When I started my blog in June of 2007, I suspected that this day would arrive. It has. This past week, the world's financial system, a tangled web of debt, and derivatives contracts, has crumbled. The central planners in the U.S., Hank Paulson, Ben Bernanke, Christopher Cox and George W. Bush, have deemed it necessary to arrest their long held ideals that capitalism and free markets, if left alone, will allocate capital and price assets with near perfection. However, they didn't like how free markets were pricing most assets. Accordingly, the world's beacon for democracy and free markets has summarily embraced socialism, or more precisely, statist capitalism. It's been a sad and humiliating week for the United States of America and its once proud and powerful capital markets. And still, even as the financial system has succumbed to forces of its own design there remains little resolve among the folks in charge of preventing such a colossal failure to come to grips with its real cause and its true culprits. Regulators vilify short sellers and rumor mongers for the demise of their once proud and powerful banking system. Nothing can be further from the truth. Even as Cox had initiated his first foray into "scape goat-ism" in July, not a single case of market manipulation, rumor mongering or naked shorting that involved any of the major U.S. investment banks has been brought forth. There have only been rumors and inuendos as it concerns the rumor mungering itself. Even through last Thursday, an abundance of shares in nearly every major bank and broker that had not yet filed for bankruptcy, remained easy to borrow and to short. As the arsonists flee the blaze, guys like David Einhorn of Greenlight Capital, who warned that Lehman Brothers (LEH) was broken, are being rounded-up in what has turned into a modern-day financial which hunt. Meanwhile, the arsons that torched these companies from the inside/out and who earned embarrassing sums in the process, are deemed sympathetic figures who have been done in by the evil, rumor mongering speculators. Again, Christopher Cox's vilification of short sellers and rumor mongers is akin to a pathetic drunk blaming everyone else for his own problems. Given the lack of resolve to go after the folks that ran these companies into ground is a telling sign. The U.S., its political system, its capital markets and its regulators persist in a woeful state of mass denial. And until there is a serious shakeout of these folks running the show, the United States is a scary place to invest. Misguided regulations, witch hunts and the inability to recognize the true causes of these sad events will indeed have steep and costly unintended consequences for years and perhaps decades to come.
