Monday, April 19, 2010
Today, I am not going to write about Goldman Sachs or the alleged fraud that the S.E.C. says occurred. There are plenty of articles now being written about this. Over a year ago, I wrote about the conflicts of interest in the investment banking business. Now that the S.E.C. is being run by someone other than Christopher Cox, perhaps we all will learn more about the games that went on behind the scenes. As I have said many times, you do not have to be an Einstein to understand this stuff. While you may not be able to follow the arithmetic of bonds and their pricing, the fact that the credit rating agencies were paid a fee to give credit ratings to structured debt financings, and that these credit ratings were shopped by the underwriters of the collateralized mortgage obligations (CMOs), requires little or no math knowledge. If the investigators have a big enough budget to pursue a complete investigation of the activities that took place and lead to the bond market meltdown and the financial crisis that followed, everyone will know just how the fraud was put together and who got stuck and why with worthless bonds. But, today I want to talk about another topic - the volcanic ash from Iceland.
As a result of the volcanic ash from the volcanic eruption in Iceland, just about all air travel has been grounded because of the danger to jets flying through the hot volcanic ash that is being blown across Europe. As a result, some nations are sending their naval ships to bring their citizens back home. Fortunately, for those on the continent of Europe, train travel is still a very much used form of transportation. At least Europe has the good sense to keep her trains for moving people as well as cargo.
Now come back with me the United States. We have limited train consumption by passengers as we depend on car and air travel for moving most of the population around. What would happen if we had a volcanic eruption in United States and we had to ground nearly all air travel? Certainly, one can argue that a more balanced platform to move people around the country can be made. And, if a more balanced platform to move people could be made, could an argument be made that a balance of our industrial base should be maintained too? What would happen if because of weather related events we saw our domestic economy grind to a halt because we were solely dependent upon imported resources? I think that is something our Federal Government should be thinking about before we export all of our manufacturing abroad.