Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:The River or the Church? . . . Myth: Global Financial Collapse Was Averted . . . Myth: The Crisis Has Passed . . . Has the Time for Being Bearish Again Arrived? . . . The Late Great Planet Earth "We will not go back to the days of reckless behavior and unchecked excess."-- President Barack Obama, speaking on "Financial Rescue and Reform" at Federal Hall in New York City, September 14, 2009"That's it; my days of reckless behavior and unchecked excess are over."-- Kevin Depew, speaking early in the morning to no one in particular on hundreds of separate occasions. 1. The River or the Church?Not many Americans know this, but Wall Street is actually just a dead-end corridor of 1,500 feet carved like a small notch into the side of lower Manhattan. One end is capped by the East River, the other by Trinity Church. The dark, narrow length between is crowded by tall, stone buildings that send down shadows of such fierce certitude that you're sure no ray of sunlight has ever once dared to intrude. It's possible to escape these shadows by no fewer than half a dozen side streets and alley openings, but there's no shaking the creeping uneasiness that something you can't quite comprehend is taking place all around you. Of course, what passes for escape is nothing more than silent complicity. True deliverance from Wall Street comes only two ways -- the river or the church. Certainly, this universal truth is even now being rediscovered all across Europe. Going back to two key myths of the crisis I spelled out in 2009, 1) the myth that Global Financial Collapse Was Averted, and 2) the myth that The Crisis Has Passed, European leaders, bankers, and politicians in Ireland, Spain, Portugal, Italy, Germany, etc., are rediscovering that there is no escape from Wall Street. Let's revisit these myths. They help us understand the machinations and posturing coming out of Europe these days. 2. Myth: Global Financial Collapse Was AvertedAccording to this myth, bailing out the financial system was purely a matter of practicality. Despite the fact that there are 6 billion people in the world, somehow we've come to believe that the tiny fraction who work in banking have made it impossible to live without them. As Jon Stewart noted, "What, are our banks made out of balsa wood and baby tears?" Would it be difficult to live without banks? For a few months, probably. But impossible? That's ridiculous on its face. Ireland is gearing up for this possibility even as I write. The globalization of finance and supposed diversification of the global financial and risk management industry was an appealing element of the credit boom. But today the apparent complexity of the financial system is used as a reason to prop up otherwise failed institutions. You can build a hamburger with one ingredient -- ground beef -- or you can use 100, but in the end it is still just a hamburger. Our credit system has hundreds of ingredients these days, but it's still just a hamburger... one that's been doctored up with all of these fancy ingredients. Think about it this way: The word credit comes from the Latin "credere," which means, literally, "to believe, or to trust." That is really all you need to know about the modern financial system. When credere is gone, the whole thing unravels, and it works both ways, from lender to borrower, and from borrower to lender. This is why monetary and fiscal policies aren't working. Credit is nothing but a belief. That belief, credere -- stretched to its limits by the policies of endless credit expansion -- was weakened to such an extent that it's developed what may be likened to an autoimmune disorder, a condition where the immune system mistakenly attacks itself, destroying even healthy body tissue in the process. Under normal circumstances, without excessive credit expansion policies, the system's immunity defenses would attack and destroy the toxic substances -- such as subprime mortgages -- and leave the healthy tissue alone. However, the system now has turned on itself and is attacking healthy body tissues and toxins because it can no longer distinguish between the two. Unfortunately, autoimmune disorders often result in the destruction of the body itself (the financial system), or abnormal growth of an organ (government and regulation) and/or changes in an organ's function (the banking system), all of which we are seeing today, the culmination of an ongoing crisis. 3. Myth: The Crisis Has PassedIn a sense, this is the most dangerous and misleading myth of all, that The Crisis has passed.On one hand, government has the right to take credit for the economic recovery; it's totally responsible for it. I mean that. Even today, a very large percentage of global economic activity is due solely to fiscal stimulus.Unfortunately, government intervention and support of credit markets has been successful. Credit spreads have narrowed in unprecedented fashion from two years ago as credit buyers have fallen all over each other to buy corporate and government debt. Wait, what do I mean by unfortunately? Well, unfortunately, we're rapidly moving right back to the same place we were before the real issues facing us in The Crisis became apparent. In other words, all that has happened is that the doctor (the government) has been successful in treating the symptoms of the disease (failed institutions and widespread insolvency), but in doing so the disease itself (too much debt) has actually worsened.Inevitably, there will come a point when the symptoms of the disease stop responding to treatment. About the Great Depression, someone once said, "Just when we thought it was over, it was really only beginning." But this is not today's business. And in a larger sense, it's tautological; crisis is what our form of capitalism really is.
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