Sunday, October 19, 2008

The Best Writings So Far on the Credit (Sovereignty) Crunch

Here's a Sunday special.

Anna Schwartz has the best prescription on how regulators should handle insolvent financial institutions:

"I think if you have some principles and know what you're doing, the market responds. They see that you have some structure to your actions, that it isn't just ad hoc -- you'll do this today but you'll do something different tomorrow. And the market respects people in supervisory positions who seem to be on top of what's going on. So I think if you're tough about firms that have invested unwisely, the market won't blame you. They'll say, 'Well, yeah, it's your fault. You did this. Nobody else told you to do it. Why should we be saving you at this point if you're stuck with assets you can't sell and liabilities you can't pay off?'" But when the authorities finally got around to letting Lehman Brothers fail, it had saved so many others already that the markets didn't know how to react. Instead of looking principled, the authorities looked erratic and inconstant.

Way to go, Anna! In a just world she'd be Fed Chairwoman or Treasury Secretary. Unfortunately we live in an unjust world, where well-born preppies from "Government Sachs" make decisions with other people's money after they've calculated the impact on their own personal investments and careers:

They note that decisions that Mr. Paulson and other Goldman alumni make at Treasury directly affect the firm’s own fortunes. They also question why Goldman, which with other firms may have helped fuel the financial crisis through the use of exotic securities, has such a strong hand in trying to resolve the problem.

In other preppie-related news, Andrew Lahde's farewell letter to colleagues in the hedge fund industry lambastes the spoiled brats whose stupidity helped him make money:

The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

I couldn't agree more. I used to think that people from privileged backgrounds had insurmountable advantages in the game of life. Not anymore. Great Depression 2.0 will be the great leveler, laying waste to mountains of "old money". My own new money is coming along just fine. Mr. Lahde, enjoy your early retirement. You've earned it. I'll be right behind you.