Marci Rossell delivered a keynote speech last night that was both educational and entertaining. She discussed the root cause of the financial crisis and where we need to focus to recover. Here is a brief video interview where she repeats the three key elements about this particular economic recovery.
Marci had some very interesting insights. Here are a few:
She believes the roots of this economic crisis grew out of the 1997 Asian currency crisis. it was followed by the failure of Long-Term Capital Management.
She pointed out several times the issues with a “too big to fail” mentality. She noted a democracy can’t credibly commit to a no bailout policy but part of the current situation is the safety net spread to all. She noted: “Recovery creates jobs. Jobs don’t create recovery.” Thus unemployment always peaks after a recession.
Marci noted that there is a lot of blame on the subprime borrowers and the banking institutions that lent to them. But she said that subprime borrowers have always existed, they just got their money from pawn shops not banks in the past.
She called the 2001 recession “girlie”, pointing out that GDP didn’t even go negative but that it was the first “media recession.” The minute-by-minute coverage exacerbated the perception. Then the Federal Reserve adjusted the interest rate so that we had a negative real interest rate. That forced such low margins for banks that they had to make up for it in volume – thus the bad lending practices that followed.
She discussed the savings rate, noting it was zero three years ago and now is 5 percent. It was 9 percent for nearly 40 years.
She emphasized that “if spending got us into this mess, it will not get you out.” She thinks more folks need to have the recommended six months of their income liquid.
She highlighted the issues with folks counting on their home as part of their retirement. “Houses are not assets…they can store value but not create it.”
She noted it is still a long haul, saying it takes 10 years for the nominal price of most items to recover.
Marci sees job growth in 2010 but in an unusual place for the U.S. – exports. She pointed out the U.S. is the world’s largest importer and if China’s exports were adjusted for population, the U.S. could become the largest exporter. U.S. exports have been up 17 percent and 22 percent respectively the past two quarters.
Whether or not you agree with Marci’s economic or political views, she presents some compelling points and reminds us of historical lessons we should keep top of mind in working our way out of this recession.