The Economy: "Nothing Changes, No One Cares"

"Nothing Changes, No One Cares"

by Brady Willett

"The financial press has interrogated Wall Street compensation levels, and the U.S. public - at least those not still overjoyed by the 'cash for clunkers' program - have quietly complained about the parade of bailouts over the last 18-months. These are two of the positives to be taken from the financial crisis. Unfortunately, with regards to the outrageous inconsistencies running wild in policy-land, an eerily widespread reticence still largely prevails. To use the most obvious example, politicians, Fed members, and countless regulators continue to vocally rage against the 'too-big to fail' philosophy that has come to dominate American capitalism, and yet at the same time nearly all of their policies continue to promote this very culture. Why the public and press are not incensed by this and other policy contradictions is not entirely understood. It can perhaps best be explained by the effects of effective spin - countless calls from policy makers to 'put the [financial crisis] fires out!' before any attempt is made to investigate the cause of the blaze. Keep the public's attention on the fire, not on the fuel.

For the record, the off balance sheet mess polluting corporate America persists, countless trillions still slosh around in dark marketplaces, hedge fund regulations are about as welcomed as a Pap smear, and the U.S. is basically taunting the world to challenge the U.S. dollar's reserve currency status. In a financial world whose fate is increasingly intertwined fear should indeed be on the rise. To be sure, there should be alarm bells ringing out that important regulatory changes must be undertaken, secretive marketplaces and market practices must be unveiled, fraud must be policed, and the nation's currency must be put on a stable path. Instead it is complacency that is rising, and in amusing fashion. For example, completely bereft of the concept of systemic change, the mob would like to see Wall Street compensation levels come down. The greatest financial crisis since the Great Depression and the sole unifying solution is to limit Wall Street pay? If only this was fiction…

"In a crisis you need to make a choice. You can choose to solve the problem and protect the innocent from the results of the firestorm. Or you can try to teach them a lesson. You can't solve the problem by teaching people a lesson. That's not a strategy for solving the crisis. It's a strategy for inflicting a lot of damage." Treasury Secretary Tim Geithner

Arguably more outlandish than President Bush's "I've abandoned free-market principles to save the free-market system", Mr. Geithner's convolutions are truly impressive. The money of the 'innocent' has been stolen to prop up a financial system on fire; a system that has and continues to reward those guilty of allowing arsonists to run amuck! And in this system hard lessons are not learned and the damage is always contained because people like Tim Geithner are confident that even as they lay the groundwork for an even larger firestorm tomorrow some different outcome will mysteriously transpire? At risk of straying, let us hope that U.S. policy makers have drafted the appropriate contingency playbooks for when real change is voted in by foreign lenders, or the day when either the dollar is somehow stabilized, devalued, or completely obliterated. After all, the fable of omnipotent policymakers perpetually dictating safety and risk across marketplaces, while simplistically alluring, is a fable nonetheless. The real story remains that of an unsound, unregulated, and unsafe financial system that only remains vibrant due to the somewhat artificial mechanism of U.S. dollar hegemony.

In short, from the annals of Buffettology rests the adage 'buy when others are fearful'. If you believe fear still exists in any major asset class you have been conned; swindled into the newly indoctrinated mantra known as 'past performance may not guarantee future results but it sure as hell beats being in cash.' And while fear [of missing out on rising asset prices] can indeed make investors do incredibly dangerous things for extended periods of time, we should not lose sight of the fact that salvation today has perhaps only been temporarily realized. For the record, ultra-safe variants of 'cash' have outperformed risky U.S. equities over the last decade...and yet no one seems to care."

- Brady Willett, BWillett@fallstreet.com, www.fallstreet.com
http://www.gold-eagle.com/editorials_08/willettalway100909.html