Meltdown of our financial structures

THE CENTURION CHRONICLE
Vol. III – Issue #27 – Sept – 2008

(has anyone seen Noah lately?)

The political scramble going on in Washington, as we face a complete meltdown of our financial structures, would be as hilarious as watching an old Keystone Cops movie….if the potential impacts of that meltdown weren’t so gut-wrenching.

Simply put, the present crisis came about as a result of complacency, lack of integrity, and just plain stupidity, among all those who should have been standing watch over those structures. All those corporate fat cats and financial geniuses who made careers out of crocheting new madcap financial formulas, to generate tsunami flows of cash into their coffers and pockets. All those erstwhile regulators, who not only were asleep at their posts, but who seemingly turned blind eyes to those financial slights of hand, just to avoid impeding all those wonderful cash flows resulting from these (thereby proving their credo that the only good markets…. were unfettered markets). And lastly, our so “honorable” politicos who, greedily, kept cheering them all on, knowing doing so meant more significant contributions for their election campaigns.

All of which has brought us to this moment. A moment very similar to that of the Johnstown flood of so many years ago. Similar in that, those who owned that fateful dam, kept quiet about its growing flaws, and its potential for collapse, from a lot of folks living directly downstream from it. Worse yet, when despite their best efforts, tidbits of news did leak out about the situation, the principals involved used every means possible to either publicly minimize the problems, or, pooh-poohed the very idea of collapse as being nothing more than vile rumors spread by malcontents, and others, envious of their posh little enclave created by the lake behind that dam. Everything was sound. Everything was fine. There was nothing to worry about….. until….their dam didn’t just slowly crumble, it collapsed entirely without warning…. sending a great roaring wall of water sweeping away everything in its path. Trees, houses, people…. and most of Johnstown besides. Thus the similarities with how our financial crisis of today came about.

One can’t help but wonder how so many smart people could have been so dumb about financial fundamentals. In plain terms ….such fundamentals are like the laws of physics. They are largely immutable. One of these fundamentals is this: If you allow the ratio of debt to liquidity to become too large, like a marginal soufflé just filled with hot air, your financial structure will eventually collapse. The problem is, like the shock waves from a large explosion, the collateral damages of such shock waves radiating out from it, can be as devastating as the explosion itself. Which is where we are today.

So now Congress is scrambling to come up with nearly a trillion dollar fund hoping thereby to shore up all these wobbly financial structures of ours. Its version of building an ark. But how exactly will that work? It really doesn’t know. How could it know? And since when has Congress known what to do about anything….especially about building an ark….other than to throw money at any problem or crisis at hand? Money, by the way, which has very little actual value left to it. It’s just paper now…. with pretty printing all over it. Our gold holdings, even at today’s prices, aren’t significant enough to back it. Of course, there is, still, the full faith and credit of the United States Government behind it. But what’s that worth today?

To put it politely, “faith” in that government is now most uncertain. As to its “credit” rating, to also put it nicely…. that is probably somewhere between our own ratings… and zero….which must be less than reassuring to anyone holding that paper.

Frankly, bailing out all these financial institutions is not the way to go. They deserve everything that’s happening to them. Difficult as that might make life for all of us, in the immediate future, allowing them to be swept away by this fiasco may ultimately be a better solution than bailing them out. It would level and clear the field, allowing us to then rebuild our financial system on a sounder basis.

Meanwhile, has anyone seen any sign of Noah….lately?

CENTURION