muses of the moment

October 21, 2009

Just watched Frontline’s The Warning

A few comments from groovygirl (only my opinion):

The program clearly disagrees with the idea that unregulated free markets will drive out bad investments. Although, I disagree with many things Alan Greenspan stands for, the idea that free markets can work, is not one of them.

Our government (including Alan Greenspan) made two huge mistakes. They did not allow the free markets to be free:

  • They did not demand transparency of the investment. Without transparency and education, an investor can not make a wise investment and the market will not be truly free. Transparency of how investments really work is the reason I write this blog and pass all this information to you, the reader, for free.
  • They did not allow the free markets to work by correction. They did not allow Long Term Capital Group or AIG or any other institution to fail. The failure of LTCM back in 1999 (because of lack of transparency) is the free market correcting itself. It was not allowed to do so.

So, I disagree on the big picture market philosophy, but it was a good program on what happened and why.

One thing they did not go into. The government has not regulated any derivative contract at this time. There is about $520 trillion dollars in global derivatives. We have seen the tiniest fraction of that market implode.

The legislation to regulate derivatives floating around DC is for all future derivative contracts, not the $520 trillion already created.

As Brooksley Born says at  the end, this derivative implosion will continue and continue until the whole market is undone or reorganized. Whether the government does it or not.

The free market will work it out. And because the government did not create transparency of these investments and then did not allow them to fail, the free market will work it out…in the bad way.

Expect more of the same.

This is why your 401K, pension plan, and the stock market is not a safe place to be. This is why housing prices will not rise. This is why the credit market will continue to be frozen. This is why the government will continue to print money and bailout whatever is imploding.

Protect your capital and savings now.

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