"Alan Greenspan, won't you please go home"

The only thing worse than the policies pursued by the former Fed chairman is the current book tour he has embarked upon to try to convince somebody he wasn't at fault for the 2008 financial crises. Alan has appeared everywhere recently to tout his book "The Map and the Territory". Greenspan is trying to justify the enormous mistakes he committed by implementing a deeply flawed monetary policy. Like all "experts" who are found to have feet of clay Alan acts like nobody could have foreseen the crash or everybody thought alike. This is 100% wrong. He was head of the Federal Reserve for god's sake! He is equating his knowledge with the average cab driver in NYC as to what is going on in the economy. Personally I think this is unfair to the cabbies who I believe had a clearer picture than Greenspan. Alan was too busy lapping up adulation from Congress to pay much attention to his real job.

The simple facts are that Greenspan was appointed by Ronald Reagan in August 1987. This was just in time to reap the whirlwind from the stock market crash in October and the Saving & Loans crises following the implosion of the junk bond market (not his fault). That economic set back was a mini 2008 and all the lessons that remained unlearned about unregulated lending activity by financial institutions came back to bite us in 2008. He had firsthand knowledge of how these events unfolded but now wants to believe that somehow people have changed the way they behave and "nobody" could have known.

In a larger sense it is time for many of our "leaders" to move on. Just because a guy has a dark suit and speaks in a deep voice the media acts as if everything he says is solid gold. This is regardless of the abysmal record of the individual's performance. So in addition to Mr. Greenspan, Larry Summers, Robert Rubin, Dick Cheney, John Bolton etc. should have the decency to exit stage left and be heard no more. This is based on their record of being wrong in most of their decisions and policies. It clearly transcends party affiliation.

The Government shutdown / debt ceiling breach is behind us for now. The "leaders " in Congress indicate they get the message that this type of brinkmanship is unacceptable to the business community and the saner of their constituents. The news media is acting as if the problem has been solved and reason and compromise have prevailed. Fat chance. During the government shut down more obscure Congressmen were on national news broadcasts than ever before. This is free money as far as a politician is concerned. First term Representatives from small states were sought after by CNN, Fox, NBC, etc. to recite their party's talking points as if they actually understood what they were saying. The only thing we can be sure of is that the "shutdown" taught Congress how wonderful all the media attention is for Congressmen. The economic incentives are now aligned to motivate Congress to keep doing what they are doing.

The history of the US is filled with demigods and charlatans who make a lot of noise and are dismissed by rational people as a mere annoyance. These people are dangerous and should not be dismissed lightly. They can cause serious harm to the country or the economy. We all need to remember politicians like Senator Joseph McCarthy and Senator Huey Long.

The silly season is upon us. Apparently the House of Representatives flunked 6th grade civics and doesn't really understand how our system of government works. If you want to get rid of a law you need to pass the new law in both houses and send it to the President to sign and if the President vetoes it you need a super majority to overturn it. This would entail making a coherent case for the new law and working hard to convince people that this is in their best interest. It is much easier to keep shouting to people who agree with you and avoid the messy process of actually doing something constructive. I guess we get the Congress we deserve. As an aside I do not know whether the Affordable Health Care Act will be good or bad, I do know as a business owner for 30 years that the current system is too expensive and inefficient.

I think if Congress is willing to "shut" the Government they should go all the way. Close the airports, the ports, the interstate, stop funding for Congress including pay for members, don't send Social Security checks, turn out the lights in the Capitol, tell the soldiers to go home, stop the defense plants in the congressional districts, etc. The current shut down has all the sincerity of a TV "reality" show. Just when you think Congress can't sink any lower they manage to lower the bar, again.

Wall Street is constantly changing. If you listen to the news media you would think that everything remains the same until Congress or the SEC decides to increase regulation or get more involved. That is not the case. Recent volatility in the financial markets have an very important lesson for the immediate future and provide an insight into the state of the US markets. This lesson is lost on most bond fund managers, which is why if you are invested in a bond mutual fund you have been getting killed recently. Wall Street has been quietly cutting their risk profile,not in response to the hue and cry of Congress but because a lower risk profile make better economic sense in terms of profitability. The fact that the big trading firms are less willing to carry inventory means that when institutional investors want to sell large blocks of bonds the price will drop farther and quicker than expected. A study of the corporate bond market in the late spring / early summer or the municipal bond market this summer will illustrate this point.

Wall Street firms have learned lessons from the financial crash of 2008, mutual fund managers have not.

