Trust in the markets is a brave thing, yet most people I have spoken to about the recent turbulence have voiced that view: in the longer term, the stock market only goes up. Of course, there are glitches and some losses when big companies collapse, but overall one can expect to make money on the markets. They conclude that an allocated pension drawing down a modest 4 or 5% tax free, with their money making maybe a modest 10%, is a safe bet. In any case, it appeals more than making 6% in term accounts or rentals, which get taxed. All reasonable, based on the best knowledge and understanding they have at hand.
I have always believed that policy complexity is, of itself, a design flaw. The tax system is now more than epic, our social security system convoluted. At what point do these circuits become so dysfunctional that ordinary people no longer know what path to take? The intricacies of financial instruments like Collateralised Debt Obligations, and other exotic futures and derivatives seem to have masked the real underlying issues. These generally turn out to be more mundane and familiar: greed, stupidity, and regulatory passivity. In my own way, I fell for all the promises, eyes too big for what needed to be digested.
But what if the fundamentals are really changing, and this volatility is just a precursor? But, these optimists say, no one has a crystal ball and even property can crash.
Regarding the ‘R’ word, Harvard economic professor Martin Feldstein, writing in the US magazine Foreign Policy (
http://www.foreignpolicy.com/story/cms.php?story_id=4143&page=0) is sceptical that Bush’s package of handouts to households will be effective. He says that aggregate demand is not the problem. He thinks the challenge is to grow the economy through ‘more investment in capital equipment, people working harder, more innovation…’ Feldstein thinks there is a more than 50% chance that the US is already in recession. Well, if a leading economist has that level of confidence, why should we kulaks even think we know anything? (Kulak is a lovely term the Russians used for ‘rich peasants’, really subsistence farmers, around the time Stalin stripped them bare and carted them off to Siberia. Kalashnikov was a rich peasant, and the book about the social history of the AK47 by Michael Hodges is a fascinating read. Now at least I know my social class.)
A little squeak of common sense would lead you to agree with Feldstein that cash to individuals won’t fix the underlying problems. It also doesn’t make sense to think that more junk floating into people’s cars, houses, mouths, etc. is advisable on any other level. That much is clear, at least to me.
It has now taken me and my spouse several hours to work out how much I actually lost from my super account. Various statements finally led us to understand that between what I put in, the 15% taxes, what the fund earned, the fees, and then the losses, it was not a good strategy, from either a tax or an earning perspective. Luckily, my hit was not mortal, unlike stories I have heard of people in self-managed funds who have lost 150K and are now forced to return to work. Such individuals will be very interested to know if the losses can be claimed against future capital gains.
It is not just my super statements, but even my phone, internet, electricity and every other bill that leaves me in confusion these days. Why can’t I easily fix my mobile phone settings so that it doesn’t go to ‘missed call’ if I don’t answer within 2 rings? My paranoid side says this is a ploy to increase the number of calls and therefore the phone company’s revenue. Another interpretation is that I am an idiot. But perhaps there is method in their inefficiency. Who benefits from such administrative leger de main? When Societe Generale finds it too difficult to maintain an administrative structure that detects a loss of $8b over several years, then perhaps it is time for a rethink. According to the Economist, Societe Generale had a risk management reputation second to none. Makes you wonder how bad ‘none’ could be.
But these musings (well, maybe they are ravings, you have a point there) are a side show compared to the skullduggery of international relations. I strongly recommend this book to those who are interested in how terrorism took root in the last few decades:
House of Bush, House of Saud, by Craig Unger. (Gibson Square Books, 2004).
Unger has carefully deciphered the documents, media reports, government policies and public statements of a long trail of intimate friendship and business dealings. In itself the theme of Bush family involvement with the Saudis is not a secret. It was noticed when members of the Saudi ruling class, including members of the Bin Laden family, were whisked out of the US without questioning after 9/11. I’d heard of the aggressive Project for a New American Century, but I had missed the Carlyle group, that actively leverages political connection into military funding and profits.
Some of this was hidden in varous US bills and defense appropriations, some was more obscure. A media desperate for access backed off from asking tough questions of Dubya about funding terrorism through the Saudis. Little fuss was made when the Saudis poured literally billions into building mosques in the US, some headed by extremist muftis.
The upshot is that the US pretty much was a midwife at the birth of Al Quaeda, through their good friends the very nasty, repressive, corrupt, anti-democratic and Wahhabist Saudis. No need to chase them out to bring democracy, they go hunting with the Bush dynasty.
And let us not forget that the Keating mob allowed our own ‘women are like uncovered meat’ mufti to stay in Sydney, against the warnings of ASIO. In writings about ‘the risk society’ there is a stream that says the evidence of people on the ground should be taken carefully into consideration when designing policies and regulations. This is the approach that underlies the open source philosophy, as applied to software, journalism, and Wikis.
My ears hear concerns about sustainability, not cries for more passwords, unusable features on electronic gadgetry and innovations in softdrinks. In the financial world, soothing homilies remind me of the fox in Brer Rabbit. For a while, I played the rabbit, now I’ve hopped away scared, but also confused. Someone is poised to profit from every foolish or confused investor.
Who, indeed, do you trust? From which sources? And what do you really understand about the global financial dynamics?