National Finance

The federales have stepped in to save the lifestyles of their buds that run the large investment houses. In the process, they have nationalized the financial services entity. That's the first obvious one, with the rest of the country to follow.

There has been more than a close working relationship between the military and the industries that provide the parts and equipment to them for decades. While there needs to be some knowledge of the military system by the suppliers to that system, there is no doubt every opportunity to abuse the system for personal benefit. This raises the bar very high, if in fact the goal is to watch out for the government's interest first.

The same could most likely be said about the financial services industry. Many who serve in the highest ranks of government oversight of the financial services industry are floaters. They float between government service, the executive suite of the largest investment and financial firms, and the top spots in academia. This rotation develops friendships and business relationships that last decades.

One of the challenges is simply that its tough to hold your friends and professional acquaintances to account. This type of arrangement isn't new, nor is it unique to the financial industry.

There is more than enough blame to go around in terms of who is responsible for the meltdown. Loose money from the Greenspan era, mortgage and real estate brokers who are incented to maximize the size of the deal, federal encouragement to make bad loans, the aforementioned financial entities making billions by packaging junk, and selling it in the market, potential homeowners desparate to own a home, and the list goes on.

Yes, there are all sorts of parties and reasons to blame in this. However, nationalization of the industry is not the solution, nor is it the answer. Yes, it will allow those at the top of the food chain to retain their lifestyle, and their home in the Hamptons. And, with a federal bailout, it will defer the costs of fixing the problem for a decade or two. It may well allow quite a few people to keep their jobs, and provide for some stability in their 401k's.

But is that the goal? It appears we have made an incredibly costly trade. We have chosen to sacrifice the connection between decision and consequence on the altar of perceived safety and security. Those who made the decisions that led to the meltdown, as well as those watching, have learned one thing. That is, they can make poor decisions, and if those decisions have a negative affect on enough people, the taxpayers will bail them out.

Now we are faced with two challenges. One is the overt nationalization of our country, and the other is a long term reduction in the value of our enterprises. If companies are not allowed to fail, then poor to average decisionmakers will never have the opportunity to learn to make good decisions, and will move up through the ranks. These average decisions, allowed to happen because the government will step in and save the day, reduce the earning potential of the company, and ultimately reduce the value of the stock.

The challenge with nationalization is simply that a profit motive doesn't exist in a government environment. Governments are not producers, they are consumers. To this day, I have met no career government employees who have made a successful transition to a leadership position in the private sector.

Well, I could go on, but have probably said enough on this topic.

Until next time...

Randy