Financial Meat and Potatoes
Today I treated myself to a steak lunch. It was for a celebration of sorts. In a fortunate happenstance, a competitor purchased my ailing “financial institution” through the device of a U.S. government sponsored shotgun wedding. Despite assurances that my deposits were insured, this at least gives the promise of a future uninterrupted by having to wait for the Fed to actually let me have my money. In short, business as usual is the order of the day. I am particularly glad as having been able to use sharp objects on the steak and not on myself. Shareholders who invested in my erstwhile bank are not so lucky.
As I ate my lunch I thought about the amount of time, investment, and risk wrapped up in such as simple thing as the coming together of a restaurant meal. So many participants in the free market work together to make it so. This is something we all take for granted. A rancher had to feed his cattle and bring them to market to make my steak possible. Farmers had to grow wheat, potatoes, and vegetables to furnish the side dishes. The restaurant itself had to be financed and built so it could enter a market crowded with competitors. Anywhere along the line the components of this lunch could fly apart due to a realized risk as diverse as bad weather, poor local zoning ordinances, or a transportation breakdown.
Much like that restaurant meal we also take for granted that our government and financial industry work in harmony to promote a fair and honest market for investors. But unlike the items on a restaurant menu it is harder to value and select items from financial markets. Restaurant items are tangible. You can smell, touch and taste them. Items on a financial menu are sometimes not only themselves intangible but are also based on or derived from other intangibles.
It is not new that people of bad intent exist in financial markets as they do everywhere. And it is also not new that these people seek to hide their bad intent through smoke and mirrors investment “opportunities” based on nothing more than a wink and a nod. Their cause is aided and abetted not just by the gullible and greedy ones who fall for these scams without asking to see what backs the claims but also by the range of “intangibles” they are allowed to traffic in. The phrase “If it sounds too good to be true” applies whether the seller is chewing on a stalk of hay or a $100 cigar. A sucker is truly born every minute and a huckster nearly as frequently.
Nothing so illustrates the unevenness and ultimate futility of government regulation. I was free to put my money in any bank just as those who bought shares in the bank were free to do so. Yet one has protection while the other has none. Some people would say this is an injustice and that shareholders should have insurance as well. But practicality tells us it is impossible for government to insure everyone against every risk in a world where risk is ever present. So government is constantly pushed and pulled by those wanting more or less regulation. And the goal of crafting the rules of the financial road is always a work in progress. The trick is to write the rules so even a Harvard MBA can understand them. But if that MBA despises or does not see the need for rules he or she will violate them just as surely as rumrunners in Prohibition times.
Those who say you can’t legislate human nature or morality when it applies to drugs, gambling and alcohol are all too willing to have regulations designed to stop “Wall Street greed”. Money, like morals, eventually finds its truest level. That level, or value, of money had been inflated for some time within my bank. Over the past several months those who set the value, also called the market, punished this bank for its lack of integrity and shortsighted greed. The market might be slow in its reaction but eventually, as in when the truth is known, exacts its economic justice. One might also say the same, when intestinal fortitude is present, about government criminal prosecutions of financial and other miscreants. Neither the market nor government is perfect because both are administered by men. And men, to borrow from the writer, are so easily corrupted.
As I ate my lunch I thought about the amount of time, investment, and risk wrapped up in such as simple thing as the coming together of a restaurant meal. So many participants in the free market work together to make it so. This is something we all take for granted. A rancher had to feed his cattle and bring them to market to make my steak possible. Farmers had to grow wheat, potatoes, and vegetables to furnish the side dishes. The restaurant itself had to be financed and built so it could enter a market crowded with competitors. Anywhere along the line the components of this lunch could fly apart due to a realized risk as diverse as bad weather, poor local zoning ordinances, or a transportation breakdown.
Much like that restaurant meal we also take for granted that our government and financial industry work in harmony to promote a fair and honest market for investors. But unlike the items on a restaurant menu it is harder to value and select items from financial markets. Restaurant items are tangible. You can smell, touch and taste them. Items on a financial menu are sometimes not only themselves intangible but are also based on or derived from other intangibles.
It is not new that people of bad intent exist in financial markets as they do everywhere. And it is also not new that these people seek to hide their bad intent through smoke and mirrors investment “opportunities” based on nothing more than a wink and a nod. Their cause is aided and abetted not just by the gullible and greedy ones who fall for these scams without asking to see what backs the claims but also by the range of “intangibles” they are allowed to traffic in. The phrase “If it sounds too good to be true” applies whether the seller is chewing on a stalk of hay or a $100 cigar. A sucker is truly born every minute and a huckster nearly as frequently.
Nothing so illustrates the unevenness and ultimate futility of government regulation. I was free to put my money in any bank just as those who bought shares in the bank were free to do so. Yet one has protection while the other has none. Some people would say this is an injustice and that shareholders should have insurance as well. But practicality tells us it is impossible for government to insure everyone against every risk in a world where risk is ever present. So government is constantly pushed and pulled by those wanting more or less regulation. And the goal of crafting the rules of the financial road is always a work in progress. The trick is to write the rules so even a Harvard MBA can understand them. But if that MBA despises or does not see the need for rules he or she will violate them just as surely as rumrunners in Prohibition times.
Those who say you can’t legislate human nature or morality when it applies to drugs, gambling and alcohol are all too willing to have regulations designed to stop “Wall Street greed”. Money, like morals, eventually finds its truest level. That level, or value, of money had been inflated for some time within my bank. Over the past several months those who set the value, also called the market, punished this bank for its lack of integrity and shortsighted greed. The market might be slow in its reaction but eventually, as in when the truth is known, exacts its economic justice. One might also say the same, when intestinal fortitude is present, about government criminal prosecutions of financial and other miscreants. Neither the market nor government is perfect because both are administered by men. And men, to borrow from the writer, are so easily corrupted.
posted by tovarich at 2:39 PM
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