Research for Online Investors
We have seen the enemy, he is
us. That old saying should be on all of our minds today as we watch the
world bounce from one financial crisis to another. Who is to
blame? The Bankers? Sure, Bob
Diamond’s Barclays submitted lowball numbers for LIBOR rate setting. Did
they do it out of fear the bank could be cut off if other bankers knew how high their borrow rates were? Who
Sure, Goldman Sachs (GS) sold
Mortgage Backed Securities (MBS) that were chocked full of dodgy debt in 2007 and 2008.
GS thought the buyer should
beware. GS bought insurance from AIG in the form of credit default
swaps (CDS). Why did the government make them whole, along with
every other bank that dipped their toes in the MBS market? Why
didn’t we say Buyer Beware? They made an investment and lost…end
of story. Or it should have been.
You and your neighbors were the
borrowers, and your insurance company bought them. Whose
fault? Greece and now Spain and Italy are facing the hard reality you
can’t spend other people’s money when they won’t give you anymore. Darn
creditors, they want to be sure they get paid back!
We have seen the enemy, and
he is us!
The European Finance ministers met
yesterday and came up with a nice plan to save Spanish banks.
Why? Why not let them go bankrupt just like every mom and pop grocery
store or restaurant that doesn’t make a profit? Why not let the healthy
banks in Germany buy the Spanish banks? Or, just close
But you say “That would cause pain
in the market. Stock prices would fall. I would lose
money.” Our answer is to manage your exposure and
account. If you cannot swim, get out of the
Why do we want the Federal Reserve
to print more money? Do you really think a little more stimulus is going
to make a difference? Eventually all bad things come to an
end. The companies that make money and pay dividends will be worth
something. The companies that lose money and can’t borrow anymore will
It is the same with
countries. The ones that monitor spending and don’t succumb to political
promises that cannot be met will survive and flourish. This was the
experience of the U.S. for almost 200 years. For the last 50 years we
have been spending money we don’t have. Borrowing it from investors and
Step back from your computer and
think about the house of cards that is being built brick by brick by all the financial
engineering. For the last four years every problem had to be
monitored and addressed by a government or central banker.
Not so very long ago in a time when
people, companies and countries were responsible for their futures this would have never been thought
of. Bankruptcy was available to individuals and
companies. Countries would have to ally with a more financially
stable country to survive. Of course there were demands placed on
all in the process. Some not so pleasant.
But here we are. All hail the power of Central Bankers and other bureaucrats at the IMF or the UN.
Don’t you think the congress should have a hearing? Whatever it is, they
have time. They should have a hearing on why something happened…so it
won’t happen again. Pass a law. Regulate it. Hire a staff to monitor
And the world goes
round. The old saying when I was growing up was “Don’t cuss the
farmer with your mouth full.” We can turn it today “Don’t cuss the
(banks, regulators, IMF, government) if you want the market to go up.”
The market is down today because
traders have collectively decided that China is slowing and the ECB is not doing enough to stimulate the eurozone
economy. So we are going to Sell, Sell, Sell. What do you want to bet tomorrow a headline will inspire everyone to Buy, Buy,
Paradoxical Quote of the
hypocrisy of a government that requires every citizen to prove they are insured…but not everyone must prove they
are a citizen. Now, let that settle in a
while.—sent in by
Long-Term subscriber E.H.
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