On incompetence, accountability and Masters of the Universe

Dear Hobbes,

Just in case you were thinking that I was too biased towards the celebrity CEO and the private equity partner, the thinking heads at Bear Stearns, Federal Reserve and JP Morgan demonstrated us that they are just human beings possessed by the devil of short-termism.

Let’s not indulge ourselves in the potentially malicious subprime bubble. By now it should be clear for the average banker what it has been obvious for years to the average shopkeeper: ‘Hoy no se fía, mañana sí.’ (tongue-in-cheek way of saying ‘no credit, only cash’).

And why should anybody trust to be paid in the future by Mr and Mrs Subprime if they cannot afford even paying today? The future looked brighter, didn’t it? But here lays the conundrum, brighter for Mr Subprime, who saw the value of his caravan raising with the bubble or brighter for the subprime mortgage seller, who saw the letter-soup products that were being engineered in the financial markets where so complicated that would hide the nil chances of the Subprimes honouring their debt?

As the saying goes, Markets are perfect at separating fools from their money. Bear Stearns was mainly investing in subprime securities created by its own and other investment banking mathematicians, quants, and window cleaners. Since nobody really understood what these masters of the universe where packaging, they chose to trust their shenanigans… who could argue against them? It all was like a leap of faith. Either you trusted and had faith in them, or you didn’t. It was not a matter of atheism against financial religious fundamentalism, a reasonable dose of agnosticism would have saved the day.

But when Confidence and Accountability are two retired ladies living in American Samoa, away from the markets, on a Friday the fifth largest Wall Street investment bank is flash with liquidity, and on Sunday has been bailed out by the Pet Fed and bought (savaged?) by JP Morgan for a pittance.

Until tomorrow,

.Calvin

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