Congress, who never cease to amaze, is warming up for another bogus discussion of the debt ceiling. Since all revenue bills must originate from the House the fact that the House is now considering not authorizing the funds to pay for the laws they have enacted makes less sense that usual. It is the equivalent of holding a gun to their own head and threatening to shoot themselves unless you stop them from doing what they just did. This is not fiscally responsible, it is just stupid.

Random thoughts upon returning from vacation;

S & P is running radio ads touting what consummate professionals they are and how they " have taken to heart the lessons learned in the financial crisis" . What they have neglected to do is take responsibility for their actions in creating the aforementioned "financial crisis". S&P is acting like the financial crisis was some random event rather than a completely preventable occurrence if firms like Moody's and S&P had done their job.

Why does everyone admire JP Morgan as the "good" bank? In the last year they have admitted their risk controls are non existent (London Whale), paid large fines for manipulating both the natural gas and aluminium markets and been knee deep is the bogus financing that wrecked Jefferson County Alabama. If they are the good guys, what do the bad guys look like?

Fabrice Tourre of Goldman Sachs has been convicted of securities fraud in a highly publicized case recently. Maybe all the young hopefuls who swallow the Goldman Sachs kool-aid will pause when confronted with an ethical dilemma and at least think about it before trying to prove how clever they are. Secondly, does anyone think that Fabrice's boss had nothing to do with the fraud?

Nothing has changed in Europe in re countries like Greece, Portugal, Spain, Italy, Ireland etc. The only hopeful sign is that now the European Central Bank (ECB) realizes they must try to stimulate the economy. The bank tried to solve the liquidity and fiscal crisis by contracting economic activity through "austerity." I am not sure what economic theory they were using.

In the Wall Street Journal on June 4, 2013 section C page 1 there was an article which discussed the fact that an entity lyrically titled the "Financial Stability Oversight Council" (FSOC) which is led by the Treasury Department has decided they should designate certain companies as "systematically important" and should therefore "keep an eye" on these companies. 

As a bit of background the voting members of the FSOC are; 

• the Secretary of the Treasury, who serves as the Chairperson of the Council;
• the Chairman of the Board of Governors of the Federal Reserve System;
• the Comptroller of the Currency (OCC);
• the Director of the Bureau of Consumer Financial Protection (CFPB);
• the Chairman of the Securities and Exchange Commission (SEC);
• the Chairperson of the Federal Deposit Insurance Corporation (FDIC);
• the Chairperson of the Commodity Futures Trading Commission (CFTC);
• the Director of the Federal Housing Finance Agency (FHFA);
• the Chairman of the National Credit Union Administration (NCUA); and
• an independent member with insurance expertise who is appointed by the President and confirmed by the Senate for a six-year term.

And who did these worthies decide they should keep an eye on? Wait for it -  AIG

AIG - are you kidding me? Five years after the financial crisis when the egregious behavior of AIG almost ended western civilization as we know it, and these protectors of the commonweal are just now getting to the point where they believe they should watch AIG to make sure they don't do it again. You can't make this stuff up!! The amount of money the US taxpayer had to pony up to bail out the company and its trading partners (read JP Morgan, Goldman Sachs, Morgan Stanley etc.) was astronomical. The fact that AIG even exists is an artificially created miracle. Is there anyone in DC that understands what happened in 2008? 

I don't want to be too negative but with public servants like the above it might be time to stock up on bottled water and canned goods and head to northern Idaho. I don't like our chances.

 They are back! The rating agencies (Moody's, S&P And Fitch) who didn't have the good sense to crawl under a rock and die for their part in the 2008 financial crises have returned. After indeterminable testimony before Congress where the CEO's all swore their behavior did not reflect the high ethical standards of the company, the agencies are up to their old tricks. An article on Bloomberg titled Ratings Shopping Revived in Asset-Backed Rebound discussed the fact that the rating agencies seem to be selling their expertise again to the highest bidder. The quote below is from the article and sums it up rather neatly;

 “Imagine the pharmaceutical industry having six FDAs, all competing to approve drugs,” said Rob Dobilas, who founded Realpoint LLC, the credit-rating company bought by Morningstar Inc. in 2010, referring to the U.S. Food and Drug Administration. “Everyone would be dead.”

The rating companies like to hide behind the bogus theory that they provide some kind of objective evaluation on securities when they are in the business of selling their ratings for money. I have news for the CEO"S who testified before Congress, their egregious behavior was exactly who they are. Their behavior reflected their ethics and standards perfectly.