Randomness (r_ness) wrote,
Randomness
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I got to DubaiCan a bit late. He's a "Lebaneese (sic) American working on his Tan in Dubai".

Anyway, he had a couple of interesting things to say at the beginning of this year about 2008. From http://dubaicanthinks.blogspot.com/2009/01/tansitionary-betrayal.html:
The great financial panic of 2008 wiped out more than $30 trillion in global market value. But to blame this wealth destruction on a panic or foolish crowd would be a serious mistake because at the end of the day, “Panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works.” This fantastic quote comes from John Mills’ paper titled Credit Cycles and the Origin of Commercial Panics, and I can’t think of one sentence that more appropriately sums up this tumultuous year.

I have decided to skip the 2009 forecast for now as I have read way too many good notes on the topic. Instead, I have decided to offer up some of what I think were the “great revelations” of 2008.

If there is any good thing that came out of 2008 it is that maybe, just maybe, a few people realized that real estate is not everywhere and always a good investment. Yes, unlike a stock a home is tangible. You can touch it, put stuff in it, and even sleep in it. It’s a good inflation hedge, and in some jurisdictions it’s an efficient tax shield. But just like a stock, if it is bought at the wrong price, and at the wrong time, it can lose you a lot of money. Over the last couple of years I was starting to feel like the national association of realtors had discovered some sort of mind control device. Trying to convince a person that there is a price point at which renting makes a lot of sense or that buying a home is not a no brainer investment was an exercise in futility. I guess enough commercials of people flushing money down a toilet with the words “why rent” in big bold letters will do that to a nation.

Ironically, through the use of clever derivatives the US managed to export a lot of their land of too much to the rest of the world. And when you consider the fact that the bulk of global capacity for just about everything outside of financial hocus pocus rests beyond the borders of Uncle Sam, you quickly start to realize that the brunt of a crisis that was made in America will most likely be felt in the developing world. Who would you rather be a US consumer who now has realized he has to consume less or the producer who was making goods for this consumer? There are of course two answers to this question. In the short term, you’d rather be the consumer. In the long term, you’d probably rather be the producer. But if we are all dead in the long run….well I think you get the picture.

Nobody wants a free market on the way down. Adam Smith’s invisible hand is there alright, and if left alone it will sort things out with razor sharp precision. So, much so that massive wealth redistribution would become the norm. Sadly, to reach that point the world must enter chaos, and many of the great masters of industry would be swallowed whole. And this my friends will never be allowed to happen. As we have recently witnessed, even the most ardent free market proponent, your ruthless trader or B.S.D, will scream uncle when he finds the invisible hand wrapped around his throat.
Tags: money
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