A Spoon Full of Sugar Makes the Medicine Go Down

Who was it that said, “A British bank is run with precision”? 


Money is the medium of exchange.  ”Valuation is in people’s minds,” Robert Shiller, an economist at Yale, explained. ”Prices just record a measure of what people think the stock market is worth.  What the people who are willing to trade today are actually trading at.  So we’re just extrapolating that and thinking, well, maybe that’s what everyone thinks it’s worth.”  The notion is a “fallacy” that you lose a pile of money whenever a market tanks.  He says that a stock price, a home value, has never been the same thing as money.  It is simply the ”best guess” of what a stock, a home, is worth.  There is no real money from a savings account in a bank.  Modern humanity knows it is loaned out.  We have always lived a life of illusion. 


Clearly the message of the markets in 2008 is that there was too much credit around.  George Soros was on television last night.  He is a financial wizard who, it is said in one 24 hour period, made more than $1 billion in the currency exchange markets when the pound sterling was falling, I think, in the early 1990s.  He commented that prevailing moods, in any times, are unsustainable.  He was talking about optimism.  He was talking about pessimism.


This weekend there was a meeting of the G7.  What you do not hear clearly explained is the battle of ideology going on between the credit markets and the equity markets.  If the credit markets unfreeze, reflected in the LIBOR rates that banks loan money to  banks, then inflation will soon return.  Money loaned at low interest promoted that public policy.  In the current environment, no matter the moves put on by Henry Paulson, a son of Wall Street, banks were not buying in.  That was why credit markets froze.  Bankers have always been conservatives.  They were not buying into the social engineering on capitalism.  They neither trusted another bank’s balance sheet nor the government.  “In short, you’ve got a ghastly mess!”      


This month in Minnesota, Tom Petters, one of our own, has been in the news.  For more than 13 years he has been in the business of taking over liquidated companies –it would seem that he was ready to thrive in current times –and selling their products.  If the allegations which have been made, his was a business that was based all on illusion.  The timing of his indictment seems ironic. 


A study is out today, that life expectancies are so high—this is as good as it gets.  Life expectancies can not go much higher.  Why did I feel this way all week?


In the markets, if the G7 nations somehow nationalize banks to free up money, monetizing this bad debt, then inflation will return as never before seen.  Ultimately, the affect would be deflation if the LIBOR rate holds, or alternatively hyperinflation.  That was the ongoing battle. What will it be?     


Nationalizing banks was one solution to Wall Streets battle with the credit markets.  Governments could then start loaning money, competing with those bankers of a different ideology about capitalism and trustworthiness.  In the current campaign for president in the United States, those old-time bankers had no dog in the fight.  At this point I trusted them a lot more than the people pulling the puppet strings. 


The lesson of this month is that true value lies in the heart of those you know, when you cannot trust the leaders of government, the leaders of Wall Street, the ideology of both, which has been about as transparent as the lobbyists and the motives that support them.


Those credit makets seem to finally be saying it was all about real relationships. 


In the mean time I was feeling a lot like George Banks when he was singing “A Man Has Dreams,” in the closing scene of ‘Mary Poppins.’   

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