Tuesday, June 24, 2008

Who Could Have Predicted... ?

This is from the top story in The Age today, subtly titled US BANKING SYSTEM IS DOOMED:
The US banking system as it exists now will not survive and its death throes will be painful. Details of its demise are in evidence everywhere you look. The fall of Bear Stearns, the collapse of Lehman Brothers and rumours circling the future of market super-heavyweight Goldman Sachs and Merrill Lynch attest to the end of the broker-dealer form of banking that cannot survive without securitisation, a system essentially built on kickbacks, big bonuses and the movement of money dressed up as industry.

Increasingly, people are wondering what these companies do (or did), other than pass around paper and pocket vast sums. Could they have been engaged in a massive heist dressed up in complicated terminology signifying nothing?

How can companies such as Bear Stearns, worth more than $US70 a single share, be found to be insolvent and worthless?
Now they tell us! In the mainstream media, no less! You mean it's not just another Crazy Conspiracy Theory???
US banking, as it has evolved, is now passing from a deep Darwinist phase, the survival of the fittest, or the cannibalisation of the weakest, to something more explosive.

Christopher Whalen, of Institutional Risk Analytics, sees the US banking system as rather like a poisoned aquarium, where some of the fish are dying and others, like Goldman Sachs, are feasting. But the system is poisoned. "They (companies like Goldman) are very adept at staying afloat by pushing their colleagues back into the water," he says.

Perhaps, inevitably, he compares them with dinosaurs: "When the volcano erupts, all the dinosaurs will die." But he adds: "They are very nimble. The buy-side investor is withdrawing from the Bear Stearns, Lehman and Goldman Sachs crowd and fleeing to the apparent safety of the universal banks. A fool's gambit, but what else shall they do?" Regardless of daily swings in the financials, Whalen, whose associates are in that poisoned aquarium, believes the inhabitants are doomed.

The US, like all of us, conditioned itself to believe in economic cycles and the inevitable bounce. But each correction has seen the creation of a new and less stable bubble.
So what happens to the global commodities bubble now? And who's to blame for all this?
Increasingly, independent analysts like Whalen and Hudson are blaming deregulation, especially the repeal of the 1930s Glass-Steagall Act that was passed to prevent a recurrence of the practices and results we are seeing today, and repealed by Bill Clinton, leading, as Hudson observed, to insufficient, or non-existent, oversight.

The hard hand of the regulator must be evident and constant. In these difficult days, we look to a new leader to emerge, for that is democracy's birthright and its meaning.
Clinton! Blame Clinton! Yes!

Ah, yes, let us cling desperately to the comforting certainties of a false political dichotomy. Speaking of which, this little comparison from Eschaton yesterday gives you an idea of how the two major US parties plan to deal with this crisis:
Obama: If we don't get a handle on our energy policy, it is possible that the kinds of trends we've seen over the last year will just continue. Demand is clearly outstripping supply. It's not a problem we can drill our way out of. It can be a drag on our economy for a very long time unless we take steps to innovate and invest in the research and development that's required to find alternative fuels. I think it's very important for the federal government to have a role in that process.

McCain: Well, I would think that the absolute gravest threat is the struggle that we're in against Islamic extremism, which can affect, if they prevail, our very existence. Another successful attack on the United States of America could have devastating consequences. You've been a supporter of climate-change legislation that would essentially impose a penalty on the use of fossil fuel.
Fix the problem, or start more wars. What was that bit at the start, about "the movement of money dressed up as industry..."?