Recently, two major actuarial organizations asked members to submit essays on the financial crisis. The only limitation was that the papers had to be very short--they should fit on two typewritten sheets of paper.

Since I have written in the past on the financial crisis, I took the opportunity to respond. This was my summary of the current financial situation, its connection to our limited resources, and what we need to do to solve the crisis. I never actually use the words "peak oil" and, in fact, the precise timing of peak oil is irrelevant. The issue is really the financial squeeze that occurs when resources starts to become expensive to deliver, and that doesn't really require peak oil.

Our World Is Finite

We all know the world isn’t flat. Any of us would be laughed out of the room if we built a model with a flat earth as one of its major assumptions.

We also know that the world isn’t infinite. There are a finite number of atoms in the earth and its atmosphere. The ability of our atmosphere to absorb pollutants is limited. The ability of our soil to withstand repeated mistreatment is limited. The amount of our non-renewable resources is limited.

Fossil fuels, especially oil, are a particular problem. Even though the amount of resources seems huge, the cost of extraction (in terms of fossil fuel resources, man-hours, and fresh water) increases greatly after we have extracted the easy-to-extract oil, natural gas, and even coal. Substitutes (such as ethanol and solar voltaic) are expensive in terms of fossil fuel use, man-hours, and fresh water. It is also difficult to ramp up quantities to the level needed to substitute for fossil fuels.

We in the United States live in a country with a strong tradition of private ownership of companies. In recent days, we have seen changes that border on nationalization:

• The support given to JP Morgan Chase in its purchase of Bear Stearns

• The bailout of Fannie Mae and Freddie Mac

• The take-over of AIG, providing a $85 billion loan in exchange for 80% of the company

• Extension of FDIC guarantees to money market accounts

• The Fed's purchase of commercial paper, to support that market

• Most recently--the Fed's decision to start lending directly to corporations

How much more of this can we expect to see in the days ahead? What indirect impacts will this have on American businesses? Where does all of this end?

The purpose of this post is to offer readers a chance to talk about where they see this issue going. Below the fold, I offer a few thoughts on what areas arguably need federal support, and a few implications if the country moves toward more nationalization of companies.