Saturday, May 22, 2010

Strange Doings

I get nervous when I like what I read in the Wall Street Journal.

”The lessons learned from the health care debate appeared most starkly one day when Mr. Barr and his team of lawyers trekked to the Senate with boxloads of binders filled with rebuttals for hundreds of Republican amendments to the regulatory overhaul.

As it turned out, the preparation wasn't needed. Before Senate Banking Committee Chairman Chris Dodd (D., Conn.) gaveled the session open, his Republican counterpart, Sen. Richard Shelby (R., Ala.), withdrew a mountain of Republican proposals, worried that in several cases they contradicted each other. In 21 minutes, a showdown expected to last weeks was over.“

I wonder if there are many Americans like me -- waiting until there is some reform of Wall Street before investing any money? To be honest, what is being proposed may not be enough for me. That would be because whenever I research a blog about the economy, I come across stuff like this:

After hearing that, I, of course, went right to Wikipedia to check out Mr. Black. Interesting fellow. And he emphasizes the part of all this that I just can’t get past.

”Black asserted that the banking crisis in the United States that started in late 2008 is essentially a big Ponzi scheme; that the "liar loans" and other financial tricks were essentially illegal frauds; and that the triple-A ratings given to these loans was part of a criminal cover-up.“

I get a bad feeling when I hear about something called a “liar loan”. It reminds me of Michael Milken and “junk bonds”. But the one that makes me think it’s outright fraud is the triple-A ratings. Why not a B rating? Or a A? Or even a double A? And the answer I keep coming up with is that only the “pros” play around with those ratings. The professional risk takers. The people that are trying to minimize risk -- the pension funds, the municipalities, the retirees, etc. -- want the triple-A rating. In other words, the only way to get the big money to invest in your piece of junk is to get a triple-A rating.

Maybe I’m wrong. Money is not my forte. But there’s the rub. For me to invest my money I have to trust. Controllers know a little about trust. It’s why we teach controller trainees not to lie. Pilots have to believe us -- they have to trust us -- or we can’t do our jobs. Too bad the folks on Wall Street don’t seem to understand that.

Don Brown
May 22, 2010

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