Greg's Note: With the heroic rescue of Bear Stearns, Hank Paulson and his buddies at the Fed have masterfully saved the country's economy in one fell swoop. Hopefully we can expect more of this financial wizardry in the coming months as we deftly maneuver around this recession and back into a market boom. Wait, what day is today? Paul Tustain gives his take on what we can really expect. Enjoy, and send any comments to the managing editor here: greg@whiskeyandgunpowder.com Whiskey & Gunpowder
NOW THAT HE'S WEARING some sort of do-good government hat, even Hank Paulson is not thinking straight. Regulate in New York and finance goes to Toronto. Regulate in London, it goes to Frankfurt or Paris — and since Toronto, Frankfurt and Paris are run by the same nervous bureaucrat-types, we can reckon soon enough that the entire financial markets will be hosted out of Singapore and Shanghai. There they will accept the risks as well as the rewards, to their very considerable long-term benefit. ~~~~~~~~~~~~~Special~~~~~~~~~~~~~ Do You Know What a Jumper Stock Is? With Jumper stocks, you can turn a small investment into big gains. If you pick the right one, your profits could potentially be limitless. That's why we're opening the doors to an exclusive service. If you choose to play the Jumper stock game, you could have an impressive track record just like this one. Better hurry, time is running out… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ You simply cannot enjoy being the financial center of the world but start bleating for government bailout whenever asset prices dip a few percent. As Paulson is demonstrating, the regulatory price for being bailed out is far too high. We must all grow up and take a full measure of punishment. The banks must take theirs. Let the shareholders and depositors take theirs too. Just like natural organisms, the financial system must have death to evolve into a better form. Of course, this sounds like a callous statement, but it may be the only way to avoid the moral hazard that Paulson is seemingly creating. Paulson's plan is a dressed-up confiscation of the profits of the cautious, and a transfer of those profits straight back to unreconstructed gamblers in the worst offending banks. This is very unwise. When will they learn their lesson? If reckless behavior is continually bailed out, when will we ever see a reversion to more risk-averse times? Sometimes a sound and safe bet is the correct one. In these difficult times, profit (or more accurately the avoidance of loss) should be benefiting those who troubled to understand the risks in the system, and avoided them. But Paulson's plan is currency creation, and a devaluation of the good quality assets owned by the cautious. He fails to understand that unless the system occasionally rewards caution there is no reason ever to be cautious again. Where Goldman Sachs should be duly rewarded for its safer bets, Bear Stearns should be given its due punishment for its uncontrolled risk. If the stock needs to fall all the way to zero, that's how Bear's cookie should have crumbled. Instead, the company has been rescued and placed in the safe, strong arms of JP Morgan. Where is the justice? The market works better without these rescues. Only by appropriate economic reward to the cautious, when they are right and everyone else is wrong, will caution sit well beside risk-taking in the financial system. The real threat to New York and London's continued dominance of the world's future financial system is government regulation itself. Mr. Paulson should read F.A. Hayek's classic The Road to Serfdom, and he would understand the inevitable failure of his rescue plans. He would see how these top-down rules remove society's flexibility until one day we all wake up in a paralyzed "command" economy, where nothing can be done without official sanction. Instead, he has forgotten what a command economy means. He should study the history of communism's economic successes. It won't take him long. Regards, Greg's Endnote: As long as the guys in charge continue to manipulate the market in hopes things get better, we can expect more and more currency devaluation. The Fed is opening its windows to whoever wants in and pumping more and more money into the economy. If you think things are out of hand now, click here to see where they're going… |
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