I’m not smart enough to know exactly when the financial markets will blow up again. Nobody is.
However, I am smart enough to know they will explode in the not too distant future, and when they do, the people left holding financial assets will take a beating.
Fortunately, knowing this key fact is enough to save yourself and your community from harm. I’ll tell you why at the end of today’s letter.
I’m not alone in thinking that another big financial crisis is just around the corner. Sheila Bair thinks so too, and she’s a person that should know.
She had a ringside seat during the last crisis as the head of the FDIC, the federal agency that shuts down bad banks to protect our bank accounts against loss. She’s also an anomaly in politics and finance: she’s a “straight shooter” and a person that actually cares about the rest of us more than she cares about a career or money.
On Saturday, I was at a private talk where she explained why she believes that a financial crisis in the next five years is VERY likely.
Let me sum it up for you: nothing was done after the last financial crisis to prevent another financial crisis in the near future.
Why wasn’t anything done? The financial industry is much more powerful than the US Congress.
The financial lobby is so strong, it was able to prevent the FDIC from shutting down bankrupt banks and forcing Wall Street to clean up its act (after the acute phase of the crisis was over) and this makes another crisis inevitable. Here are some more details:
- Many of our banks are zombies (the living dead). They didn’t go through bankruptcy as the market and the law demanded. As we have seen in Japan, zombie banks make economic recovery impossible.
- The incompetent management teams that drove these banks into bankruptcy are still largely in place. They are making the same mistakes as before, but the situation is likely worse. They now believe they are immune to failure since the US government will bail them out if they get into trouble again.
- These banks are still gambling with financial products (derivatives) they don’t understand, with money they don’t have (debt). In other words, they are playing with financial nuclear weapons that have hair triggers (again).
Here’s why prior knowledge of this crisis is valuable.
It’s sufficient reason to focus our time, energy, and money on improving the ability of our homes and our communities to produce the food, energy, water, goods, and income we need to prosper over the long-term. A type of prosperity that can’t be easily damaged by corruption, mismanagement, and failure in Washington or on Wall Street.
It also prompts us to get out of our chairs and out into the community. To become familiar with rainwater harvesting, foodscaping, aquaponics, solar thermal, pelletized biomass, microgrids, makerspaces, desktop manufacturing, and many more new things…
We’ll also invest time effort and money into adding these capabilities to our home and help others to build businesses around them to catalyze our community’s improvement.
Why are we going to do this?
Because, unlike investments in a failing global system, these investments will provide prosperity for our children and support us when we grow old. They allow us to take control of our future and represent our best shot at successfully pursuing happiness in this life (in an age when it seems impossible to do so).
Don’t miss out.
PS: Sheila’s got a new book called, “Bull by the Horns.”