Continuing the parallel, Simons stressed the importance of independently verifying all information, performing due diligence and checking the facts, regardless of the source. Like the systems of the human body, everything in the economy is related, and repairs must be made holistically, he said.
"Housing has created economic problems that we will have to work through," said Lewis Ranieri opf Ranieri Partners LLC. Still, Ranieri was bullish on the future. The U.S. economy is "within shouting distance of the bottom," he said, and home affordability is at its lowest point in 25 years. "At the cost of the bond holder, at the cost of the taxpayer, we are resetting a person′s wealth in their home," he said.
Ranieri termed the government restructuring of home loans and foreclosure forbearance as an unprecedented transfer of wealth and said actions taken so far have been effective. "TALF worked," Ranieri said, referring to the Federal Reserve′s Term Asset-Backed Securities Loan Facility, intended to help market participants meet the credit needs of households and small businesses.
Michael Milken cited data from past recessions and recoveries. New-home sales and housing starts were the early indicators of recovery, while the unemployment rate and payroll employment lag recoveries. Looking at the correct metrics is critical to judging the health of the economy, much like kidneys are early indicators of disease, Simons said. "The system doesn′t fix itself over night," Ranieri said. "You have to give it time."
The mechanism of wealth creation has changed from manufacturing in the decade after World War II to the commoditization of information in the 1990s. Wealth creation in the 2000s will come from the commoditization of air and water, said Richard Sandor of Chicago Climate Exchange Inc.
As an example of a financial solution to a social problem, Sandor cited the U.S. reduction in atmospheric sulfur dioxide. Initial estimates to reduce acid rain were $2,000 per ton, but it now trades on the Chicago Climate Futures Exchange at $61 per ton because of financial market innovations. Numerous societal and financial benefits have come from the reduction in acid rain, including substantial health-care savings. Sandor stressed the need for the U.S. to move to a national electricity grid similar to natural gas trading.
Ranieri expressed concern about current legislative actions threatening the rule of law and potentially undermining the sanctity of contracts. Removing the rights of creditors without appeal is a slippery slope, he warned.
Finance can provide elegant solutions to public policy issues via dynamic, transparent markets, panelists said. Sandor stressed the need for a national cap-and-trade program along with a comprehensive renewable-energy program. Acceleration of the flow of credit to the critical factors in the economy will lead to the end of the recession and aid the transition away from government support. "We have the basis of everything we need. We just need to execute at this point," Ranieri said.