Oh to have been a fly on the wall when the two old bulls, Paul Volker and Larry Summers, locked horns preceding President Obama’s unveiling of his latest finance reform plan. Hopefully, little Timmy Geithner was taking notes. Volker, the ex Fed Chief and the only contrarian advisor the the president, has been pounding the table for months about the looting rampage the banks have been on. It appears he’s had some effect.
Quickly dubbed “The Volker Rule”, the plan’s main function is to re-separate hedge funds, investment banks, and mortgage banks. The idea is to prevent mortgages from being used as collateral by anyone contemplating a night at the Wall St. Bordello.
Reaction in the press has been all over the map, reflecting factional differences in both political partys. Among the economically inclined, the point is made that the plan does nothing to halt CDO’s and default swaps from happening. True, but I think irrelevant. The market for such things is in the mud and likely to stay there. No regulation required.
The consensus seems to be that it was a political move to stabilize the president’s sinking poll numbers. But, isn’t it any politician’s duty to at least give passing thought to the will of the people? It would appear the people want a refund. The people don’t much appreciate having their future earnings hand delivered to a pack of gold plated jackasses from New York.
There is a simple rule of investing that can be applied to any situation. Whenever investing in anything, one should consider the exit point, both on the upside and the downside. Once invested, it’s good to ask yourself, ‘If I didn’t already own this, would I still want to buy it?’ If the answer is no, it’s time to sell.
When we bought the idea of banking deregulation in 1999, it seemed like a winner, and for a while it was. A lot of people made a lot of money, only to hang on too long and lose it. Knowing what we know now, would we buy today? Our investment in financial Frankensteins has gone south. We are a little poorer and a little wiser. The evidence is in. It’s time to sell.
