Monday, December 15, 2008

Even the rich are getting slammed

Usually, in a garden-variety inventory adjustment recession it is the low-level workers who get hit the hardest and the wealthy seem to just get wealthier. But in the current "recession with adjectives" even the rich are getting hit and hit very hard. Many billions of dollars have been tied up in auction-rate securities. Hedge funds are getting slaughtered. Alternative investment strategies are failing left and right. The Bernie Madoff $50 billion Ponzi scheme is merely the latest in a long list of bad financial events for the so-called "rich."

Not that the rich need any sympathy, but their money usually helps to fund new business ventures and charities, which in turn spend the money. Their financial setbacks of the past year have already made a significant dent in venture investment and funding of charities. Unless their plight turns around soon, the accumulated loss of a source of funding will be an ongoing drain on the economy.

This loss of economic "juice" will not cause a depression on its own, but it adds a few more negative adjectives to the "recession with adjectives" and means that there is yet another economic niche that will need to be filled with government stimulus in order to bring the economy back to even minimal health.

The bottom line is that this decline in investable wealth of the rich is yet another sign that a depression is a distinct possibility unless the government acts very boldly and promptly and in a sustained manner.

Barack Obama is about to embark on the adventure of a lifetime.

-- Jack Krupansky


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