I’ve said here that no one should feel bad about not understanding the recent credit meltdown, since the people who are supposed to understand it don’t either. That’s not exactly true, as I’d guessed any discerning reader would realize, but the voices of reason have long been drowned out by the shouts of those who made a lot of money off of money. Those guys are kind of glum and silent now, so we can hear the quieter voices of reason a lot more clearly.
One of my favorites is John Mauldin, whose “Outside the Box” newsletter is consistently thoughtful and reasonable. He understands that the business of investing is, ultimately, about making stuff and helping people realize their dreams – not because he’s some liberal do-gooder, mind you, but because it’s the best way for everyone to make a big pile of cash in the long run.
He recently turned his newsletter over to Michael Lewitt of Hegemony Capital Management who not only had a lot of great things to say but included some fabulous quotes. Here’s what Lewitt himself had to tell us:
While many readers agreed that drastic steps are needed to avoid continuing down the dangerous path that our economy and society are on, there were a few individuals who felt that HCM’s proposals were too radical. But in the face of the wholly inadequate plan that Treasury Secretary Hank Paulson offered up in response to the current crisis, it is painfully apparent that our suggestions were not radical enough. Mr. Paulson’s recommendations do little to address the regulatory black holes that permitted some of the most powerful institutions in the world to make hundreds of billions of dollars of worthless loans. Moreover, his plan fails to address the asymmetric compensation structures that allow financial industry executives to leverage their firms to the hilt and then walk away with pots of gold before their institutions all too predictably tumble into the abyss, inflicting damage on all parts of the financial system except the executives’ own wallets.
While that could almost be a Democratic stump speech, he backs it up with this statement from Paul Volcker, the Chairman of the Federal Reserve who famously jacked up interest rates in 1978 to control inflation, leaving the financial institutions to just deal with it:
The Federal Reserve has judged it necessary to take actions (in bailing out Bear Sterns, et al) that extend to the very edge of its lawful and implied powers, transcending in the process certain long embedded Central Banking principles and practices.
In other words: screw ’em all, this was borderline illegal at worst and misguided at best. But the most direct statement in this newsletter comes from Jeremy Grantham of GMO Investments:
We can only wonder what a Manhattan Project aimed at alternative energy might have accomplished by now, had it been started 15 years ago. What we have had in lieu of vision, leadership, and backbone is a series of easy paths taken.
Are there some people who know what needs to be done? Oh, yes, there are. I have very little to add to these, so I’m ending my blog with this simple thought: if you can hear the quiet in the financial markets, now is the time to start listening very closely.