Welcome to Casino Wall Street

Now I’m not normally one to follow the “topic du jour” of the mass media, which flutters from one topic to another with all the insightful weight of a butterfly.  No, I prefer the role of a semi which SMASHES that butterfly into an unrecognizable mess on my windshield as it crosses my path on the idea Interstate … 😉

Nevertheless, I must add my “dalawang centavos” (two cents) on the recent first anniversary of the collapse of Lehman Brothers.  That event is regarded as the beginning of the falling dominoes which brought about what is collectively called the “financial meltdown.”  Which led to the financial bailout. Which I opposed then and which I oppose today.

Except that today, a lot more folks seem to agree with me that the financial bailout was (a) not needed and/or (b) poorly implemented.  If even only (b) is true, then that is evidence that (a) is also true, because if it was poorly implemented and the sky still did not fall then how can one say it was “needed”?  The financial bailout was a band aid that, if never applied, would have resulted in the wound taking longer to heal but it was never the potentially mortal wound the Chicken Littles insisted it was.

But I come to praise Wall Street, not to bury it with more regulation… which the media and others believe is the “lesson” that must be learned.  The only “lesson” to be learned is that those of us who invest in the market must take full responsibility and accountability for our actions and look only to ourselves for “protection”, not to government.

Because the media are proclaiming that government has done little to rein in the “abuses” and “excesses” of Wall Street.  They point to the huge bonuses that firms which repaid the bailout money are once again doling out.  They point to the lack of any legislation to preclude the risk taking that led to the financial collapse.

Now I previously wrote in this blog about the formula that a Wall Street “quant” developed which allowed a proliferation of collateralized debt obligations.  A formula that contained a flaw which led to the financial collapse.

But it does not follow that I believe the “fix” is for government to intervene with new legislation and new oversight agencies.  Since I opposed the financial bailout, I of course oppose any idea of additional government intervention.

I find it “interesting” how so many folks say they believe in personal responsibility and accountability.  Until the time comes when they must hold themselves responsible and accountable.  When that time comes, the typical response is to hold anyone and everyone but themselves responsible and accountable.  Do as I say, not as I do.

Even though my financial situation looked like the Titanic, I opposed the bailout because I understood that if I was losing money it was my fault. Not Wall Street’s.  Not the government’s.  Mine.

I could have bailed out at any time before the collapse.  Whether I failed to notice the warning signs or failed to act is irrelevant.  Others saw the signs and took appropriate action.  If you did not, place the responsibility where it belongs but you’ll need a mirror to see that face.

I read on CNN about one investor who believed that prices were at an all-time high and could not be sustained.  So he sold a majority (60%) of his stock investments before the collapse began and put that cash into relatively safe instruments.  When the market bottomed out below 7,000 he began buying.  Today, his portfolio value is at “an all time high.”  Any one of us could have done that.  It is not Wall Street’s fault if we did not.

When the Dow dropped to about 7,500 I increased my buying, which had never stopped even during the worst months but which I had reduced by a third so I’d have extra cash for the “big sale.”  (That’s called “dollar cost averaging.”)  I realized that the only way to recover quickly was to buy low and ride up the values of the inevitable recovery because it’d be much longer before prices recovered to pre-collapse levels.  On the first anniversary of the Lehman Brothers collapse, my investments were at 94% of their value on December 31, 2007.  (And as of Friday, they were at 96%.)

Today, the share value of my five active funds are anywhere from $4 to $12 higher than they were on January 16 of this year.  The government did not do that…I did.  Those investors who cowered when prices plummeted, or who sold in desperation, missed a golden opportunity.  An opportunity which will likely (and hopefully) not happen again in my lifetime.  I will not be one of those who says “I wish I had bought stocks when prices were in the basement.”

My point is this:  Wall Street is a casino.  There are losers and winners.  Some folks believed that there was only one possible result from investing: profit. Big profit.  Now they know better.  Now maybe they will make a better effort to take personal responsibility for their investments.

That is the answer, not government intervention.  Government needs to say to Wall Street: no one is too big to fail. Government needs to make unequivocally clear that next time, any firm in trouble will go the way of Lehman Brothers because there will  be no government bailout.  Nothing like the death penalty to instill some market discipline. In both Wall Street and the individual investors.

Investors can insist on procedures to reduce risk.  Especially the big institutional investors like public and private pension funds.  If they can curb their own appetite for buffet-style profits.  The idea that double-digit profits should be typical is ridiculous but that expectation developed.

Remember the adage about being careful what you wish for because you just might get it.  And a whole lot of unforeseen consequences.  Like a stock market collapse because Wall Street is trying to meet those unrealistic demands and takes more and more risks, hoping that when the music stops they will have a chair to sit down in and the other guy will be out.

Don’t bet on it! And welcome to Casino Wall Street.

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6 responses to “Welcome to Casino Wall Street

  1. I really don’t understand Wall Street and I am not sure that I want to. But what I do understand is that there are a lot of bankers who need to be in jail.

    When the Savings & Loan industry collapsed, a bunch of those crooks went to jail.

  2. Bankers love to play casino with OPM – Other People’s Money. Stand them up against a wall!

  3. Well you elected the Fools . . . or some of you did. No party should have complete control. If you have a Democratic Congress you need a Republican Prez and vice versa. Does not matter the party. It is called check and balances.

    When you have one party in control of everything they are going to do stupid things and not care about we the people. Than they get voted out of office well some of them and we start over with the other party. I say we need a third party. Or at least term limits no one should be able to stay in that power for 40 or 50 years. Two terms and you are out I say.

    So now those who voted all the way in one party instead of the person you got to live with the pain. Actually, the worst is yet to come.

    Wait until inflation sets in about 2 years from now you think it is bad now hold on for the ride when we have to start paying for all this crap.

    No new taxes they said from the local on up. So they were right no new “Taxes”. What they did is add a “Fee” to my electricity bill starting next month. $ 15.00 a month each and every month to pay for fire fighter salaries and pension plans. Because the the city is losing money and the funny thing is I do not live in the city they are charging the county people. We have our own fire department but we have to off set the city idiots. Thats government for you form the local all the way up.

    Now I already have a “Tax” each year for this along with the “Tax” for schools of which I do not benefit not having kids in school I get to pay for someone else kids to fail the 6th grade and be moved up to make room for other stupid kids.

    Ok this was off the subject well sort of but it is all related really. If you look closely you will see that everything is enter twined together. Greed= politics. Pay Offs = free ride for banks and the like.

    Anyway really good post and I agree with majority of the post. I enjoy your posts as it makes you think sometimes.

    How stupid are the people in Washington.

    Pretty stupid if you ask me.

  4. I think there are those willing to take the gamble and those (like me) whose grasp of all of this is so shaky that we prefer to play it safe. Obviously, your rewards can be much greater than mine. But I think I’ll always be one who prefers to play it safe. Unless I win the lottery!

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