Yesterday was the anniversary of the highest close of the Dow Jones Industrial Index (DJIA). As little as a year ago, the DJIA was riding high to a 14,000+ day and things were going great. Well, maybe not great, as people were beginning to see the housing bubble starting to pop, and even then there were a number of naysayers, saying that things weren’t all beer and skittles. But still, it’s quite a change.

Now lots of people are only more than happy to blame this on either Republican mis-management by the existing presidency, or Democratic excesses by the Senate and House majorities. Many more, want to lay the blame completely on the big banks and Wall Street. I don’t think there’s a single cause or culprit that can take total blame for the mess that things are in.

A Skittish World Economy

What started as a downturn in the United States, has broadened to a world-wide meltdown of industrialized financial markets around the globe. The last few years of easy credit and good times have lured investment banks into making loans to people and businesses that they would have run away from in previous years.

The problem now, is they’re still running. It seems that no matter what the governments do, the banks continue to hoard money, and refuse to make loans to anyone that actually needs the loan. It’s a typical ‘cat on a hot stove’ reaction; A cat that steps on a hot stove, will never step on that stove again, regardless whether it’s hot or not.

Without banks circulating money, all the efforts recently by world governments to get things going again are having no effect.

Global Decrease in Interest Rates – Just a couple of days ago, the major financial systems around the world simultaneously lowered their bank lending rates. The reaction by the Dow was an eye-blink of market increase, followed by a three-digit decrease. This was duplicated around the world.

Economic Bailout/Rescue Package – Call it what you like, the U.S. Economic bill just passed was put in place to help goad the economy back into action by giving confidence to the financial world that money was available. It failed to pass the first time around, triggering a 700+ point drop in the Dow. It passed the second go-round, when a number of questionable amendments were added to get it through the House and Senate, but there was still a huge drop in the Dow the next day. Similar Bills are now appearing overseas in the EU countries, with similar lackluster effects.

Bailing Out Banks Left and Right – The Federal Reserve and FDIC have been either making direct loans to banks, negotiating sales of troubled institutions to other institutions, or taking over the banks outright and putting them into receivership. All of these steps intended to convince people on the street that their money is safe and the government will do whatever it takes to get the gears of industry going again. The problem with this tactic is that while it might have convinced Joe Average on the street (and I stress the might) it put the fear of takeover into the banks, causing them to ‘circle up the wagons’ and go into worst case scenario mode; Hoard money and all but suspending loans. No bank wanted to be the next FDIC-regulated bank.

Rapid Changes All Around Us

Whether you believe we’re in a recession, depression, or major catastrophic downturn, there are supporting statistics for and against each state. My take is that things are just ‘bad’. Different people have different levels of ‘bad’ though. Speculators and investors that thought the economy couldn’t go down and stock prices would always go up have it ‘really bad’. Consumers that have lived beyond their means for years with the maxed-out credit cards and with houses three or four times pricier than they can afford, have it ‘really REALLY bad’. Banks that invested in mortgage-backed securities, derivatives, credit-swap investments, and other things that even they had little or no idea how they worked have it ’super-duper-extra-chunky-you’ve-been-served BAD.

All this coming to a head in around a year.

Taking a look at just a few indicators shows some interesting numbers

I could continue to add statistics, but I’m getting depressed just looking at them.

What to Do, What to Do?

Short answer, “I wish I knew”. It doesn’t seem like anyone quite knows how to put this Kodiak bear of an economy back on the straight and narrow. Like little groundhogs, until the banks stick their heads out and see whether we have six more weeks of economic troubles, no one will know. Now if we can just convince them to come out of their little corporate holes and take a look.

What do YOU think is going to cause the financial industry to get back in the game?? Leave us a comment and let us know.