Moral Hazard IV

The day after assesments of the Wall Street Fix are not sanguine. The essence of the argument is that the government has still not done the right thing because all the derivative based bad debt has:
1)Not been identified and reported completely to the SEC+Fed by the investment banks and other bad funds holders;
2)the underlying problem of how to evaluate and price these bad instruments has still not been solved;
3)bad players are still being rewarded with a)Moral Hazard Insurance and b)likely immunity from any reprimands. For example, short sellers are the only parties “being disciplined” and they are back in business by mid-October.
4)the rating agencies like S+P and Moodys, which really enabled this process to move forward and gain traction, stand on the sidelines waving Innocent and Scott Free  banners to any and all sundry parties.
If you believe the Fat Lady has Sung the last of the blue-it song, Wall Street Woes, just consider the following:
Barrons – of course looks at this crisis strictly from the investment point of view
BBC – reports succinctly what is on the line, enormous spending equal to the 5 years of Iraq war
Business Week – says the bill is $3trillion, spells out who owes and who loses – and calls the bailout “iffy”
The Economist – identifies derivatives as the root of the problem, not yet handled, and germ for a Nuclear Winter
Forbes – calls it Financial Statesmanship for the Ages
NYTimes – calls the bailout a Hail Mary pass
USNews&World Report – provides historical perspective
This party thinks that the NYTimes and The Economist have got this right. Because the extent of the bad derivative-based disease is not known, the size and effectiveness of the cure is also up in the air.  Our Greedy Guts Itself story from last November is looking scarily prescient.  Alas, small consolation, I need a 5th of financial sobering up as recession looms ever larger.

Leave a Comment

Your email address will not be published. Required fields are marked *

Pin It on Pinterest

Share This

Share this post with your friends!