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A Needed Correction in D.C.

October 16, 2017

One thing that hasn’t been corrected since the 2008 financial crisis is the size and scope of the federal government machine. It’s bigger than ever, especially the Federal Reserve.

The Washington D.C. mainstays blamed corporate entities for the crisis, and as a result, gained more influence.

 

For example, Fannie Mae and Freddy Mac were made to buy subprime loans to meet objectives that weren’t necessarily rooted in sound business practices. Various programs, including Quantitative Easing, were put in place in 2008, yet took months or longer to produce results while private money stayed out of private banks. One could argue these “remedies” produced results immediately, just not the kind we wanted. Although, perhaps the real reason things turned around was an accounting rule change. No, really.

 

In March 2009, rules changed around “mark-to-market accounting,” which measures the current market value of an asset or liability, as opposed to its book value. As the linked article says, issues pop up when market-based measures don’t accurately reflect the underlying asset’s real value. Yeah, no kidding. Once the rules were changed, money started to move in the economy. Of course, the government will say it was the economic programs put in place, or some other wave of the bureaucratic hand, that fixed everything. It must to cement its power – it’s human nature. 

 

But the fact remains, the Fed’s current balance sheet is bigger than ever. When it was smaller, the economy grew quicker. I doubt that is a coincidence. So, it’s time to end the “government savior” storyline and realize the culprit of crisis is still in place.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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