Monday, September 14, 2009

Global finance and parasites

Kudos to those veterans who predicted nothing would be fixed.

I don't blame Obama. Between the Great Recession, Health insurance reform, North Korea, Peak Oil, global warming, Pakistan, the Bush legacy of torture, corruption and the dismantling of government, Africa and Klan 2.0, the man has a few things on his mind.

In the absence of Presidential authority bank reform is a long shot. This gang can buy a Senator for pin money and a Congressman for loose change [1].

As they say in DC, "If you want a friend, get a dog. If you want justice, give up."

This time the US government can't help us. What's a small investor to do?

Personally, I want to read a book called "Investing in a Crooked Market", but I haven't found it yet. So, what the heck, I'll speculate that ...
  1. Without real reform we can expect that banks will continue to pick investor's pockets -- including the pockets of their own shareholders.
  2. There'll be a mega-Recession every 7 to 10 years and we'll read more about 19th century "cycles".
  3. Traditional "value investing" will become a chump's game.
  4. Investors will look to well regulated markets in Europe and Canada, forsaking London and the United States.
There's probably some way to make money playing this crooked game but it has nothing to do with creating value. It's about cold blooded application of the Greater Fool principle in a bubble economy.

In the longer run, I wonder if we can think of these corrupt banks as a form of overly successful parasite on the current model of corporate finance. Biological parasites weaken their hosts, and these Finance parasites will have the same effect. They'll reduce the competitive advantage of stocks over other forms of corporate finance.

In time a new way to fund corporations will emerge as an alternative to the traditional publicly traded company. The old stock market will die off, and new parasites will emerge to start the cycle all over again ...

Update: When I wrote this post I created a new tag to group my Great Recession posts. Along the way I came across a 2004 speech by Morgan Stanley's Stephen Roach. I'd say he came out of this looking rather clever.

Update 9/15/09: Consider regulatory oversight. Regulatory agencies breed lobbyists. Lobbyists breed campaign donations and post-political wealth. Therefore Senators want regulatory agencies. The more agencies, the more "regulatory arbitrage"-- opportunities to game the agencies. So banks and other regulated for profit corporations also want more regulatory agencies.

Since both politicians and finance corporations want more regulatory agencies we get more of them every year. Reform seems impossible. (NPR 9/15/09)

1 comment:

chrismealy said...

Great post. Love the idea about something to replace the PTC.

I had thought of this myself, and checked to see if I had invented it first. Nope: