Dr. Albin F. Turbak, Ph.D. from Sandy Springs, GA wrote a very interesting blog post picked up and printed by one of our local newspapers today. The gist of his argument is that Congress, government regulators and the Fed were seduced by unsustainable economic growth and allowed (even encouraged) banks to run what amounted to a Ponzi scheme (primarily with mortgage backed securities). When the bank Ponzi scheme collapsed, it sent the world economy into a depression based on fear and uncertainty. He blames the Ponzi scheme and those who allowed it for wiping out half the retirement savings of innocent bystander consumers.Although I largely agree with his analysis and I like his simple, easy to understand explanation, I disagree with one important aspect of what I think he is saying. To me, the value of our collective "retirement savings" was at least partly an illusion caused by the Ponzi scheme that Dr. Turbak pointed out. So, since we never really had it (because it was an illusion) we can't really say we lost it.
In truth, we were all a little guilty of the excessive greed [during the good times] that we are now accusing bankers of having and the reason we blame them for causing this mess. The real economic problem right now is negativism and lack of confidence. In essence we're living through a massive run on the bank, acting like sheep in a frantic flight to "quality" which discourages even sound investments and growth.
The real value of our retirement savings isn't known yet because we've probably overreacted. If confidence keeps spiraling downward it might get worse before it gets better. In the relatively near-term however, there is clearly going to be an opportunity to replenish those retirement savings with investments in great companies that are tremendously undervalued. The chart above comparing Dow & Nasdaq indices illustrates the magnitude of the problem (or opportunity) however you look at it.
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