The past few weeks have kept us busy watching the deposed despot of the week in the Middle East. If turmoil continues or increases, keep your eyes on the price of both WTI and Brent oil futures along with gold, silver and food prices. We also are nearing a dangerous support level for the U.S. dollar, normally used as a safe haven when there is geopolitical turmoil. If support breaks, the dollar will continue to fall as our currency, even as the world's reserve is no longer considered safe. How the world is changing, or is it really?
I do not get out much, so I just recently got to watch "Wall Street: Money Never Sleeps," the sequel that follows the exploits of 1980s inside information guru Gordon Gekko. The movie takes us back to the center of the 2008 financial meltdown and while ol' Gordo, fresh out of prison and looking to be back in action is part of the story, the movie is really about moral hazard.
Many of the characters and scenes were right out of real events and remind us just how close we really came to another 1929, only this time potentially much worse. Director Oliver Stone has a pretty good grasp of how events unfolded, the BK of Lehmann Bros, the bailouts, the actions of the Fed and Treasury. The latter two essentially and without taxpayer's permission, transferred a massive amount of wealth from the U.S. population to Wall Street, insurance companies, Fannie and Freddie and a short time later auto manufacturers. This nationalization of private companies by the government in order to save them since they were deemed "too big to fail," was successfully pulled off without much opposition, hence transferring the risk away from the risk taker. That is moral hazard, and it is as it was back in 2008 systemic, worldwide and a cancer that continues to grow unchecked.
Let's go down memory lane for a moment. Remember those "toxic assets" being held by just about every bank and insurance company that froze the credit markets? What happened to them? Do you remember the TARP money given to banks that was not used as intended to purchase those financial WMD's, but instead was used as capital, to be doled out as needed to recapitalize essentially insolvent institutions? The CDO's, trenched derivatives based on the U.S. mortgage market and CDS's, the insurance swaps that were taken out to ensure no losses would be taken on bad mortgages were not regulated back in 2008. A shadow market, valued at more than the entire GDP of the planet existed without many people knowing and those derivatives and swaps still exist, still unregulated or traded on any exchange, becoming more worthless every day that foreclosed loans rise. And they are rising, with 2011 expected to be the worst year on record. The taxpayer is paying the price, but were they the risk takers? Again, moral hazard.
The U.S. government mortgages your past, present and future to try and put a Band-Aid on this massive bubble, but are there enough dollars to really wind down such a huge mess? They borrow 43 cents of every dollar being spent now! The Fed is printing dollars as fast as they can, taking those dollars to our treasury auctions and buying our own debt.
Does that make sense in any way to anyone?
As we print, the dollar falls, as the dollar falls other currencies pegged to the dollar weaken as well. All this fake, or fiat currency buys less and less, so things traded in dollars get more expensive. Now we are back to where we began with oil, food and metals.
In the new Wall Street movie, Gordon Gekko actually becomes the wise sage warning everyone about the next bubble. Ironic, perhaps. Gordon, after being released from prison writes a book about what seems now like minor criminal activity. Promoting the book to a NYC crowd he says to the young, new traders that someone once reminded him that he said "greed is good, well it seems now it is legal." He was right.
One final note, this year's Oscar for best documentary went to "Inside Job." This documentary beautifully details the events that unfolded back in 2008 and is worth watching. If you are not angry about how you were royally used after watching, then you may need to check yourself for a pulse.
• Carol Perry is a retired financial consultant and has been a Northern Nevada resident since 1983. You can reach her at firstname.lastname@example.org.