Banks, Hedge Funds, Brokerages, Derivatives And The SEC
As I've written time and again, consumer protections in the financial system are one of the most important set of laws any society must have. Full faith in a country's financial system needs to be a given under the worst of circumstances. There are many imbalances which have never been stressed before in global financial markets. At the same time, with complex new strategies and the co-mingling of consumer savings with these new strategies is worrisome. I would say the world financial system is near a point of heightened risk. Where we go from here is anyone's guess. Maybe no storm will develop. Maybe any storm will be contained. Maybe we could all experience a major hiccup. While there are many who are predicting the demise of all things U.S., I would argue the U.S. is in a much better position to absorb a trillion odd dollar mess than China is with a 2-3 trillion dollar+ mess with their absolutely horrendous, Tokyo II, Godzilla eats China, banking and overbuilding mess in the making. As I've said incessantly, China's potential for a banking and/or deflationary crisis makes Japan's deflationary pop look like dinner with the Cleavers.
I believe these risks exist in nearly every country. This is surely the most unusual situation since the 1970s and more likely only superseded by those decades before the 1970s. Why? Because modern day economics are not prepared to handle global synchronized growth. What do I mean by that? The boom & bust cycle created by central bankers injecting and retracting liquidity simultaneously and on a global scale only exacerbates imbalances and creates higher odds the ultimate mess is significantly larger. Significantly..........global. So why tout TV raves of global growth potential, the ultimate outcome concerns me. Why does this situation exist? Here I go again. Because global leaders don't want to tackle the painful issue of reforming their economies and political institutions to stimulate domestic demand. Hence, everyone relies on America to consume all of their output. So, when America sneezes, the world catches a cold. The end result is a synchronized central banking effort of lowering and raising rates in concert with the state of the American economy. Some economists and investment professionals will tell you global economies will not be affected by a U.S. slowdown but how many times does it have to happen to realize IT IS NEVER DIFFERENT THIS TIME. Yes, I sound like a broken record but with China's exports being 35% of their GDP and up to 75% of those exports from foreign national corporations doing business in China, it doesn't take a rocket scientist to see the shit is going to hit the fan some day. (As is with concern over the Russian banking system per a prior post. I'm sure the list goes on and on.)
Back from my rant to the topic of this post. The global real estate situation has the potential to create a severe recession globally. That alone could create a crisis but what concerns me the most are global financial systems. Credit derivatives, mortgage backed securities, speculative risk, unstable loan practices, credit expansion and lack of demand for capital have created a situation that could turn into a perfect storm at some point. Now, my opinion is that there is no sense in worrying about what may happen. Such a thesis would have everyone worrying their lives away. But one should be aware of potential risks and incorporate those risks into their strategy. To have Warren Buffet state much of this situation is a "ticking time bomb" which has never been stressed or the EU's concern about a financial meltdown caused by credit derivatives and hedge funds should be duly noted.
While no one can predict the future, the global imbalances concern me enough that I have moved all of my paper assets to financial institutions with little to no exposure to such concerns. If the government is going to repeal Glass Steagall and take a laissez faire approach to regulation of those who hold my savings, then I'm going to become my own regulator. I'd rather have my investments where I can take advantage of any situation rather than be part of the situation. People in 1929 never expected a run on the banks and while I think that is extremely remote, almost paranoid to think it could happen again, it took me a total of two hours to do and it cost me nothing. So my minor bout with paranoia is taken care of. Or, as I like to say, "A bad plan is better than no plan". That reminds me, "Only The Paranoid Survive" is an excellent book written by a brilliant CEO and even more brilliant strateee-gerist who was quite good at strateee-gery.
Gary Aguirre, an SEC attorney, made headlines this past summer with some very serious accusations re the state of the U.S. financial system. I thought it was very timely to dig up his letter and post it. Obviously, I don't know Mr. Aguirre but he appears to be a very able and quite articulate attorney. Is there any substance to his claims? His letter is relatively long but a very easy read. I highly recommend reading it. Regardless of whether Mr. Aguirre is correct, he brings up many concerns and parallels between history and today's environment that remind us why corporations should never be trusted to do the right thing when it comes to our savings. ie, Regulation of the financial industry isn't simply attempts to impose bureaucratic will, stifle innovation and kill job creation as said CEOs and business leaders might have you believe. I am well aware of history and man's endless ability to create unbalanced situations.
