Juggling Dynamite

There is plenty of finger-pointing this week around the world. Capital marketing are convulsing, investor losses are mounting, politicians are speaking out and litigation lawyers are rubbing their hands in anticipation.
As the WSJ outlines this week CREDIT AND BLAME
How Rating Firms' Calls Fueled Subprime Mess, it took more than one person to cause this riot. The participants have been far and wide, from gullible and wilfully blind to the greedy and downright fraudulent.
The Federal Reserve has stepped in to the rescue in other periods like this, most recently in 1998, 2001, but I fear this has not been a good thing in the long run. As every parent comes to know, cleaning up after our children repeatedly is no way to train and fortify them. Rampant reckless risk taking is a dangerous business. When people are saved at the final bell, no lasting lessons are learned to help them make wiser choices for the future. This is one of the main reasons that we find ourselves back today in worse shape than we were at the peak of the last market bubble just 7 short years ago.
The Bernake led Fed may be less inclined to race in with imminent rate cuts to pull markets out of the fire this time. At some point pain must be felt to restore some equilibrium and dissuade distructive behaviour going forward. And then there is the fact that inflation is still above target and rate cuts will further depress the down-trodden US dollar.
I am reminded of what Galbraith wrote about in “The Great Crash.” He describes how at in the beginning of the market crash in 1929 there was must hope and rumour that at any moment someone big and powerful would step in and save the day by putting a stop to the market freefall. Widely it was hoped that there were big men about who could put stocks up and put stocks down and that at any moment the cavalry would arrive to stop the losses and save the day. Of course, no saviour materialized and it took more than 2 years and -89% losses before markets were able to work off their overhang from the post-29 exuberance and start slowly building their way back.
Mature and realistic excpectations are needed. High-risk rollers will have to learn this lesson the hard way. Money cannot be free and unlimited without the nasty reprucusions of waste and inflation. It will take some time to work off the hang-over of the past few years. Patience and prudence and maturity will be rewarded.

Over the past year, I have been growing increasingly concerned about the abuse of leverage in our economy this cycle, especially as the economy has been slowing, profits compressing and the housing market melting. Up until recently it seemed like I was a bit of a lone wolf in main stream media appearances, as anchors and hosts would say that I was rather dark or that “no one else seems to be worried about these things.”
Actually lots of other people have been concerned, but most of them have either kept to themselves about it, or else they are not asked to comment on main
stream venues that are widely viewed by the general public. As Galbraith would say, the wise in these matters often remain very quiet so that the fools have the field all to themselves.
In any event, one of the guys that was really bullish up until recent weeks was the Mad Money king himself, Jim Cramer. I remember Cramer at the peak of the tech bubble when he had just started hosting Kudlow and Cramer in 2000, and he was supremely bullish through that time too, while world markets tanked in unison.
Last week Jim “lost his nut” on CNBC, in an off the charts rant that was considered “postal” even for the mad man of market mania. I think it is important to watch this rant: see Market Meltdown.

Regular people need to understand the ego and risk that Jim and his ilk court. Apparently he is now very worried by the state of world credit markets and their ripple effects for risk assets.
I find it amazing that Jim and Co think that the Federal Reserve should rush in and save their bacon now just because rampant risk and hubris have now turned on their “masters”.
By the way. Jim's clip is now on Youtube. And I have to say, for anyone who has not yet discovered Youtube, I urge you to do so. As I was trying to show my technology adverse dad the other night, it is really a whole new world. For a bit of fun with your family, take turns punching in your favourite song titles, or lyrics and enjoy music videos on demand.