Thursday, November 20, 2008

Enlightened Hindsight

Read this Thing, and find out what a failed Investor felt some 75 years ago. Irving Fisher got it right Then and Now, but that being said; there is far more to be said on the Debt which is out there. The first element to be discussed is the irresponsibility of the Lenders, whose failure to ensure adequate Cash reserves and Borrower collateral, functionally guaranteed an insecurity of Debt; all in the insistence on Bonuses for themselves, rather than safety of funds. The second factor is that Borrowers built their empires on unsecured assets with original debt against it, and hired good liars (called Investment bankers) who told such complex Lies that no one can define the exact Lie to this Day. Derivative authors can be directly challenged for Fraud, and would be liable for criminal penalties if they were not dressed in tailored Suits. We are basically in the Business form of Watergate, and Everyone is trying to hide the Evidence, all while the economy tanks.

One has to read this article to know why you feel Depressed. Andy Kessler lists the progress of the Market downturn, giving a rationale for each Trend. Remember that this is all happening in Real Time. People have been watching their Fortunes drift away for a long time, and wonder where it will stop. A mild Secret about the Market states that Gains and Losses are supposed to be canceled out, a Buyer’s success is countered by a Seller’s loss, or vice versa. Markets are supposed to Gain itself, only because of technological innovation or Capital Investment. The trouble here revolves around the fact the technological innovation must generate Productive Gains, not be simply Capital consumptive; and Capitalization must be hard Investment in Plant and Equipment, else extension of Capital is only Inflationary. Corporate diversification solely for Tax purposes is a Disease which eats Productivity, and Paper Investment Instruments are a Cancer that grows only with the absorption of Profits. Far too many Investment designs have been created not to increase Productivity, but simply to grant Originators a Profit or Tax advantage.

The Bailouts may be the Problem anymore. Everyone is maneuvering to fall within the canopy of the TARP, ever since the amount of Money was announced. The economic downturn, if other Recessions are any indication, would already be in containment by Six Weeks into the falling Markets. The turmoil in the Markets stays only because Everyone is jockeying to get a piece of the free TARP pie. No One wants to take a Chance until the Winners and Losers are determined. The distributors of the Bailout funds cannot speak on TV without generating Market losses, as Players abandon likely losers in the battle for Taxpayers’ freebie Cash. I would advocate the Statement of "Shoot the Politicians", but that will get the Secret Service on my tail. Instead, I will say,"Hang the Politicians!"; to be Politically Correct, I will add, "Only cloth Puppets please." lgl

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