6 Economic Gifts I Want For Christmas
If Santa could wrap a job and leave it in the stocking of everyone who's unemployed or underemployed, it would be a wonderful life. But fairytale endings only come true in movies. What I want for Christmas speaks to the reality of the situation and deals with forces controlled by real people, not guardian angles. But it's Christmas; so as long as we are at it, why not ask for the elimination of the bubble-then-burst economy and some fiscal responsibility? Here are six things that will lead to everyone getting their wish this year, and for many years to come. (From Santa Claus rallies to evergreen loans, Wall Street can be a veritable winter wonderland for investors. Find out more in The Frosty, Festive World Of Investing.)




  1. More Bank Lending - FDIC chairwoman Shelia Bair said recently that she was "very worried" about the nation's biggest banks not lending enough, and instead they are borrowing dollars cheaply to buy higher-yielding assets such as stocks or commodities. If banks are lending, the capital isn't being used to grow businesses or create new products, and money is simply being churned from one investment to another. That may be profitable, but it's not helping anyone get a job.

  2. The End to the Dollar Carry Trade – While everyone likes the stock market going up, another bubble is the last thing we need. The market has rebounded, but it's been so fast that it's hard to see the fundamentals underlying the gains. We still face a commercial property market meltdown, contracting consumer credit, banks that will likely need more capital going forward, higher unemployment, the end to several government stimulus programs, and projections of only modest economic growth. While it may feel good to see some rebound in your portfolio, if the market goes too much higher, the euphoria could produce a blow off top leading another sharp correction that may be more than we can take.

  3. A Securitization Market that Works – It's not only banks that are a problem in lending. Many banks bundle their loans and sell them into the market in a process called securitization. With this latest crisis, there are far fewer investors that want to buy the bundled loans. They all seem like toxic assets, even thought the vast majority are far from it. If this market beings functioning reasonably well again, the engine of the economy will have another cylinder or two firing. Without it, we aren't going to ever get to full power.

  4. Financial Regulatory Reform that Aligns Risk and Reward – While there are plenty of politicians ready to jump on reform bandwagon, few are willing to do what's needed to really change the system. The most obvious issue that the risk isn't aligned correctly. The incentive for those who get stock options and bonuses for good performance, but no claw back for poor performance, leads to risky behavior. It's like playing with house money. You win, you keep it. You lose, it doesn't cost you anything. Changing the risk and reward structure will lower the probability of financial bubbles in the future.

  5. A Balanced Budget – I know this sounds like asking for world peace, but a guy can dream, can't he? While it won't happen anytime soon, some key changes could provide that sliver of light at the end of the current $12 trillion tunnel. The most important would be to implement PayGo rules once again. This is a law that requires the fiscal policy to be budget neutral. So any spending must be offset by a tax hike or any tax cuts must be offset by spending cuts. This is why we balanced our budget at the turn of the century. But the law expired. It's time we put it back, permanently.

  6. A Stronger Federal ReserveThe Fed should have systemic risk responsibility as it is the only entity that could have the courage to slow down bubbles and stand up to the political winds when things are going gangbusters. The inflation rate in Zimbabwe hit official estimated high of 231,000,000% in July 2008, according to the country's Central Statistical Office. In July, 2009, the Zimbabwean Dollar officially ceased to exist. Why did this happen? Because the President ran the central bank, and when he wanted to spend money, he just printed it. An independent central bank is crucial to the economic success of any country, especially ours.


Conclusion
So, this Christmas, instead of the newest gadget or latest fad, the things I want for Christmas are a bit more difficult for Santa to wrap. They require courage, vision and action that's in everyone's interest, not just self interest. Maybe we'll all get lucky this year and get something good. (Learn how some of world's richest people spread holiday cheer year-round, in The Christmas Saints Of Wall Street.)







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