Monday, January 12, 2009
Red Flags, Red Spots, It Is All The Same
Did anyone watch 60 Minutes Sunday night after the football game? If you watched 60 minutes, you learned a little about what deregulation did to the trading of commodities and especially what deregulation did to the trading of oil futures. Did you catch the part where they talked about Enron pushing the Federal Government for deregulation so they could make big profits in the trading of energy futures? When it comes to economics, markets, regulation, oversight and changes in our securities laws, shit does not just happen, it is planned that way. Lots and lots of money go to politicians to make sure that the laws are changed so they can make marks out of the rest of us. Enron is gone, but the changes in the trading of energy futures that they pushed for and got from the Bush Administration lead to the high price of oil and gas that we all experienced last year.
This nonsense that there is liberal and conservative economics is just so much crap. It is like saying there is liberal and conservative adding and subtracting. Economics is economics until the politicians enter into the equation and then it becomes shit. Then all the idiots can go around saying “shit happens.” Shit does not just happen, it is legislated to happen. The politicians, in most cases, do not understand what it is they are voting to change, so they listen to lobbyists that fill their campaign coffers. But, this time, perhaps, they created so much shit that people will wake up to the fact that they have been screwed over by a few wealthy people, hell bent on making marks out of as many individuals and institutions as time will allow.
The idea that markets do not need to be regulated with laws, oversight, transparency and enforcement is a failed economic philosophy. Anyone that still clings to the ideas of deregulation is intellectually dishonest or too stupid to understand how a global economy works. The changes that brought about the weaker oversight of the securities industry and the laws changed with regards to our commercial banks and our futures trading, did not just affect the United States’ economy, but had a huge ripple across the rest of the world.
The Bernie Madoff fraud is only the red spots on the epidermis of our financial structure, the disease is much more systemic. Perhaps now that even the wealthy among us have seen the devastation caused by a system whose controls were crippled and deformed to the point of being useless, that meaningful and corrective action will take place.
The problem is that the people that will be asked for suggestions and the people that write the laws, do not speak the same language, nor share the same philosophy. Arthur Levitt needs to be a major part of the process. Paul Volcker sits on President-elect Obama’s right arm and can be a tremendous advocate for change. Paul Volcker can not be bought. Arthur Levitt is another man that can help bring about the changes in the securities industry that are so desperately needed.
The rating agency problem must be dealt with before the new system can move forward. The internal bleeding that this failure continues to cause will prevent the complete recovery of the capital markets. Without ratings, trading and investing grind to nearly a halt. Why are U.S. Treasury Bills, Notes and Bonds selling for such low yields if not because the market has no confidence in any fixed-income debt instruments other than the U.S. Treasury’s own paper? An engine can not run on one cylinder when the other cylinders are useless. The rating agency scandal must be fixed so that the movement of debt capital can once again move properly through the economy. The traders and the portfolio managers know this, but how long will it take before the politicians figure this out.
The stimulus package that the Obama Administration wants to put in place as soon as possible is all well and good, but without addressing the weaknesses in the present system of checks and balances will only result in the same out come. Changes must be made in the conduct of the way business is done on Wall Street. A system that lets people becomes marks, to be be shot like fish in a barrel, can not build the kind of capital market structure that will be necessary to take our economy to the next level. Change for more equitable capital markets is essential.