Planning for the Future: Current Policies Aren't Working

The US financial system has taken a precipitous fall over the past several months, beginning with the end of the housing boom and exemplified by the collapse of the credit markets.

There is reason to believe that eventually the system will right itself, but what then? Future policies need tailored flexibility to meet unforeseen future events. Our current situation is a prime example

The bankruptcy or default of a single family, or a single mortgage is a tragedy in and of itself, but the very real prospect of a bankruptcy or default of an entire financial institution could be catastrophic.

Fed chairman Ben Bernake headlined the forced sale of Bear Stearns in April to avoid just such an event. And now plans are underway to possibly coordinate a government bailout of mortgage giants Freddie Mac and Fannie Mae, which recently posted gigantic 2nd quarter losses.

Like many US economic policies, the bankruptcy measures in place are not set up to deal with extraordinary situations. The bailouts of Freddie and Fannie are clearly haphazard, and are being tailored to the precise circumstances of each organization. However, there is nothing in place to deal with the possibility of widespread institutional default

America may soon find itself in an analogous situation to the Great Depression, one in which its major institutions are caught unaware and unprepared. As the recession deepens and life becomes more and more difficult, the majority of Americans can ill-afford to hold on to a hope that current policies and structured bailouts will be enough. We need to be proactive and flexible to face the challenges ahead, unfortunately, we are simply not ready yet.

Source International Herald Tribune:

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