On Sat, Dec 6, 2008 at 9:51 PM, Dan M <[EMAIL PROTECTED]> wrote: > I saw an interesting article from the bastion of free enterprise > publication, the WSJ, at > > http://online.wsj.com/article/SB122852289752684407.html > > Thus, the funds managers who > were prudent ether were converted or lost their jobs.
Not all of them. Some people and fund managers made money betting against the insanity. And it only takes a few. That is how markets evolve. Survival of the fittest. It just may take longer than we like for the fittest to win out. But while the unfit lost some money recently, a lot of them were bailed out by the government. Maybe that makes them fit for their enviornment, filling the niche of leaching off taxpayer dollars. Here are Kaufman's bullet points, interspersed with my comments: 1) International portfolio diversification has been undermined. This has been obvious for at least 10 years. Certainly anyone paying attention noticed in 1997. 2) Risk modeling will lose popularity. VAR and other techniques that concentrate too much on modeling past history should lose popularity. But the physics and economics Ph.D's learned all that math and they want to use it, who cares if past history cannot predict future results? 3) Financial concentration will gain even greater momentum and influence I've mentioned this several times as a consequence of the government considering firms too large to fail and bailing them out. Instead of a vibrant, diverse collection of hundreds or thousands of smaller businesses, competing and innovating, surviving and failing based on their merits, our government is forcing on us a few large firms who have already failed spectacularly but are being given the chance to fail again while crowding out innovative new (smaller) entrants. 4) The end of an era of ballooning nonfinancial debt Part of the reason the current situation is painful is that, I believe, household and business debt were much too high for years. One symptom is how the financial component of the economy ballooned to handle those debt transactions (financial company profits made up about 40% of the S&P500 profits at their peak, which is absurd...historically it is around 10%). If the nonfinancial debt is now decreasing (along with the financial companies that transact it and extract their pound of flesh), then I think that is a good thing. Creative destruction will cause short-term pain, but should allow more stable and productive investment in the future. Unless the government interferes by bailing out the unproductive companies and enticing people to borrow and spend unproductively. 5) U.S. government borrowing will continue to swell, at least for a few years And this is a terrible thing. As we know, the government is good at borrowing and spending, but not so good a paying down debt and reducing spending. We must demand a government that spends much less of our money. 6) Americans will begin to save again Again, this sounds good to me, if it occurs. Our government is fighting it, though. Encouraging consumers to spend, spend, spend. 7) Regulatory reform of financial markets will carry high stakes This is amusing but scary. Here we have an old economist and former Federal Reserve employee, saying how extraordinarily difficult it will be for goverment to interfere in the markets to "reform" things, both technically and politically. And yet he seems to assume that there is no choice but to forge ahead with the impossible task. It seems egotistical government regulators never learn. They will keep trying and failing. Apparently the most succesful financial (and auto) firms will be the ones who realize this and take advantage of it. Perhaps we have the government we deserve. _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
