Wednesday, March 4, 2009
Our Eyes are still closed
It took a lot of people keeping their eyes closed for a long time to get to today. It's not like we could go back in time T2 style and kidnap the Quant who came up with VaR and make everything alright. The market demanded something like it and it was supplied. The trading firms wanted a brainiac to give them peace of mind. It's natural to want to feel secure even if you're not. Money managers seek out the appearance of security all the time. The suckers who got burned by LTCM in '98 felt secure because they invested with a bunch of Nobel laureates (beware Nobel winners with can't lose ideas); Bernie Madoff played on his resume, religion, and aura of exclusiveness to convince investors that he was "T bill safe"; and IAG sold bogus security to banks by the billions. It seems to me we should be able to recover some of the losses from the Madoff (where does $50 billion go?), IAG, Lehman, Countrywide, et al debacles by going after bonuses paid on earnings that didn't really exist. Restate the financials and the bonuses disappear. What's really worrisome going forward is that we're all involved in a huge Ponzi scheme but we won't talk about it. It's just too upsetting to face the facts that Social Security, or any defined benefit pension plan, is unsustainable.