Thursday, July 24, 2008

Wall Street Got Drunk?

The hell they did. Bush's statement is absurd, not from the standpoint that Wall Street didn't run with the openings they saw because of Washington's regulation, but because he places the cause as Wall Street.

A legitimate authentic businessman doesn't get "drunk" about these matters and he does not allow himself to be thrown off track by eating the manna dropped from Washington.

Suppose I have decided to be a bank. I offer safe-keeping for people's money. In an unregulated market, the value I'm offering is safety and liquidity. People want to know that their money is secure from theft and they want to know that they can go get it when they need it.

The issue of lending money becomes a potential threat to those values unless I know what I am doing. Loans of all kinds have to be set up first with the depositors such that they are compensated for the risks they incur with their deposits that can be used for making loans. I, the banker in this case, have to know how much reserve I must have to protect the basic values I offer lest people come to the bank and find that they cannot get their money. If that happens, I'm bankrupt and my business is over.

The government has told the banks that they can lend more than they otherwise would and they have told them to loan to risky would-be borrowers. The government, they said, will ultimately back their depositors via the FDIC and other institutions. They have refocussed the concerns of the bank by removing the urgent reality of their accountability to their customers. The government will cover it.

The fact that the government isn't a bank dealing with people nor an insurance company who sets up reserves for the risks it takes is another story. The government is FORCE and has to take everything out of the hide of the population. It does it by taxation or inflation, i.e., the printing press.

All of the shenanigans of the banks and mortgage companies in the current fiasco result from the government's removing the principles of sound banking from the concern of the banks and mortgage companies. Hence a bubble which, when the piper plays his tune better known as when profligate ways hit the wall of reality, has to burst. Bush's fingerpointing is ludicrous and ignorant of what is going on. He should know better. Until we make sure the government stops inserting their FORCE via regulations into the situation this will not change.

The moral of this story? Force obviates the seeking of authentic values and the responsiblity for achieving those values.

1 comment:

principlex said...

On Sunday, July 27, McCain also claims that Wall Street was the villian in the current mortgage crisis. With this kind of economic ignorance leading or seeking to lead the country, what chance is there for even a candle at the end of the tunnel, let alone a bonafide light.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVLF68kNBUgA