It’s beginning to seem more and more that our fearless economic and political leaders have adopted the ostrich strategy and decided to put their heads in the sand and wait out the turmoil. Who can blame them? These unprepared, tentative operatives never in their wildest dreams imagined they’d have to confront an honest-to-goodness meltdown of the American economy.
Welcome to never.
According to economist Hernando de Soto, now might be a good time to start crunching the numbers and find out what the damage is, in fact. Various agencies can’t even agree on how much derivative paper is out there in the world, spreading like a cancer and destroying trust among creditors and investors.
The SEC estimates there is $596 trillion, which exceeds the value of total world production by a factor of 10. The Bank for International Settlements in Switzerland places the number at twice that, $1.2 quadrillion. At this point, aren’t those just numbers that don’t really have an effect on reality?
Would that it were true. Treasury Secretary Geithner has set aside $1 trillion to help buy up the bad assets. The SEC guesses that might only cover a third of the problem. Gulp. Why does de Soto believe that this is a real problem? Assume a default rate of only 7% on subprime paper. This is equivalent to $1 to $2 trillion. By contaminating other paper, causing stock losses, home devaluation, and lost revenue, the ripple effect ripped a $50 trillion hole in the economy in only one year.
Mr. Obama, let’s add up the damage. It’s hard to fix a problem that you haven’t completely defined.
