I’ve been watching the financial crisis since it began in 2007. Every so often it is good to step back and consider some of the anomalies. Thus, some disconnected thoughts:
- The time between crises gets shorter. It was seven years from the dot.com to the sub-prime crash. It has taken us only one year from TARP and other alphabet soup US-based federal bailout programs to the European Commission trillion dollar bailout. With the Euro plunging after the bailout, how long will it be to the next crisis?
- If everything is really improving why have short-term US interest rates not risen? I am amazed that for over 2-years of regular Treasury auctions, 3 month bill rates have ranged between .1 – .2%. Why does the Federal Reserve keep stating in its guidance that it intends to keep rates at zero for an extended period of time?
- Why would anyone invest in the US equity markets? The most active stocks each day are severely troubled, probably insolvent companies: Citicorp, Fannie Mae, AIG, and Bank of America. More than sixty percent of every day’s volume is non-human, computerized, automated trading. And what is worse, computers doing this trading are shaving cents off each transaction to the detriment of institutions and retail investors. No one believes in long term investment value any more. Respected analysts believe the market is severely overvalued and should probably trade at the 850 S&P level.
- How do Goldman Sachs and JP Morgan have perfect trading performance, that is, making money every day of the first quarter? Karl Denninger has calculated the odds of achieving this feat at one in many trillions. Have the SEC and other government regulators taken an extended holiday during the financial crisis? It sure seems that way.
- The 1987 version of the SEC portrayed in the movie Wall Street was able to detect illegal activity in the fictional Blue Star Airlines and arrest the hapless Bud Fox. Mary Schapiro and the current SEC staff can’t seem to find water with two hands if they fell out of a rowboat in the middle of the Atlantic.
- Why do things keep getting more complicated and less clear? Yes, we live in a complex world. But I have a deep suspicion that complexity is being used as a subterfuge to mask true intent. Why do we need multi-thousand page financial and health reform legislation, customized credit default swap instruments and impenetrable corporate proxy statements? The answer: complexity is designed to disguise the essence of each issue.
- Why is the Federal Reserve afraid of a full-fledged audit? As taxpayers, we are the ultimate financiers for the various government bailout programs. What happened to sunshine as the best disinfectant in public matters? This is an economic, not a national security matter. Or in the minds of the government, has everything become a national security matter, even the Fed’s purchase of the Red Roof Inn?
- Why is Senator Chris Dodd, himself compromised with a Countrywide below market loan, allowed to lead financial reform?
- With a Justice Department of 100,000 employees, why haven’t we indicted a major financial institution?
We live in dangerous times. Perhaps some of our leaders should be thinking about some of these questions and issues.
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