|Monday Morning Quarterback: Back in the U.S.S.A.!|
By Todd Harrison SEP 22, 2008 8:00 AM
The government has changed the face of the financial world.
“You say you want a revolution, well you know. We all want to change the world.”
No, you weren’t dreaming. The construct of capitalism forever shifted Friday when short sales of the financials were banned and the government declared martial law.
It was an historic moment that changed the face of free markets and altered the structural integrity of the system.
To be certain, there was—and is—genuine crisis and to fully appreciate the severity of the situation, we must understand how we got here.
That educational process isn’t a sound bite or quick conversation.
It is precisely why we started Minyanville.
To educate and enlighten, to provoke rather than shape thought.
With that mission in mind, I would encourage folks to read through the many links nestled in last week’s column, The Upside of Anger.
It will provide the necessary context for future discussions as we wade our way through these tenuous times.
Wall Street has infected Main Street with its problems.
It’s imperative that Main Street understand the root causes of the problem so we can collectively navigate it.
We’ve been offering that the credit crisis must resolve itself in one of two ways as the debt issuance mounted on the September horizon.
The first is credit cancer that is chewing through various industries. This will phase through homebuilders, banks, “financials in drag” (such as General Electric (GE), General Motors (GM) and Ford (F)), technology, retail, credit card companies and commodities until the body is rid of disease.
The other is an outright car crash; a collision where credit seizes, capital markets freeze, price discovery permeates and social mood shifts as we come to terms with the new world order.
The government is attempting to buy the cancer and sell the car crash through the massive bailout and banned short sales in the financials. There has been much debate over their actions but it is what it is and we’ll do what we must.
The simple yet scary truth is that if the government continued to administer ad hoc drugs to mask the disease, the stock market would have experienced a cataclysmic crash and that’s not something that benefits anyone.
As a financially conservative social liberal, I’m a proponent of free markets.
I’ve long written that time and price are the only true solutions for what ails us and we need to go through this to get through this.
Given the derivative machination tying together the global economy—upwards of $500 trillion notional—allowing the market to take that medicine would have been akin to unleashing dominoes laced with dynamite.
It would have destroyed the capital market structure of our finance-based economy. The cumulative imbalances have been building since the turn of the century and have grown in magnitude and consequence.
I don’t profess to have the “right answer” as I’m not sure one exists. As this process of price discovery permeates, we’ll need to see all sides and allow for them all.
Capital preservation, debt reduction and financial intelligence are independent of directional views. They are the construct of financial survival as we fight our way through this war.
“You weep for
--Col. Nathan R. Jessep, A Few Good Men
As I synthesized these historic times, my sadness shifted to an insatiable desire to identify solutions. To do that, we must first understand the nature of the beast.
It’s a moot point to debate the fragility of the system or the financial fabric that comprises it. There is plenty of blame to go around and that extends to the financial firms that repackaged risk and created this monster in the first place.
Kevin also drew our collective attention to the following historical perspective on Friday’s Buzz & Banter.
“Attached is a chart of a market, Pakistan's Karachia 100 (KSE100), that back in June banned short selling for what was supposed to be one month.
Click to enlarge
Some things to keep in mind.
1) The ban, initially for 30-days, is still in place.
2) The limits/collars on trading were set at -1% and +10% (all trading halted for the day when stocks go down 1% or up 10%).
3) Those collars were taken off on July 14.
Finally, and tying this column up with some good energy, someone once said that you get out of something what you put into it.
I’ve put the last seven years of my life into Minyanville and our entire family—MVHQ staffers, our awesome professors and our investors—dared to dream alongside me.
The feedback last week was fierce from around the world. Hundreds, if not thousands, of e-mails and phone calls from afar served to validate our mission. We have one heck of a community, my friends, and I wanted to extend gratitude on behalf of the entire team.
Along those lines, the following letter was hand delivered on Friday and I share it for the benefit of ye faithful. This isn’t about “me”—it never has been—it’s about “us”, the collective us, now more than ever.
You should all be proud.
I began reading Minyanville in July of 2007 and when I reflect back upon the countless wisdom and insight it has provided me I become thankful. As I sat in my apartment Sunday night, trying to digest the historic events that were unfolding, it became clear to me that it was finally time to contact you and thank you for your tremendous efforts. It was then that I realized that just as the financial market turbulence seems to be at its worst, it is at precisely the same moment that the website and community you have created is more valuable than ever.
I would like to volunteer at Minyanville doing whatever tasks your company may need to have done. You often speak of giving back and I would like to do my part. In particular, the posts of yourself, Bennet Sedacca, Mr. Practical, Kevin Depew, and Jeff Saut have provided me with immeasurable benefits and I feel it’s the least I can do in return. I currently have an 8-5 job, but I am willing to work weeknights or weekends for free. At the risk of sounding too cheesy, being more closely involved with Minyanville is all the compensation I need.
If this request is too out of the ordinary or not feasible in any way, than I ask that you please ignore it. If in fact you could use my services, please contact me and let me know. Regardless, the spirit of this letter is to compliment you on what you have built, and let you know how much it is appreciated. Keep up the great work!
That’s good mojo no matter how you slice it and I look forward to shaking his—and your—hand at the December 4th Festivus to benefit The Ruby Peck Foundation for Children’s Education.