarfed by the credit monster; Act 2 the $300B stimulus rebate program appears to be falling into a dark abyss without so much as a making a sound, and now in ACT 3 the $300B Congressional housing-bailout effort is deemed likely dead on arrival. Yet we are probably only one-third complete in the rippling effects, a view also supported by Warren Buffet, George Soros, Bill Gross and others sharp-eyed gurus.

On May 21st, 2008, the Inflation Genie roared its way out of the bottle in a convincing fashion- the core-price inflation gauge the consumer-price-index (CPI) rose twice more than expected to 0.4% in April. Now the FED, Congress and the White House really have their hands full. In addition to an already high gas and food prices that have been hitting consumers and businesses with little relief in sight, the rising wholesale price puts another damper on the attempts of the policymakers to get a handle on the slippery credit crisis. Too much money dumped into the system too fast has consequences that simply cannot be swept under the rug, and now the consumers and the entire economy are necessarily bearing the grunt.

It appears that the credit monster has been playing musical chairs with the panicky policymakers, morphing away from clever financial contraptions designed by PhD economists, turning itself up elsewhere in different forms. Ironically it is the easy-FED and the gluttonous self-serving Wall Street who had nurtured this beast now potent enough to take down the US economy. For years they have been too complacent and too negligent of the risky financial steroids that also fed the beast. Greed and irrational exuberance took over for far too long.

Here is a scary thought. Can it be tamed?

For some fleeting moments the market appeared to have regained some control, until the inflation genie delivered the surprising blow to knocking down the market for 200, 227 and 146 points down for three successive major losing days to send the investors home for the long Memorial weekend.

The Doom and Gloom crowd is out in force again, with good reasons, they claim. What makes this time around a little more interesting as well as much more frightening is that many top thinkers and decision makers, FED chair Barnanke included, concede the possibility of a disastrous outcome.

Have Big Money players escaped the doom this time?

In his latest book "The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means", George Soros expressed his same critical view of the structure-finance with a little more updated insight:

"Both the financial markets and the financial authorities have been very slow to recognize that the real economy is bound to be affected. It's hard to understand why this should be so. The real economy was stimulated by credit expansion. Why should it not be negatively affected by credit contraction? One cannot escape the conclusion that both the financial authorities and market participants harbor fundamental misconceptions about the way the financial markets function. These misconceptions have manifested themselves not only in a failure to understand what is going on; they have given rise to the excesses which are at the root of the current market turmoil."

Housing slump is expected to worsen, unemployment is expected to rise, recession may be stronger then expected, inflation genie is gaining strength, and oil and food cost are hitting consumers and businesses with little mercy. The Monster is standing tall and strong amidst all.

It is market Darwinism in its fullest glory. The long-time roaming and dominating Wall Street dinosaurs and related kins have shaped the financial ecosystem into their own personal playground- yet the very same comfort eroded away the basic defensive instincts to survive drastic changes. Little doubt this financial meteor will wipe out those financially unfit, and the era for new financial species may soon begin.