Saturday, August 13, 2011

Unfinished Business

That’s what happens when you post blogs in anticipation of events

Well, hopefully, readers of this blog haven't been surprised by the volatility the last few weeks. In fact, this observer has been a little surprised by how orderly the adjustment process has been. People are doing fairly well at coming to grips with the reality that there is no such thing as a risk free return. Now we’ll see whether they can cope with reality without going berserk. Uncertainty is an uncomfortable state.

Their adjustments to the liquidity requirements that uncertainty implies have been going on for a while. Often those adjustments were made over vocal criticisms by our national leaders whose astute financial management has been on display front and center this last month.

The posting “Who’s Crazy?” lamented the fact that people seem to have become a bit “unhinged.” Oh, that it were a generalized phenomenon. If it were, we could just undergo collective counseling. Unfortunately it seems to be concentrated among people who survive on other people’s money (Wall Street and Washington). They, of course, fascinate the media. By contrast, those who focus on managing their own affairs, or the affairs of the companies they manage, have been busy deleveraging.

But, before turning away from this collective foolishness, a few comments are justified. First, a pair of follow ups comments on the downgrade.

Let’s start with a heartfelt request: please take at least one day off from the blame game. It’s getting tired. It also has been, and is getting increasingly, destructive. It’s the opposition party’s fault. It’s S&P’s fault. It’s foreigner’s fault. It’s anyone who disagrees with your position’s fault. It’s everyone’s fault except yours. There, it been said; so give it a rest.

We can also dispense with the absurd. It will be interesting to watch the circus surrounding the investigation of insider trading associated with the S&P downgrade. It might have happened, but S&P did everything it could to telegraph the move. Who the heck were the outsiders? The trade should be interesting, also, since Treasuries actually rallied on the news. Given that it had been so completely telegraphed, what was the trade? Buying Treasuries?

The issue of what to do to promote a recovery won’t go away. Therefore, it isn’t urgent. Nevertheless, let’s finish with a follow up on the issue the last posting sought to address. Macroeconomists can focus on aggregates, but effectiveness is determined at the micro level. So, beware macroeconomists bearing solutions. Whether right or wrong, they sometimes end up just providing cover for waste. That’s very unfortunate because they have a lot to offer.

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