The U.S. Government:
Devious or Just Plain Stupid...
You Make the Call
Dear A-Letter Reader,
Ben Bernanke - the "Sultan of Spin" himself - came out this morning and echoed the misguided hopes of CNBC's Trillion Dollar Survey from January. He optimistically believes that the crisis will be resolved before the end of 2009...that 2010 will be a year of recovery.
His hopeful yet empty words caused me to reflect on the progress of government intervention through this crisis so far. And I can come to only one conclusion;
I'm praying that they're devious.
That their measures are intended to fail. That they've got some secret plot...a conspiracy going on. Otherwise it means our leaders - political and economic - are just plain obtuse - complete with dunce caps.
Because there's no other way to explain the abysmal failure of rhetoric and ‘policy' over the course of the last year. It's either deliberate or just thanks to incompetence. And with a darkening future ahead of us, we can only hope that it isn't the latter.
So I'm done holding it in. I've been watching this farce play out for months and it's time to let loose the broadside on these fools...smashing their misconceptions, half-truths and lies of omission to little bits.
Enough with the talk...it's time for the fireworks.
The Free Market Didn't Fail; The Regulations Did
Truthfully, every time I hear some politician talk about how this is an example of the failure of free markets, I want to whack the guy on the head with a rubber mallet.
There's a fine line between free markets and the deregulation that's allegedly intended to create a ‘free-er' market...and that's a distinction most fail to notice.
And in the last few decades we haven't had anything even closely resembling a free market. Instead, we've had a 21st century banking system that's governed by a gutted 1940s regulatory structure.
I'm talking about some of more dangerous "free market reforms" of the Clinton/Bush era. The repeal of the Glass Steagall Act - which kept the banking system functional from the Great Depression through the end of the 20th century - and the 2004 decision to lift leverage limitations on American banks.
Were these regulations removed with the intention of creating a free-er marketplace? In my humble opinion; absolutely not.
These were crucial safety nets for our highly-regulated economic system that got in the way of bankers' profits. Removing them wasn't a free market initiative, and it didn't create a free market. It just made the whole situation far more dangerous.
If anything, the massive amounts of lobbyist money that made this deregulation possible prove - beyond a shadow of a doubt - that the U.S. government is too compromised to properly manage the economy.
Meanwhile, the government-mandated ratings agencies continued to stamp their seal of approval on questionable mortgage-backed securities. And the SEC continued to let Madoff and Stanford go about their business, long after they were warned of Madoff's shenanigans.
You're probably starting to see that it wasn't the free market that created today's problems, but the false sense of security brought on by "strict" government regulations.
So yeah, let's go ahead and build a bigger safety blanket. One that costs more, makes the market even less efficient, and ultimately proves to be as dodgy and inconsistent as the existing regulatory system. Now that's genius.
Taking it a step further; the size and scope of this crisis could be pinned directly on the Federal Reserve. That's right; Greenspan's 'liquidity experiment' and years of rock-bottom interest rates were the lungs blowing up the bubble. But that's a different story altogether.
Moving on to Lie # 2...
A Novel Idea for Politicians: Quit Lying and Make up Your Mind
This is a big one.
Asking a politician to tell the truth or actually make up his mind...well that's like asking a teenager to drive 20 miles under the speed limit. It's just not going to happen.
Generally, that's because telling the truth is bad for a politician's business. No problem there...I can respect that. But what about when it's actually a good thing for the country?
Take right now for instance. The markets are running scared. They're beaten down and oversold, waiting for a single ray of hope or even just some consistency. What do they get instead?
They get bald-faced lies like the most recent joint statement from the Treasury, FDIC, OTS, OCC and the Fed...one that macroeconomist Mike Shedlock calls "a Purposeful Joint Lie." A document so filled with puffery and damage control that it could make Ben Bernanke blush.
They get a government that fails to warn them that one of the people's newest acquisitions - AIG - is set to declare the single largest loss in corporate history. They get a President who tells the press that years of trillion dollar deficits are on the way...only to backpedal a few weeks later and promise deficits half that size by the end of his first term.
Hey government; I've got a novel idea. How ‘bout you pick a story, and stick to it?
Want another shining example? Look no further than "illiquid assets." Know why they're illiquid? Because the government won't pick a value and stick to it.
The "illiquid assets" aren't worth face value, and they'd fetch maybe a third of their value in the secondary market (for sake of argument). But ever since Paulson's "Master Liquidity Enhancement Conduit" (MLEC) in the summer of 2007, the government's been waffling back and forth with half-hearted promises to pay 75% of face value...perhaps more...perhaps less. They just haven't made up their minds.
So instead of having the market's clearing mechanism do its magic, working out deals and determining a fair market value for these securities - so that we can all move on with the lengthy road to recovery - we've got the government in there gummin' up the works.
Faced with the decision of either shaking the rotten apples out of the tree or forcing taxpayers to pay for those rotten apples, they've chosen indecision. And the market's not happy about that.
Paving the Road to Great Depression II
Remember, sequels are always bigger, more violent and less entertaining than the original. Oh, and they also have a knack for rehashing the worst parts of the original.
But seriously folks, let's set the stage before I'm dismissed as a ‘fearmonger' by people that don't know all the facts. It surprises me that so much of the news media has reverted to questioning whether this is even the biggest slump since the Great Depression. Have they been reading the same news I have?
Both George Soros and Nassim Taleb have gone on record as saying that we're facing a bigger slump than the Great Depression. In a little-known interview regarding his interest rate policy, Greenspan warned that this event could make the Great Depression, "look like a Sunday Picnic." And at least nominally speaking, you can safely say that this is the biggest asset price bubble in the history of human civilization. So yes, it can be a little unnerving.
And yes; a full-blown Depression is in the range of possible outcomes.
Especially if bumbling politicians and the Fed keep themselves firmly lodged between the economy and a recovery. Just look at 1990s Japan or 1929 America. In both cases, authorities got involved and mucked up the works. Unlike the barely-remembered 1920-21 slump, a deep recession that quickly corrected itself thanks to non-intervention.
Not that they couldn't be helping if they wanted to. They'd just have to make up their minds, quit pandering to their "sponsors" or just plain get out of the way. But that's not likely any time soon.
(To learn how you can cut through this mess yourself, read Chairman John Pugsley's full Lies Report)
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