Monday, December 22, 2008
May The FORCE Be With Them
2008 has been filled with news about the economy, yet talking about economics and the markets is not exactly entertaining. As a result of that fact that economics is not exactly entertaining, there is unfortunately a lot of talk by the talking heads that attempts to make the subject of economics and the markets more entertaining. We hear a lot of analogies and cute stories, and every once in a while a real economist says something, but for the most part, the people doing most of the talking do not know enough about how things really work on the inside for their comments to really light up the TV world.
To change how business is done on Wall Street will be no easy matter. There are many moneyed interests that do not want their game changed. They still have lots of money to get their point of view heard, so, it will be interesting to see how the lines of battle will be drawn. I am hopeful that this fraud involving Bernie Madoff will effect so many people that when the result of his actions are fully known, that the forces of good will out number the forces of greed by a huge number.
Make no mistake, this financial crisis with the meltdown of the asset-backed bond market was man made. The pressure for less regulation came from Wall Street and the politicians in Washington did their bidding. Now that the stupidity of deregulation has blown up in everyone's face, it is time to get real and bring back law and order to Wall Street.
I happen to know for a fact that the melt down of the mortgage bond market could have been prevented. The rating agencies were offered mathematical models for the structured financing that could have prevented the asset-backed bond market disaster. These mathematical models, if used, would have prevented the rating agencies from giving their AAA rating to many of the mortgage-backed bond issues. But, then that would have meant that the rating agencies would make less money because without them passing out their AAA rating, the Wall Street underwriters would not be paying them the big fees to rate their mortgage bonds. Did you know that the rating agencies were paid a fee by the underwriter of the bonds? This in a sane world would be known as a conflict of interest. However, on Wall Street and Washington, D.C., it is known as business as usual.
Obama, Biden and the new administration will need all the luck, stars in the right position and the power of the FORCE to make a dent in this culture. May the FORCE be with them.