Monday Morning Quarterback: Fighting the Good Fight
Last week felt like a war.
Sitting in the office after the market closed on Friday, it felt as if we had been through war.
As we caught our breath and said a prayer for Washington Mutual (WM)—the latest casualty in this bloody battle—the mood was somber and the mindset fatigued.
“That was some week, eh?” I said to nobody in particular as I leaned back and ran my fingers through my remaining hair. “At least we have a day to gather our thoughts before the Sunday night stress ritual begins. What was last weekend, Lehman Brothers?”
The words lingered in the thick, heavy air, drifting from one consciousness to the next.
“No,” I corrected myself, “Last weekend they changed the construct of capitalism and suspended the free market system. The week before that was Lehman Brothers, Merrill Lynch (MER), Bank of America (BAC) and AIG (AIG) and the week before that was the Nationalization of Fannie Mae (FNM) and Freddie Mac (FRE)"
It all seemed very surreal, like we were watching a bad movie that never seemed to end.
We entered this month knowing it would be A September to Remember but the magnitude of the seismic shift is astounding. What began as a rushed effort to provide stability through structured socialism shifted into a heated defense of the U.S. Constitution.
It doesn’t get any bigger than this, Minyans—the knitting of our country and the belief system of the people will shape the foundational landscape for future generations. It’s not what one would wish for but it’s a challenge we must accept.
A phoenix will rise from these ashes and there will be winners in this new world order.
It’s up to us to determine what that looks like, how it works and who will be a part of it.
The Here and Now
Everywhere you turn, focus is fixated on the financial crisis and the merits of proposed solutions. We discussed the shifting structure numerous times—Martial Law for the Markets, Back in the U.S.S.A.!, Shock & Awe—and offered time and price are the only true solutions for what ails us.
The caveat in allowing that natural process to take place resides in the DNA of the disease. As a card-carrying free market guy—someone who built several careers on the backbone of capitalism—I would like nothing better than to see the markets self-correct.
As a derivatives trader of 17 years however—someone who earned his stripes at Mother Morgan (MS), ran a multi-billion dollar derivative portfolio and was president of a $400 million hedge fund—I understand the profound consequences of letting them do so.
We live in a finance-based economy, one that is tied together with upwards of $500 trillion notional derivatives. Allowing institutions to fail—in many cases, deservedly so—would set off a chain reaction like dominoes laced with dynamite that would suck any corporation with finance-based operations into a cataclysmic abyss.
That list could conceivably include the likes of General Motors (GM), General Electric (GE), Target (TGT), Ford (F) and yes, JP Morgan (JPM), Bank America and Citigroup (C).
In other words, it would be game over, freeze and seize, complete chaos.
The majority of Americans are outraged at the notion of a bailout and I’m equally upset.
I would offer that most Americans don’t fully appreciate the gravity of the alternative consequences.
As a trader, I’m conditioned to assess every situation with one simple question: What’s my downside?
That, in a nutshell, is why—if forced to choose—I support a regulated response in some capacity.
That isn’t to say I support the original bailout, which in my view, bordered on the criminal.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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