March 27, 2009
Slicing and dicing the RecessionBy Lee Cary
Explanations of the current recession are often bent by biased analysis, making truth as elusive as it is complex.
Language is the first challenge most of us face. "Tranche" (French: to slice or cut - maybe it has something to do with cooking) is a popular word these days.
Then there's that myriad of perplexing acronyms: CDOs (collateralized debt obligations), CMOs (collateralized mortgage obligations), CLOs (collateralized loan obligations), ABSs (asset backed securities), SPEs (special purpose entities), CDO2's and CDO3's (those ugly step-children of CDOs - like taking the discarded apples in an orchard and selling them labeled according to their progressive states of rot.).
And let's not forget SIVs (structured investment vehicles) and those downright scary CDSs (credit default swaps, like bungee cords made of over-cooked spaghetti).
All part of a dizzying array of esoteric terms that provokes a lament some of us haven't voiced in decades: "Geez, how much of this s%#&'s goin' to be on the final?"
But you want to understand where we are, and how we got here, so you buckle your chin strap and read books written by reputable authors, published by credible houses.
Among the current works that analyze the meltdown are two that have "meltdown" right there in their titles. Shouting "Hey, read me!"
When compared, they illustrate how presuppositions spin analysis.
Thomas E. Woods, Jr.'s book, Meltdown, A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and the Government Bailouts Will Make Things Worse. Woods writes:
So, the causes are the Fed's loose monetary policy that started going very wrong, he suggests, with the reign of Alan Greenspan, aggravated by deficit federal spending. In other words, a derivative built from mixed cloning using DNA from Milt Friedman and John M. Keynes.
Now, we turn to the other book with "meltdown" in its title: The Two Trillion Dollar Meltdown: Easy Money, High Rollers, And the Great Credit Crash, by Charles R. Morris.
Morris blames Wall Street and its fetish for creating mathematically mind-boggling derivative variations, like flavors of Baskin Robbins ice cream. Herds of nerdish financial math gremlins were turned lose to wreak havoc on The Street with their infectious CCSs (collateralized cycloidic securities - I made that one up.)
Here's his perps list.
Near the end of his book, Morris shoehorns in a discussion of wealth inequality, the need for investment in the country's infrastructure, and health care reform. (Where have we heard this before? Did I mention that, in the book's Foreword, Morris credits George Soros - who is bragging now about making $1.1bn during the recession - for helping him understand currencies?)
His last paragraph reads:
So, according the Morris, the fix is more government regulation. What a surprise! And, he never mentions the Community Reinvestment Act, or the evil twins, Fannie & Freddie.
This brings us the climax at the mystery dinner-theater. The host asks:
"So who done it, folks? Was it:
(A) The self-assured, slick, 30-something greedy Wall Street Ivy League financier?
(B) The frumpy-suited, federal bureaucrat who consumes the people's money like a bowl of shelled pistachios at a comp bar? Or,
(C) The self-serving elected politicians who hunger for power when what they lack most is intelligence and integrity?"
How about a (D) for all of the above?