We keep hearing how Obama’s challenge is to fix the broken economy — and ideally to do it sometime before the 2010 elections so that his party doesn’t get slaughtered.
But we’re convinced that the notion of fixing this economy is probably impossible. Consider the AIG mess. Today, we learned that one of AIG’s (AIG) concerns is that if a top officer in France were to quit over lack of pay, then that could spur a regulatory decision, which could spur a default, which could prompt a wave of cascading failures in the financial system.
Maybe that’s overblown, that’s one freakin’ guy. Who knows how many more unexpected and random connections there are which, at any moment, could send the whole thing tumbling down like so many dominoes? Nobody knows. Obama doesn’t know. Pelosi doesn’t know. John Boehner doesn’t know. Not even the people at AIG know, let alone all of the other financial firms, with their own intricacies.
Think of it like a bridge that comes crumbling down when one key support beam comes out. Imagine someone saying, OK, the key to fix the bridge is to put that beam back up. No, it doesn’t work that way. The whole bridge has collapsed and putting the support beam back up does nothing.
This is what’s happened in the economy. The support beam was housing. As long as home values continued to rise, the whole bridge managed to hold up, cause that turned out to be the pillar of everything. It’s fallen, the bridge is collapsing everywhere and the attitude among our leaders — both in business and in politics — is that to repair the support beam, we just need to boost housing prices again. Like it was all a bad dream.
Unfortunately, our only choice is to rebuild the bridge, not try to fix the one part, which caused the collapse.