Zeev's Turnips Patch-No Politics (ZEEV)

[Lane Hall-Witt]

Augieboo--

I think the disctinction we need to make is between politics as it affects the economic and financial climate -- and therefore the U.S. markets -- and shrill partisanship of the "Bush is a moron!" and "Hillary's a lesbian!" variety. I actually do think all of the articles you posted could lend themselves to serious debate about the impact of immigration, airport security, Clinton-era bailout policies, Middle East democratization, etc., on the U.S. financial markets. I don't think it's necessary for me to agree with a position in order to recognize it as a valid contribution to a debate. The point of debate, in contrast to simply shouting-down, is to look seriously at differing viewpoints and to consider what is unacceptable and acceptable in those views.

Let me just note briefly:

Regarding bailouts, I would certainly agree that we suffer from a serious moral-hazard problem at this point. Large players, such as JPM and C, have in fact way overextended themselves because they feel assured that the government will bail them out of bad investments. This is a result not only of the Clinton-era bailouts of overseas economies, but of the Fed's repeated stabilizations of the U.S. and global financial markets (with the Long-Term Capital Management debacle as the highlight case). It's worth noting that the S&L bailouts really established the template for this kind of government intervention.

Of course, in cases where bailouts occurred, it's impossible to know now what would have happened if we had turned away from the crises. From what I've read -- and of course what is available for any of us in the broad public to read fails to tell us much of what was actually happening -- the S&L and Long-Term Capital bailouts probably saved the U.S. economy from catastrophic outcomes and thus were justified. I personally feel that we need to go out of our way to support Russia, because winning the Cold War at the cost of trillions of dollars in defense outlays would be pointless if we don't also secure the peace. (This isn't to say I'd write Russia a blank check, but just that special, targeted U.S. attention and assistance there is warranted to ensure the return on our investment in winning the Cold War.) I suspect the recent bailout of Braazil will turn out to be a disaster, because the debt there is so deep that it goes beyond simple monetary infusions from abroad: that was clearly designed just to save U.S. banks from huge losses, not to stabilize the Brazilian economy or help the Brazilian people.

I'm not for or against all bailouts: each crisis has its own dynamics and calls for its own response. As I said before, though, I do worry that the government, especially the Greenspan-Rubin economic team of the 1990s, has established an expectation that any bad investment will be bailed out. That has killed risk-management, which is essential to efficient allocation of capital, and I think this is an extremely serious economic problem that we must address immediately. I'm in broad agreement with Buchanan here.

My argument with Pat Buchanan would be that he shouldn't personalize the issue by identifying it strictly as a Bob Rubin problem. It's only possible to understand bailout-mania in light of the S&L crisis and especially the Cult of Market Salvation over at the Fed.

I think there are similar kinds of competing considerations on each of the other issues you noted, each with direct relevance to the U.S. markets. Now maybe the issues involved are too much at a "macro" level and therefore aren't relevant on a thread that is essentially a daytraders' forum: I could see that. But I think we run the risk of flying blind, as investors and traders, if we say that issues like airport security, financial bailouts, and Middle Eastern war are "simply politics" and therefore are irrelevant to our activity in the markets.