We're in a weird place in western culture where almost everything we can conceive of scientifically is pretty much attainable. Oh sure, not cold fusion, but pretty much everything. How long does it take you to get from one end of the continent to the next? Less than half a day? Food has never been cheaper or easier to get, (although obesity is an equal opportunity epidemic folks on the lower end of the income scale disproportionately suffer from it). Think of the term "climate control." When was the last time you weren't able to get away from the discomfort of an exceptionally hot or exceptionally cold day? Yep, when the AC wasn't working. Really, really big storms and weather events are a shock to our system because we can pretty much mitigate the impact of nature or control our surroundings on any given average day.
We tend to talk about financial systems as if they are forces of nature as well. Certainly, I think that meteorology is more attainable to the average American than the financial sciences. But markets are completely man made. I used to feel sort of embarrassed about the fact that I found markets and market speak so befuddling. I mean, I'm not the smartest guy in the world, but I'm not the dumbest. I can pick up a book and get the main ideas. Why is it that I read an article or a book on financial matters and afterwards I really can tell you nothing about what I read other than a few irrelevant facts. And yet, the financial celebrities all talk about what happens in their trade as if it is so clear and defined.
The language of finance is completely rigged to communicate nothing at best, and confuse or mislead at worst. Example: Credit explosion. Who doesn't want credit? I love taking credit for things, it makes me feel so appreciated. So a credit explosion should be awesome! Actually, a credit explosion means massive debt everywhere. Oooof. That sounds dangerous. Another example: derivative. Umm, not sure what a derivative is, hardly every use that word. Equity based derivatives? That doesn't really sound like we're packaging up bunch of suspicions loans which have a high probability of not being paid back and selling them as a "product", (I'm sorry, what was actually produced in this product?), to people who won't take the time to review what is inside because they are taking out insurance policies to protect them from loosing money in hopes that these products turn out to have no value. Is any of that legal? Why of course.
Back in the good old 90's, in a new age of new technologies and new financial products and new financial mechanisms Greenspan talked about irrational exuberance. After the dot-com bubble burst there was talk of irrational pessimism. We found another fix in the housing bubble, which ironically enough, Greenspan seemed to help along with lower rates.
Afterwards, Greenspan apologized for not catching on to the risk posed by the over abundance of sub-prime loans and then later recanted, saying "No, not his fault. China's." Seriously??? Come on! WE ALL KNEW something was fishy. I remember looking at the homes in my neighborhood and commenting to a neighbor, "No way are these half million dollar houses." My neighbor didn't disagree, but that's what our houses where going for back then. Today, they're selling for about half that. We all knew, but it was cool to think your net worth had gone up an easy quarter million virtually overnight.
But the insanity wasn't just limited to my neighborhood, or to one particular expert, or one particular political party, or to one particular bank. It was everywhere. Everyone in finance was insane. And you'd think maybe, just maybe, we would do well to tap the brakes with all of the hubris and just cool our jets for a few years and re-group. Nope, the insanity continues. After the Bear Stearns collapse, after the AIG, BofA, etc bailouts, after countless experts and countless lords of finance and markets being proved painfully wrong, the hits just keep coming. Enter the LIBOR scandal.
Yeeha for LIBOR! I admit it. I didn't know what LIBOR was. I had to go to a cartoon drawing here to figure out what the fuss was about. Golly, all this time I thought the Fed set rates. What do I know? But what does anyone know? Losses might be $2Trillion, then again they might be more. No one knows. But it's ok, everyone! "We've found our scapegoat! It was this creep Bob Diamond and he just got a little caught up when we paid him to much. CEO pay! That's the problem!. All better now folks."
