A new Resolution Trust Corporation…

Author and pundit Thomas Friedman is surely capable of running Hewlett Packard and for that matter, probably has enough foreign policy experience to be vice president, certainly as much as Dan Quayle or Barack Obama. His solution to our latest financial crisis, a new Resolution Trust Corporation.

For those of you too young to remember in the mid to late 80s we had another financial crisis that wiped out an industry, the savings and loan crisis. Apparently without sufficient regulation and oversight, financial institutions made risky loans that began going bad, toppling the S&Ls and requiring a government bailout.

I remember this time period clearly because I was working with a developer at that time who had utilized a significant number of S&L loans to build real estate projects. All of our projects did well, so there was no downside to the S&L crisis for our business except that we could no longer get financing for our projects.

However, my client became aware of many properties for sale in Texas for less than it cost to build them. He made bids and began his journey toward multiplying his wealth.

Why did the latest crisis occur? Who is to blame? Republicans or Democrats? Congress or the White House? Greedy Wall Street Bankers? Exuberant real estate investors or homeowners? The Federal Reserve? My answer, probably, yes, all of them. It’s been about twenty years since the formation of the RTC in 1989. Wikipedia informs me that the RTC closed or "resolved" 747 thrifts with assets of nearly 400 billion dollars.

The difference between now and 1989 is that the Federal Reserve and the Treasury Department have been very proactive in attempting to avoid a complete collapse of the financial system. You may recall that in 1987 there was a severe drop in the stock market as a result of "program" trading. These severe drops are to be avoided at all costs along with something called a bubble.

In any case, what does all of this mean for average folks like you and me? If we are not attempting to finance a mortgage or a business, it doesn’t mean very much. If we are, we may experience some financial stress. It will probably mean that the real estate equity "ATM" will be closed down for a while, or maybe forever.

Carly Fiorina, the former CEO of Hewlett Packard who was fired in 2006 because her employers were convinced that the Compaq-HP merger was a bust, has contributed to the political campaign by indicating that none of the candidates are capable of running HP. Maureen Dowd snarkily said that Fiorina should know since she wasn’t able to run HP either. Of course, Ms. Dowd failed to notice that HP is now the number one computer maker in the US, a position they did not hold pre-merger.

Here is the sad news for all of us who prefer the illusion of control: Neither the President, nor the Congress, nor the Federal Reserve Board control the economy of the United States. They effect it, but they don’t control it. Keep this in mind as blame is assessed in the coming weeks and months. The actual cause of all of this turmoil is a butterfly who passed gas in the Amazon forest in the fall of 2006!