“The Debt Ceiling is the Least of Our Worries”

“The debt ceiling is the least of our worries.”

That is how Barry Ritholtz, CEO of FusionIQ and author of The Big Picture, concluded his Washington Post article from this past weekend.

In a piece entitled Debt ceiling: 10 lessons beyond that crisis, Ritholtz argued that many financial and economic issues in the U.S. more important than the debt ceiling unfortunately remain unresolved.

“We have created an intensely concentrated financial industry, where a handful of banks control the majority of assets,” he wrote.  ”Competition is less than it was before the crisis, and bank fees are creeping upwards.  While risk-taking remains rather subdued, history informs us it is likely to return as the crisis fades in the collective memory. The bailouts left us with a legacy of poor balance sheets and moral hazard. None of 10 factors discussed above have been, in any meaningful way, resolved.”

To his credit, Ritholtz was one of the few market pundits waving the red flag over the housing and credit bubbles in 2006 and 2007, prior to the financial crisis.

His ten unresolved issues consisted of ultra-low interest rates by the Federal Reserve, the flawed rating agencies model, radical deregulation of derivatives, subprime loans, leverage rules, mortgage underwriting standards, automated underwriting, the repeal of Glass Steagall, state banking regulations, and the GSE’s (Fannie Mae and Freddie Mac).

In light of these items, Ritholtz noted that “We’ve got some major and prolonged challenges: ongoing debt issues, structural unemployment, a housing overhang and continued economic frailty.”

While he did not discuss the investment implications of these matters in the article, the significant uncertainty stemming from these issues is likely to provide a favorable environment for gold and other safe haven asset classes.

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