Buy, sell, or run for the hills?

Someone in my family asked me today if I would buy shares of some stock because Warren Buffet had, which meant that it was a good buy, right?

Well, except for one thing. We don't know why Warren Buffet bought it. That's important for two reasons.

One: Maybe he bought just to inspire confidence in the investment community and to set an example to other [big] investors to buy, so as to avoid a huge crash in the near future. Until we know one way or the other if that was his reason, unless we can afford to buy something just to set a good example to millionaires, we might want to have a better reason.

Two: Warren Buffet can afford to lose a billion dollars without having to worry about what he'll have for dinner tomorrow. His retirement plans won't change because of a $million here or there. Will yours?

I did not answer my family member directly as in "buy" or "not buy." I suggested they think it through. The things going on in today's market are far more complicated than any pundit can express in a sound bite, and while they might get part of it right or another aspect of it illuminated,  the people who dreamed up the investment 'vehicles' and 'instruments' behind the real problems on wall street are probably a lot craftier and more intellectually sophisticated than someone who can get paid because he/she looks good on TV and has very white teeth.

What I'm really trying to say is this: regulation didn't happen because regulators, while smart, didn't understand what was actually happening. Hedge funds are not required to share any information with anyone they don't want to. Credit default swaps? Nobody even knows the total value of any outstanding ones, or who has them, not to mention what they are. Now the banks and institutions who "invested" in these items don't trust one another because balance sheets do not have to list these items separately, so there are no accounting methods one could use to determine where these wonderful items are, hence, whether or not an institution is adequately capitalized. How can an honest government-employee regulator deal with stuff like this?

See what I mean? That's just for starters. I don't think Katie Couric would be able to explain exactly what has happened, or why it happened, to the average couch-potato Joe, any more than King Kong could fly. I could be wrong, but I doubt she understands. I am not sure I do, except to understand how complicated things are. If you own an annuity, go get the thing out and read it. After about an hour's reading, come back and you'll know what I'm talking about by 'obfuscated." That's the kind of complicated I'm trying to relate.

It's not all the media's fault, though. First, like I said an amazing amount of secrecy cloaks what's been going on in the back rooms of these institutions (it's not fair to call them banks or brokerages, with all the deregulation that allowed them to morph into one another's territory like they did in the last 20 years.) It has taken far longer than one presidency to get here. More than 2. Think decades.

That's another part of the problem. When all this mess started, it was with legislation that was written and passed before Katie Couric even joined the workforce, most lilkely (I'm only using her as a 'standard,' I don't know her resume and I don't blamer her, per se). Mike Wallace was reporting the news. Barbara Walters. Peter Jennings. CNN didn't exist when they thought some of this stuff up. Legislation to allow for Interstate Banking and legislation that severely crippled people's ability to go bankrupt, perhaps was designed so that when this stuff inevitably failed, the courts couldn't just invalidate the claims of these parasites.

The problem did not happen overnight, and it won't go away overnight. Matter of fact, it probably won't go away at all. It will just take on some new face, and call itself something different. I doubt that there's really any way to truly fix these problems without overhauling the underlying bad business practices, and that just isn't going to happen if they don't see the light of day (sunlight is a great way to eliminate mold).

But these things won't be revealed because a) "they" don't think we're smart enough to understand it (and in maybe 50% of the cases, they're probably right-and I might be being generous there) and b) the people who need to expose these things, the ones with the access to the all-important media, don't understand it themselves and c) the people who could afford to buy media time and had access to the kind of education and access necessary to understand it, don't want us to know because they're getting rich on it and don't want the whole thing to stop.

So where does that leave us? Buy or sell? Well, in one way or another, our economy is based on corporations, and for better or worse, they will be around. So if you really want to buy, the bottom is a great place to buy from. But you should consider companies, not stock. Consider the value of their products. The management they have. Their corporate culture and the morals of their leadership. Did they do something outstanding and brave during this time? Or did they just petition to soak the taxpayers and demonstrate cowardice in the face of difficulty.  Because stock means ownership, even just a little bit.

