Thursday, November 27, 2008
The Dow is up for the third consecutive day. No doubt some are thinking the bottom was reached last week and we have a long slow recovery ahead of us... but I'm not one of them.
I am reminded of 1929: The stock market crashed and came back then too. It wasn't until 1932 that the impact of a mangled manufacturing base hit with full force. It's easy to look back at Harry Hopkins and FDR as heroes for getting the nation out of the Great Depression, but it took a full ten years of fiscal tweeking and a wartime economy to get millions of people back to work. It was hardly a miracle.
In the end it was greed that got us. For once in recent history, the market was allowed to operate without intervention or regulation. The past decade has been the story of manifest entitlement by the privileged few. The creation of new investment facilities that enabled investment bankers to multiply their profits by selling MBS's to second tier entities that later repackaged and sold the risk to trusts and corporations in the form of CDO's and Credit Default Swaps. Complicit, and critical to all of this were the bond and rating agencies - like Moody's, that assigned AAA ratings to these trusts and corporations - the "shadow bankers" a requirement before shares of these products could be sold to thousands of pension funds, hedge funds, and municipal and state fund managers.
That any third party - completely unrelated to any of these transactions, could later take out insurance policies that paid off in the case of a default of these trusts and corporations is clearly bordering on, if not outright criminal. These derivatives paid massive returns to holders of the paper so long as people kept borrowing and buying houses. They paid even more when the bottom dropped out of the housing market and millions of new homeowners defaulted on their mortgages. Those betting on a collapse could then cash in their default swaps for insurance remissions from companies like AIG.
Perhaps the best first-person account of Wall Street culture, written to date, is a story written by Michael Lewis in Portfolio.com, entitled "The End of Wall Street's Boom".
The solution is far from a done deal. There is an old saying, "use a thief to catch a thief." If there is any truth to that then President-elect Obama has assembled a first class team to lead the nation through the crisis, because most of them had a hand in creating it. As for me, I am growing weary of reporting on the ups and downs of it all. I'd like to get back to writing about the sorts of things that contribute to the growth of the human spirit. But, I'm an addict, and as such will no doubt be drawn back to what is the biggest story of my mature years. In the meantime, I am going to get on to some other subjects.... if I can.
Posted by Takwira at 11:30 AM