“Bob was overpaid, and that’s been the whole issue,” said Gary Greenwood, a
Liverpool, England-based analyst at Shore Capital Group Ltd. “
No, no, no. Bob, being overpaid was not the issue. Bob turning a blind eye or being complicit in LIBOR was the issue. I don't care that Bob was a meanie who drove an expensive car or whatever personnel claims folks want to make. I care that Bob was on point while his colleagues were handing out sweet heart deals to one another. And really, it wasn't just Bob folks. It was way to big for one creep to have pulled off. It was an entire pseudo religious industry of fabricating profit. Restitution for LIBOR is not going to happen. It's too expensive, there were too many people that got hosed and they weren't that important and besides that, the money is all gone. We'll see a few class actions suits that Congress stamps out pretty early on. That's about it.
Too big to fail is just one of the cliched dogmas that was quickly forgotten and replaced by other catch phrases.LIBOR is just one more confusing way that we all got hit. We don't understand what happened even after its explained three different ways. We just know that our head is woozy, our face hurts and we can't see out of one eye. Financial science is no science at all. It's a weird freaky religion, sort of like Scientology is a religion. And like the celebrities that stubbornly flit down the path of Scientology while media obsesses on the carnival of disaster that is their private lives, the world of finance careens towards oblivion.
Cue the civilization death spiral here: AAAAAAAAACK!
"$16Trillion Federal deficit." Yes, agree. Sounds bad
"Experts say..." Oooh. Yikes.
"Governments shown to be complicit or responsible." Ahh yes, we've certainly seen that.
"Not just money, but food and energy." Yes, clearly our cultural is dependent on many things that can not be indefinitely sustainable.
"History shows..." Ah, history. It always repeats itself you know.
"More experts say, (a Phd, a Fortune300 VP and a government guy)." Yes, yes, the experts.
"Here is a clip of expert talking." Good, just please tell me quick.
Hey wait a second, this stupid video looks like a commercial! Crap, I can't click out of here. What are you dorks selling me? Gold? guns? Seeds? Oh great, financial advice on how to capitalize while all the other slobs suffer through the collapse of civilization. Get your free guide to not-free financial guidance here.
Well, despite all of this doom and gloom I don't think I'll be converting my meager net worth to bullion and burying it in the backyard and stocking up on guns and ammo to keep it safe and stave off the New World Order. Not that I don't enjoy reading some of the naysayers. (Btw, it's strikes me as hollow that financial conversation quickly gets partisan with silly name calling like "gold buggery" any time some alternative thinker comes along. Those alternative views may very well be wrong, many of them are in fact, but it seems like the Lords of Finance have something to hide when they freak out while someone new is just starting to define terms.)
Nope, for me, I think attainable concepts and direct language are best. Like for example:
Don't owe more than you own.
You can't get something for nothing.
I get it that life is complex and you sometimes complex systems are needed to help us through complex problems but if things are so complex that you cannot understand how you are going to get from point a to point b, then that is simply unacceptable. If at the end of all the complexity, you end up owning less and being on the hook for more, you're a slave. If we're going to have a rah rah fest about finance, I sort of like the "whoop it up, you actually own your stuff" celebrations you get with Dave Ramsey. I've never watched more than 10 minutes of Ramsey's show. I guess there might be criticisms of the guy. I don't know much about him really. I do know however, that when people wake up and realize that debt, or leverage or whatever you call it, means that you are on the hook and have less freedom to make decisions about your life, well, that is a first step.
It's not a stretch to equate debt with slavery. Historically, that's why cultures had such an aversion to debt. Disclaimer: I do think Medaille, while often right, is a grump.
Somewhere in the last 200 years we have tried to figure out more efficient ways of getting more out of less. In fact I would propose that the absolute fundamental maxim of our modern times is EFFICIENCY.
Efficiency in law.
Efficiency in government.
Efficiency in medicine.
Efficiency in agriculture.
Efficiency in our military.
Efficiency in education.
Efficiency in entertainment and leisure.
Efficiency in science.
Efficiency in finance...to the point of trying to get as close as possible to getting something for nothing.
Life just doesn't work that way.
We're going to more and more insane lengths to try to see if we can show otherwise but the results are also going to be more and more insane.