Main main point here was to counter what a lot of criticisms I hear about the Bush/Obama bailout. I think people are forgetting how dire things were 10 months ago.

I agree that the economy and consumer psyche are linked and can have an impact on the “real economy” but there are certain fundamentals that can override things. For example, unemployment continues to go up. If this continues the market will adjust and it could be swiftly. Many smart thinkers believe this will happen.

I believe that the current market levels are supported by a rise in consumer sentiment that has fueled consumer spending. But this consumer spending is fundamentally unsustainable. Why? First, that pesky unemployment has a correlation with housing prices. We spend when we feel the “wealth effect” and when we think we have equity in our homes and bank. Second, there is an inverse correlation between unemployment and housing prices. Third, despite increases in savings lately we are still in too much consumer debt as a nation. Fourth, banks are tightening what credit is available for consumers. Fifth, less jobs, heavy consumer debt, less credit, lower housing prices means … less spending. And thus the stock market pulls back leading to … lower retirement money and therefore less “wealth effect.” I'm just sayin' – sentiment is important, just not everything.

But as for the necessity of the bank bailout – I'm with ya.

Main main point here was to counter what a lot of criticisms I hear about the Bush/Obama bailout. I think people are forgetting how dire things were 10 months ago.

I agree that the economy and consumer psyche are linked and can have an impact on the “real economy” but there are certain fundamentals that can override things. For example, unemployment continues to go up. If this continues the market will adjust and it could be swiftly. Many smart thinkers believe this will happen.

I believe that the current market levels are supported by a rise in consumer sentiment that has fueled consumer spending. But this consumer spending is fundamentally unsustainable. Why? First, that pesky unemployment has a correlation with housing prices. We spend when we feel the “wealth effect” and when we think we have equity in our homes and bank. Second, there is an inverse correlation between unemployment and housing prices. Third, despite increases in savings lately we are still in too much consumer debt as a nation. Fourth, banks are tightening what credit is available for consumers. Fifth, less jobs, heavy consumer debt, less credit, lower housing prices means … less spending. And thus the stock market pulls back leading to … lower retirement money and therefore less “wealth effect.” I'm just sayin' – sentiment is important, just not everything.

But as for the necessity of the bank bailout – I'm with ya.

I clearly do not understand economics and have no formal training in that field. I think myself to be a logical person and from what little I have read over the internet it does seem to me that the fundamentals are just not strong yet. The banks have been bailed out, and I don't know how the government will recover it's money But these financial institutions will have to show some growth cause they are not government. And growing in this post recession environment will have to be done by taking risks. So how could we possibly be recovering when these finance institutions are going back to their ways?

To me as Nassim Nicholas Taleb would say, we are being fooled by randomness. I may be totally wrong (I hope so) but logically it just doesn't add up for me.

***

It's late fall and the Indians on a remote reservation in South Dakota asked their new chief if the coming winter was going to be cold or mild.

Since he was a chief in a modern society, he had never been taught the old secrets. When he looked at the sky, he couldn't tell what the winter was going to be like.

Nevertheless, to be on the safe side, he told his tribe that the winter was indeed going to be cold and that the members of the village should collect firewood to be prepared..

But, being a practical leader, after several days, he got an idea. He went to the phone booth, called the National Weather Service and asked, 'Is the coming winter going to be cold?'

'It looks like this winter is going to be quite cold,' the meteorologist at the weather service responded.

So the chief went back to his people and told them to collect even more firewood in order to be prepared.

A week later, he called the National Weather Service again. 'Does it still look like it is going to be a very cold winter?'

'Yes,' the man at National Weather Service again replied, 'it's going to be a very cold winter.'

The chief again went back to his people and ordered them to collect every scrap of firewood they could find.

Two weeks later, the chief called the National Weather Service again. 'Are you absolutely sure that the winter is going to be very cold?'

'Absolutely,' the man replied. 'It's looking more and more like it is going to be one of the coldest winters we've ever seen.'

'How can you be so sure?' the chief asked.

The weatherman replied, 'The Indians are collecting firewood like crazy.'