Thursday, October 16, 2008

Guest Blogger #1

The following concise comments come from friend Jim Menges, fellow ex-patriate, accomplished international businessman, and skilled artist. Within a few phrases he captures the rant of rants regarding the econo-mess we are in the midst of. His short piece comes complete with profane yet suitable adjectives for greedy AIG execs and the naked short sellers cum Lehman Brothers' killers. He also touches on the extraordinary deflation of confidence (which is the true root of our problem and an unwelcome gift of Bush's regulatory breakdown, the incessant free market mantra. Finally, the reader of the following should not regard his closing sentence as a case of being glib. For certain he has not been any more glib then Paulson has been with his mid-stream switch of horses in the construction of the so-called recovery program. I have little doubt that the treasury, the fed, and all the other King's horses are a necessary evil. However, if we are to regain any level of sustainable confidence, we are going to need systemic changes in our antiquated financial system. In other words, we better learn how to use necessary tools (like "laws") to practice what we preach.

We have arguably redirected the course of the good ship America in a way that is irreversible. To what extent the rush to government succor in this crisis sets us in the direction of our European cousins we cannot yet know. We can only know that the more we see unfolding, the more we lose confidence. We can also know that much of Europe lives with extraordinarily high taxes, suppressed creativity, lost entrepreneurialism, a nearly non-existent meritocracy, and a severely declining lifestyle. I hope we survive the onslaught and emerge whole again. Somewhere in between opening the doors to the Gordon Gecko-ish (greed is good) bastards via unchecked financial "innovation", a complete breakdown in the regulatory system, and now a newly socialized banking industry, there must emerge a balance somewhere that preserves what Mr. Menges writes it..."once the only remaining superpower". Then again, maybe there is not a mid ground. Maybe its all too little and too late. If so we may as well all learn how to call a grilled cheese sandwich a "croque monsieur" and wear jackets draped over our shoulders. - Simplifried

Nota Bene:

Market volatility will still be the action du jour for a while - possibly until the end of the year. First and last hour of trading is going to be excessive and dramatic - up or down. Right now there is a lot of forced selling from hedge fund redemption's as billions of dollars are pulled out of the market - which could continue for another 2 months. Since mutual find redemption's are done at the end of trading, I believe it is what is making the last hour move so much. Possibly some good bargains to get if you can stomach the volatility - oil dropping down below $70 per barrel projects a doomed economy, while giving a bigger tax cut to Americans than all of Obama's and McCain's proposals put together. Mixed blessings for an already confused market. Next week I think AIG is suppose to pay off the cock sucking scum-bag naked short seller's Credit Default Swaps that were used in part to destroy Lehman Brothers - those crooks who destroyed the bank will get their hefty insurance payoff, which may be as much as $100B...(add that to the already ridiculous amout the gov paid to bail out AIG and pay for thier crooked management's bonus and spa hot tub holidays.) Not sure how it will impact the market, but when the story gets out, it will cause sentiment anxiety and more frustration to an already pissed off public. Public sentiment seems to be crashing lower and lower each day, as people grasp what has happened to their 401K accounts, see mortgage interest rates continue to go up as the banks get their capital base rebuilt, and foreclosures continue to out pace any other housing statistic...the worst Xmas expected in 20 years (unless "Face Lift" Pelosi rallies the Dem Congress for a year end stimulus package of more welfare checks for America - Merry Socialist Christmas) as the sun sets on what was once the only remaining super power. Have a nice day. - Jim Menges, Oct 16, 2008

Saturday, October 11, 2008

Wednesday, October 8, 2008

At last, some common sense

I know I have been silent for quite a long time and much has happened since previous posts. I'll be frank, I lost my way a bit. I was indecisive about the bail-out program. While I had deep misgivings about it, especially the moral hazard (a phrase that is fast becoming cliche) of appearing to bail out miscreant bankers, and the burden it seemed to pose on tax payers. However, I also began to understand the sheer weight of the breakdown in the credit market and what that would pose in the way of consequences to all of us. Insofar as the anecdotes arising out of the maelstrom...such as AIG executives on a boondoggle running up largest bills for spa services, a full two weeks after their bailout....well, any of you would know what I think of that. I am glad the FBI is involved and I hope that those responsible will see the inside of a prison cell. Still, anger is much akin to fear. I was feeling both.

The N.Y. Times has broken a story today that I think may hold some potential for a great step in the right direction. To quote the story:

"Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials."
It goes on to note that the plan is in a preliminary form and it wasn't clear how it would work at this stage, but that it would likely be voluntary for those banks that avail themselves of it. This will bear watching. This is basically a recapitalization program on a huge scale. It also would have an immediate effect of a re approach to regulations in which the absence of has been a major element of enabling the massive credit crisis too begin with. Stephen Roach, the renowned Morgan Stanley economist and today the Chairman of Morgan Stanley Asia, was recently quoted as saying that failure to re-cpitalize the banks would mean that we wasted the bail out money. He has several other ideas too, including a much larger rate cut then the one announced today and coordinated throughout several nations. He states in a recent Financial Times article that
"In the end, this is not just a crisis of markets, financial institutions, risk management and regulators. It is a crisis of leadership. The authorities who gather in Washington this weekend should be locked in a room until they come up with a true global fix for this mother of all global crises. Incrementalism and failure are not an option."
Frankly, the idea that all those rows of regulations and laws on the law school book shelves have not existed for decades, and that "free markets" should be equal to an unfettered financial industry is a myth, and one that is particularly disingenuous. Regulations and controls are a cornerstone of civilization. The simple fact is that wholesale deregulation does not work, any more then does, say...ethnic cleansing.
We can throw money ineffectively at the problems in the name of defending free enterprise or we can use our brains, admit no perfect system ever existed or exists today, and the universe was no more ideally conceived by Adam Smith than Mao. American mores must shed the isolation and hubris that has crept into it's bloodstream via the twin catalysts of antipathy and eogism so carefully cultured by the new right policies of Reaganomics and it's hybridized spin off of the Bush era (just add large doses of fear mongering and greed).

If this crisis has awakened us from our slumber and given this thinking a sharp slap in the face, then we may be experiencing a cleansing, or at least a catharsis, that future historians may call a moment of salvation.

The plan roughly described in the NY Times article is a good step in the right direction. It is fascinating in the sense that I find it to be totally at odds with the Bush doctrine (if there is such a thing). It suggests to me that in these final days, government is no longer following, in all cases, Dubya's lead.
It is about time that we address the present and more importantly, our precious future.