Note: Does anyone know how to upload and attach a nonpicture file to Blogger Basic? If so, I'd appreciate your comments.
I believe these risks exist in nearly every country. This is surely the most unusual situation since the 1970s and more likely only superseded by those decades before the 1970s. Why? Because modern day economics are not prepared to handle global synchronized growth. What do I mean by that? The boom & bust cycle created by central bankers injecting and retracting liquidity simultaneously and on a global scale only exacerbates imbalances and creates higher odds the ultimate mess is significantly larger. Significantly..........global. So why tout TV raves of global growth potential, the ultimate outcome concerns me. Why does this situation exist? Here I go again. Because global leaders don't want to tackle the painful issue of reforming their economies and political institutions to stimulate domestic demand. Hence, everyone relies on America to consume all of their output. So, when America sneezes, the world catches a cold. The end result is a synchronized central banking effort of lowering and raising rates in concert with the state of the American economy. Some economists and investment professionals will tell you global economies will not be affected by a U.S. slowdown but how many times does it have to happen to realize IT IS NEVER DIFFERENT THIS TIME. Yes, I sound like a broken record but with China's exports being 35% of their GDP and up to 75% of those exports from foreign national corporations doing business in China, it doesn't take a rocket scientist to see the shit is going to hit the fan some day. (As is with concern over the Russian banking system per a prior post. I'm sure the list goes on and on.)
Back from my rant to the topic of this post. The global real estate situation has the potential to create a severe recession globally. That alone could create a crisis but what concerns me the most are global financial systems. Credit derivatives, mortgage backed securities, speculative risk, unstable loan practices, credit expansion and lack of demand for capital have created a situation that could turn into a perfect storm at some point. Now, my opinion is that there is no sense in worrying about what may happen. Such a thesis would have everyone worrying their lives away. But one should be aware of potential risks and incorporate those risks into their strategy. To have Warren Buffet state much of this situation is a "ticking time bomb" which has never been stressed or the EU's concern about a financial meltdown caused by credit derivatives and hedge funds should be duly noted.
While no one can predict the future, the global imbalances concern me enough that I have moved all of my paper assets to financial institutions with little to no exposure to such concerns. If the government is going to repeal Glass Steagall and take a laissez faire approach to regulation of those who hold my savings, then I'm going to become my own regulator. I'd rather have my investments where I can take advantage of any situation rather than be part of the situation. People in 1929 never expected a run on the banks and while I think that is extremely remote, almost paranoid to think it could happen again, it took me a total of two hours to do and it cost me nothing. So my minor bout with paranoia is taken care of. Or, as I like to say, "A bad plan is better than no plan". That reminds me, "Only The Paranoid Survive" is an excellent book written by a brilliant CEO and even more brilliant strateee-gerist who was quite good at strateee-gery.
Gary Aguirre, an SEC attorney, made headlines this past summer with some very serious accusations re the state of the U.S. financial system. I thought it was very timely to dig up his letter and post it. Obviously, I don't know Mr. Aguirre but he appears to be a very able and quite articulate attorney. Is there any substance to his claims? His letter is relatively long but a very easy read. I highly recommend reading it. Regardless of whether Mr. Aguirre is correct, he brings up many concerns and parallels between history and today's environment that remind us why corporations should never be trusted to do the right thing when it comes to our savings. ie, Regulation of the financial industry isn't simply attempts to impose bureaucratic will, stifle innovation and kill job creation as said CEOs and business leaders might have you believe. I am well aware of history and man's endless ability to create unbalanced situations.
Note: Does anyone know how to upload and attach a nonpicture file to Blogger Basic? If so, I'd appreciate your comments.
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