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XMFSinchiruna (28.51)

Help Fools - I Need Your Vote for Round 2 :)

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March 24, 2009 – Comments (11)

First of all, let me convey my sincere thanks to those of you who read my article and voted in round 1 of March Madness... regardless of which way you voted. :)  Bolstered by your kind support, the article advanced the Glass-Steagall repealers to the second round of the blame game against an extremely tough opponent: Alan Greenspan. That first round result stands at 66% to 34% (with 670 votes cast) in favor of the Glass-Steagall repealers being more directly culpable for the financial mess we're in than even the king of low interest rates and the peddler of ARMs: Mr. Greenspan.

As I express in the beginning of my submission for Round 2, I think the fact that Fools selected Glass-Steagall and derivatives over the better-known Fed chairs speaks volumes about how well-informed and intellectually vigorous this community is. That's why I say:

"I'm proud of you, Fools!

Alan Greenspan certainly helped set the stage for this crisis by fostering excessive liquidity in the credit markets. Ben Bernanke is presently dumping indebtedness upon unborn generations of Americans in what I consider a fatally flawed response strategy.

Nonetheless, you well-informed Fools peered beyond those alluring scapegoats and voiced your greater discontent with the fateful extinguishing of Glass-Steagall and the creation of those convoluted instruments called derivatives. By selecting these factors over Greenspan and Bernanke, you exhibit a keen understanding of the historic events now unfolding."

Now, onto Round 2... 

I invite you all to please have a look at the article, consider both arguments, and vote your conscience. Those who know me well will find it odd, as Dan points out in the first portion, that I would find myself pitted against derivatives in this contest. The size and fragility of the global derivatives market comprises a major basis for my bullish position on gold, but the underlying truth remains that efforts first to relax Glass-Steagall back in the 1980s, and then culminating in its removal by 1999, paved the way for the explosion in the global derivatoves market which followed just in the last decade. Even if, as I do, you feel derivatives are in the top echelon of causes of this crisis, I urge you to consider the logic of my argument, and reiterate my promise to highlight the importance of derivatives going forward of you'll see fir to vite me through to the next round.

Thanks so much for reading, for sharing your thoughts, and of course for casting your vote... whichever way you decide to vote.

Fool on!

11 Comments – Post Your Own

#1) On March 24, 2009 at 3:42 PM, XMFSinchiruna (28.51) wrote:

Woah there... slow down Mr. Sinch... :) 

Sorry... of course that should read: "if you'll see your way to vote... "

:)

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#2) On March 24, 2009 at 4:13 PM, binve (< 20) wrote:

Hey Sinch,

I am with you. The repeal of Glass-Stegal is a causal event, whereas the proliferation of derivates is a consequence of loose monetary policy. Both were exceptionally harmful, no doubt. But as far as blame, repealing Glass-Stegal has cause to be blamed, whereas (to paraphrase Peter Schiff) is like blaming the kids at a high school dance for getting drunk because someone spiked the punch.

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#3) On March 24, 2009 at 4:25 PM, Tastylunch (29.91) wrote:

Sinchiruna the fact you are arguing for the right answer continually makes it easy to vote for you. :)

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#4) On March 24, 2009 at 4:25 PM, binve (< 20) wrote:

clarification: whereas blaming derivatives (to paraphrase Peter Schiff) is like blaming the kids at a high school dance for getting drunk because someone spiked the punch.

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#5) On March 24, 2009 at 4:53 PM, XMFSinchiruna (28.51) wrote:

binve

I am perhaps less forgiving of the inventors of derivatives than you are, my friend. While CEOs and negligent regulators are brought before Congressional panels and verbally beaten on C-Span for their crimes, the faceless inventors of derivatives continue to find refuge in anonymity. That angers me, but still doesn't change the truth which you and Tastylunch both recognize... that Glass-Steagall is further up the causal chain of events than derivatives that blossomed after Glass-Steagall was removed.

Thanks to both of you for your comments, and your vote!

 

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#6) On March 24, 2009 at 5:51 PM, binve (< 20) wrote:

Sinch, In no way take what I wrote to imply that I am forgiving of the inventors of these exceptionally risky deriviatives. I am not. I think most of the "banking afficianados" are crooks, and that the underwriters of CDS insurance are even bigger crooks.

But I recognize the fact that the rules were written by congress, and the easy money policies of the Treasury and Fed made it possible for these instruments to exist.

That is why I wrote that analogy. Not remove responsibility from those that got drunk (because they could have stopped drinking when they found out the punch was spiked), but to say that those who spiked the punch in the first place are more to blame.

Which is why my vote is for the repeal of Glass-Stegal. This was one of the primary causes that got the ball rolling in the finanical mess we now find ourselves in.

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#7) On March 24, 2009 at 6:30 PM, XMFSinchiruna (28.51) wrote:

binve

Gotcha  :)

I'm glad to see we agree, but I'm also glad I misunderstood for just long enough to vent my feelings about the derivatives originators. :P

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#8) On March 24, 2009 at 6:58 PM, binve (< 20) wrote:

No problem :) Venting can be very therapeutic :)

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#9) On March 24, 2009 at 8:10 PM, rookie02 (68.61) wrote:

I vote that the repeal was the most harmful action, and I would vote that it would be the most fatal had i the chance, though certainly not the first blood drawn in the epic destruction of today’s market. I have skimmed the comments above to a small degree, despite the chance that I may repeat what others before me stated as a reasoning as to why they chose to vote the way they did, in order to make the decision mine and solely based on the article and my opinions as asked. The idea of credit derivatives is not a bad one in the way that Marxism is not a bad idea on paper. When instituting an idea or way of business that can be greatly effected or corrupted by the emotions of those responsible for the carrying out of said plan, you are always going to risk a degree of failure and corruption. Man is not perfect, and most people in the financial industry are simply not there to study the social impacts of their employment. Let’s face it; man has an inherent instinct to increase self wealth, which is directly proportional to quality of life and social standing. The individuals whom ran these derivatives... I guess you would call it a system or program... is and were not unintelligent. The idea of buying high risk loans for cheap, re-rating them to low risk loans, and selling them for a profit was a money making idea, and it worked just fine for a while. But wait! I remember saying that I picked the repeal as the most deadly to the economic beast that is our market today! And here is why. The repeal placed the decision making and ranking process for these loans more directly in the hands of those who stood to make money by being... other than honest shall we say... When contemplating the Glass-Steagall and its very root purposes there is a wire-frame parallel to the constitution. It was meant to fix something that was broke and to create a set of guidelines to prevent a national problem from becoming... Well you know… a problem. While the constitution outlined freedoms, and basic rights of the government, the G-S outlined rules and restrictions to protect banks in the time of crisis. These restrictions were truly hindering to the enterprising banker, it (as I understand it of course) was meant to limit the opportunity and temptations to enter into a practice that had already been exposed as a weak ling in our financial system. Yes i agree that advancements were made in the banking industry, even in the very skeletal framework of banking there were adjustments through time, and as the depression dimmed on the minds of the veteran investors and new inexperienced investors took the spot light, the importance of these restrictions became lost in the busy whirr of Wall Street.  Eventually, the great depression became something that most chalked up to out dated ideas operating in an evolving environment (to be very broad, and Britain re-setting the gold standard, but that was alone menial). These same individuals were growing up in the decline of the mega-agricultural era, and underestimated the root importance of these sectors, thus lacking a true appreciation for the importance of G-S, trading it for the yearn of financial gain. Individuals like Greenspan had grand plans, (and we all know how ideas look on paper) which would spell the beginning of the second great depression. Slowly ticking away at the restrictions on securities until the restriction seemed menial, G-S's basic intent dimmed in the minds of seasoned investors, and the new investors would see the restrictions as encumbering to forward advancement, unnecessary, and the mark of more simple and outdated financial practice. When you ask "which came first, the chicken or the egg?" you are asking the same type of question as the one posed here. Separately, the fraudulent derivatives and the death of G-S have an effect. While the perverted derivatives were (again in my opinion) the root cause of the effect, that cause would have been near avoidable, and the effect more readily corrected, had the Glass-Steagall act remained in place, in pure form, as intended. Thank you for reading this insanely long and sometimes (self admittedly) tangent to the topic rant!-Rook 

 

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#10) On March 24, 2009 at 8:23 PM, XMFSinchiruna (28.51) wrote:

rookie... thanks for your comprehensive comments... and your vote.  :)

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#11) On March 24, 2009 at 8:32 PM, XMFSinchiruna (28.51) wrote:

Speaking of the blame game...

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