Or you could buy gold. But when this is over, that will go back down.

I can't tell anyone what they should do. I wouldn't want to. Everyone's goals, needs and resources are different. But there are no easy fixes, no bailouts or anything else that will fix this or prevent it from happening again, so long as the "Masters of the Universe" are allowed to operate in complete secrecy while they get rich, and then get to stand with their hands out and get bailed out when they're found out..either because of a bad calculation or because of a bad risk. So long as we, the taxpayer, has to bail out anyone who gets that large (thanks to legislation that allowed the merger mania of the last 20+ years and lifted restrictions on types of activity these organizations were allowed to participate in)...so long as they are allowed to act with impunity knowing we will bail them out if it doesn't work...this will happen again.

I don't want to see the economy go under. I don't want to see innocent people lose jobs, houses, etc. because of the malfeasance of a few. It will happen and it is happening. Something has to be done or the average joe will get wiped out. That's a fact. This is NOT about sub-prime mortgages. They're using terms like that to make us turn on one another and not look at the real problem. They're using terms like that to paint people who get in over their heads (by a thousand or two or five) as deadbeats, so we won't notice that they're in over their heads by hundreds of millions...they don't want us to be looking at them, so they assign a derogatory term that applies to people we naturally dislike, those who try to have too much or are too stupid to know what they're getting into) they are trying to divide and conquer. If we're lashing out at one another, they can make a clean escape. You guys are gamers, you know how diversions on the battlefield work. You have to look where they are purposely NOT pointing, if you want to see real action.

The problem is this....we have already demonstrated by this catastrophe that we do not learn from history. Or rather, that we don't learn history, period. But if we don't learn history, therefore not learning FROM history, is it not simply a matter of time before it all happens again? If there's anything at all I would guarantee, it is that. It will happen again if we do not LEARN what REALLY happened here. If someone tells you that they can explain it to you in 15 bullet points or 15 minutes, they're lying. And once we do know what REALLY happened here, we have to prevent business from doing it again. Unless you can find away to breed greed out of our species. Good luck with that.

So if you don't know what a Credit Default Swap is, or how one works, or who had them, or why they didn't work, you should
If you dont' know what a Hedge fund is, you should
If you don't know what they were doing to the mortgages after they created them, you might want to find out where they went.
If you don't know what the hedge market is, you need to find out.
 

When you learn all this, then you can know how to instruct your legislators, who also likely don't know all this. Nobody has time to know all this. Except because we didnt' have time to know, now it is going to cost us. And we aren't even going to get shares or bonds or anything for our money. Just the bill.

By the way, it's not wrong to be angry. Just don't do anything stupid in your anger. it's not wrong to be afraid. Just make sure that your fears are rational, and based on something, not just whipped up by people who want you to act without thinking. Fear and passion do not lead to the dark-side. Allowing them to rule unchecked does. If you know what you face, then you can figure out how to counter it.

This is not about free markets. It's about unchecked greed. It is not about over-regulation. It's about people finding a way around the rules by making new roads and new things that circumvent the rules that nobody's ever heard of. There is no regulation of hedge funds. So it's not about over regulation.

Last of all, you don't have to believe me. I hope you go and check this out for yourself. Just be cautious. If the explanation is shorter than the 300 page bill they just passed, it's likely that it's just more BS. Because there isn't any way at all to explain what has happened in the last 2 weeks in just 15 bullet points. There just isn't. Don't believe me? Prove me wrong. If I'm right, then we need to make soure the people who run this country and who play with our money while we're out there working...we need to make sure they're doing right by us. Because if you turn your back, well...history is replete with great stories, this one being just the most recent, of what happens when we delegate our authority to others without accountability. Until they find a way to delete the "greed" gene, we have to find a way to be more involved in what's going on in the halls of power. If not, well, then we'll just be more cannon fodder for the next group.

What a wonderful day.