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Scapegoating AIG Part of the Problem, Not the Solution


Yet Goldman will be made whole with nary a peep from the public.

Greetings from New York, where as a German/Irishman, I'm celebrating St. Patrick's Day as I do every year: Getting half in the bag, starting a fight with myself, singing half of Too Ra Loo Ra Loo Rah and staying 50% stern and humorless.

Speaking of emotions, those who ignore their own while trading do so at their own risk. The computer-driven models that blow us up every few years are designed to remove emotion. The wild price fluctuations -- which rather predictably, cause markets to act in "impossible" ways every 4 or 5 years -- are the market's way of reminding statisticians that the herd (the investment masses who fund every generation's bubble), will simply not be modeled. It can always get weirder, worse, or more frightening than you think; those who try to convince themselves otherwise tend to sell bottoms and buy tops.

To be an American is to be of the belief that we invented all that is "free" and "market." We compare everything to the Great Depression and the Crash of '29 because it's the only mania any of us had grandparents or great grandparents tell us about firsthand. We tell ourselves we're not laissez-faire Hoover-ites; fly-fishing Republicans ignoring starving masses. It makes us feel somehow more evolved.

Our political leadership frantically elbows itself in front of any and all live microphones to express our outrage at whichever scapegoat makes the best sound-bite for the day:

"That Charles Grassley fella ain't subtle, but he has a point about AIG (AIG)," we hoot, "but a sense of guilt, an ability to bow, and maybe girl robots are the only things we should take from the Japanese, in terms of economics. No way we've topped for a quarter-century the way the Nikkei has. Or the way our grandparents did. Because we aren't anything like those guys. Now let's find a Wall Street fat cat and light him on fire!"

It's comforting to pretend this time is different, but it's only true in the specifics, not the boom/bust dynamics of markets. The guys trading the South Sea Company no doubt comforted themselves with the idea that they weren't trading Dutch tulips. When the South Sea bubble burst, Isaac Newton famously commented that he could "calculate the motion of heavenly bodies, but not the madness of people." Unaware of his own madness, Newton was a dedicated alchemist.

Whether you believe we were created or descended, we're animals who love shiny objects. We feverishly chase them until the fever breaks, when, to ward off humiliation, we loudly cry foul and seek vengeance. We're hunting AIG bonus-takers under the auspices of the same office that once hunted down Dick Grasso. Those who've been involved in market for more than a decade would note that neither Grasso's humiliation nor the Sarbanes-Oxley regulations stopped reckless speculative profiteering.
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No positions in stocks mentioned.

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