Friday Feature

I had something else planned for today...it was about RockCat, but given the current events I want to do something different. I want to talk a little about this:

It looks like fun - eh?

Now imagine - You want to jump, you see it, it looks cool, risky but hey, thrilling and exciting...a chance of a lifetime. The Dude (purveyor of bungee jumps) says "you have to jump, it will change your life...EVERYBODY is doing it...I will give you everything you need...you will totally be fine...plus, if something bad happens we have this insurance policy."

You pay your money, excited, feeling really good, pretty darn excited...this is going to change your life, plus it can't be too risky otherwise why would "everyone" else do it, and there must not be too much risk because of that insurance policy...totally cool...

You get in the basket and you start ascending. The platform stops and Dude asks "how high up do you think we are?"

Dude has been doing these jumps for years and just keeps raising the platform higher and higher. Dude asks "do you want to stop" and you say "no, HIGHER." Finally, the platform stops, and Dude asks you"how high up do you think we are?" You look down and say "gosh, maybe 500 ft...yeah, we are really high up, I would say 500 - 600 ft...." Dude confirms "so you think we are about 500 - 600 ft...okay, I am going to get your gear ready and get you set for a 500 ft drop...just to be safe..."

Dude goes into get the gear and makes a quick phone call...but you don't know this because you are dizzily peering at the view and imagining the fall and the sense of accomplishment...how amazing it will feel, and that your fears are totally normal...

But Dude on the phone call actually called his friend Merrill Bears Lehman and said "dude, this is Dude, have I got a deal for you...this guy says he is going to do a 600 ft drop and I am rigging him for 500 ft so he is totally safe, do you mind buying the insurance policy for this jump..."

So Merrill B. Lehman buys the policy before you jump on your stated assessment of how high the jump is...you know you, the incredibly wise and experienced bungee jumper...

Obviously, the jump doesn't go well because how could anyone just state the height of the platform and think that given the risk involved that just a stated height would be appropriate.

Why that would be silly!

So now even though Dude sold the ticket and guaranteed the policy, Merrill has to pay out...but Dude has done this a lot, and Merrill bought a lot of these, and they all seemed to jump at the same time...so now, Merrill has to pay out, big time, he assumed all the risk, but never did the risk assessment...

and that, ladies and gentlemen, is an oversimplification and ridiculous analogy to what has happened this week and why we are having SO MANY PROBLEMS...as I sit here typing I know that the economic facts are being spun in the Great Political Washing Machine where all things come out partisan...but I just wanted to put this very simple principle out here...

Capitalism really needs the one who assumes the risk to also assess the risk. What happened is that through deregulation we allowed this necessary relationship to be severed. Plus, we allowed the risk assessor to base risk analysis on inexperienced statements ("I think I am about 500-600 ft up...")

So...why all the stress today...why did the government stop the Short Sells...

You see, Merrill Bears Lehman started to realize they had made some bad risk purchases, but instead of owning up to...he uh...fibbed a bit...just a bit, about those balance sheets...so through a variety of different mechanisms he was "bailed out."

Now, Merrill's cousins Morgan and Goldy also made some of these purchases, but appeared to be weathering it, and Morgan turned in his report card and it looked like he was doing okay - but those champions of Short said "listen even though he is showing earnings, this whole deal is going to go toe up - so sell..." and they did, and the Fed said "no more."

So, because the free market's assessment is right Morgan and Goldy are in trouble because everything else is unstable the Fed stopped the market from annihilating Morgan and Goldy...

As of today this is our plan -

1. Instead of bailing out each guy that comes back with a failing report card we are going to create kind of a Big Daddy and everyone will go to him and confess their poor decisions, and Big Daddy will buy the bad debts off of everyone, government kind of buys all of those houses. So, then the companies get clean balance sheets (same approach for the Savings and Loans issues from the late 80's) and get a fresh start to try and do business better.
2. To stop other countries from freaking out and panicking that we are out of control we are creating an agency similar to what we used in the Depression-era to guarantee money market mutual funds. So we are saying "hey world, we are good for it...we will co-sign..."
3. No mo short sell! At least for a little while (2 weeks now and maybe another 2 weeks). Remember short selling is where you try to make money by predicting that a share price is going to drop, letting it drop, and then buying it at the lower share price. The concern is that this doomsday approach only fuels rumors and panic that could hurt companies that need to be stable. So by banning short selling the hope is that share prices do not inappropriately nosedive and everything goes up and up and up and up...
4. Fannie and Freddie (remember them, we just helped them out) they are going to get more money to loan out (from the government) so that loans are available to buy the homes that the government just bought in bullet point 1.
   

So using a combination of things from previous financial disasters we are going to be able to deal with this unprecedented failure in our financial services market...and hopefully someone is going to crack a history book and realize how we have dealt with pieces of these failures before and by failing to learn from those lessons we allowed this Category 5 financial disaster to slam right into our pocketbooks.

If you think it doesn't impact you - it does. You may not invest in stocks, and you might be paying for your house easily, but your insurance companies (health, auto, home) all invest in the market, your employer, your retirement...we are all interrelated...

So, for your listening pleasure, I am able to give you a rare find...a mix tape made by Merrill Bears Lehman and friends with a dedication to you, Bush, government regulators, Europe, China, Japan, Russia, you know who you are, this one is for you...rock on!