The financial meltdown has created a buzz around the world. As everyone is busy discussing the problems under the umbrella of the financial meltdown, we seem to have overlooked the fundamental fact that all the events are unrelated and not part of the same crisis; rather, this is not a financial meltdown but a meltdown of economic optimism at a series of unrelated but catastrophic economic events.

Let us examine each crisis individually.

During the entire summer of 2008, the price of oil rose to an all time high of $149 a barrel.  This was due to the fallen dollar prices, and the shift in the picture of oil supply and demand, as well as the global scheme of oil trading. Since the post-WWII economic boom in the United States, the oil producers, especially the Saudis, have been selling oil to the US at a mutually agreed price which has been lower than the fair market value as US has been their only primary buyer in the market. However, the emerging economies such as China and India had incurred a significant increase in their demand for oil, and consequently US was no longer the sole primary oil buyer in the market, which eventually drove up the oil price.

In addition, the accelerated spot trading in the past decade or so by buyers such as China and India further decreased the oil supply that had readily been available for the US, which also in turn contributed to the rise of oil price in the global market. However, the possibility of US policy to lift the ban on domestic drilling has led to the likelihood that US would significantly reduce the country’s reliance on imported crude oil, which has eased the pressure of crude oil price in the global market. Now, due to the prevalent panic of global economy meltdown, the demand for crude oil has dropped substantially, which has driven the oil consumptions, hence the oil price, to a record low, at $33.87 a barrel as of Dec 21st, 2008.

Then there are the subprime crisis and the collapse of US auto industry. These two crises, as irrelevant to each other as they are,  have both been the consequence of government negligence, political corruption and the problems which have existed for over a decade but was shoveled under the rug instead of being addressed.  The House and the Senate knew about the impending crisis but somehow did not have the political will to confront it.

Every President since Lyndon Johnson has taken the credit of eradicating poverty as well as increasing home ownership. These overnight homeowners and recipients of financial prosperity did not come along by their individual hard work or savvy investments but simply by government handouts through the banks. Federal government not only provided incentives and guarantees to the banks to lower their loan approval standards but also did the arm-twisting to force the banks to make mortgage loans available to consumers who cannot pay.

To add insult to injury, Freddie Mac and Fannie Mae have paid outrageously excessive compensation to inefficient, under-qualified and often corrupted executives who had come into their offices straight from Clinton Administration.   As the result, the subprime crisis was unavoidable but just happened to take place coincidentally at a time when everything else was also going wrong.

As widely known as it has been, the US auto industry has been taken hostage by the UAW and other unions for decades. The jobs in US auto industry have been the only thing closer to immortality. If you are lucky enough to have the opportunity to work in the auto industry, with 10 years of work, you will be compensated even after your retirement and to be more accurately, as long as you live. So if you, with all the blessings of modern medicine and health care, should live up to a hundred year old, the amount you would collect on your paycheck for that one job would be the equivalent of hitting the jackpot.

The auto industry has become a mini social security and lost its competitive edge over the years while the government did not take any measures to intervene.  Compared to the imports with comparable features, US domestic cars are about 70% overpriced. As most people with acceptable credit are buying imports, US Automakers could only appeal to subprime or less creditworthy car buyers by financing them at extraordinarily high interest rates.  In the end, the US automakers overcharge their customers with over-priced vehicles and high interest rates to satisfy the pocket of the unions. This was not a business practice but a legally sanctioned robbery. 

On the other hand, Japanese and European automakers manufacture better automobiles in the US with lower labor cost while having the liquidity to finance the customers at better interest rates, which has cut into the monopoly of the US auto industry.  The collapse of the US auto industry is inevitable as being a failure due to their bad business practice and socialistic approach in the ever-growing capitalistic universe.

Thanks to modern media, our market today is exposed to more bad news while good news is seldom reported.  As the result, the market reacts faster to bad news largely because there is hardly any good news. The economy did not melt in fact:  sales of Rolls Royce has increased, most high end retailers are seeing increase in global demand, and new electronic novelties like Blackberry Storms or iPhones are selling like never in human history.

The consumers today have become savvier and are seeking best value for their money while not sold into myths.  Until and unless the decayed practices from our society is amputated and so the healthy segment of our economy grows which is fueled by true capitalism and free market economy, we cannot survive and see an economic uptrend.