When in danger when in doubt run in circles scream and shout

This is my first blog. I am coming online to express my disappointment with our current politicians. When I say our. I live in Australia but having traveled widely I am reasonably confident that what goes for our politicians is almost universally true.

My disappointment stems from the populist approach taken by our leaders. Unfortunately we do not have leaders but followers. Followers of fashion, followers of polls, follower of populist media. We live in an age where the most important task a politician does is get elected. Every action is designed with that end in mind.

I will return to this subject in a later blog. I want to address now the "turmoil" in financial markets.

As a child I loved cowboy movies. Most people will have seen a cowboy movie in which a stampeding herd of cows takes out everything in its path. Sometime a lone cowboy is seen shooting his pistol trying to stem the tide before he is crushed by the unstoppable wave of animals.

Our politicians are just like those lone cowboys the financial markets they keep standing in front of the stampeding herd with one action after another and just demonstrate their own impotence.

Here is the rub we are led by a group of politicians who feel compelled to take action even if they do not know the long term impact of their actions or whether it will be effective or not. Action for action's sake. Why? Because they are under pressure from the media to solve the problem.

What should our leaders do? They should understand that the market will do what the market will do and they cannot control it.

Once they accept this they should prepare an environment in which investors feel safe. Firing impotent bullets as they are doing now is counterproductive. and certainly doesn't help people feel safe.

How to make people feel safe.

1. Let them know that businesses will be able to finance their operations.

2. That savings will be underpinned in the short term.

3. Remove Systemic risk from the system to ensure this falling domino effect cannot occur again.

4. Let them know that movements in the stock market are not going to be the drivers of this solution which will be well conceived and not a mere knee jerk reaction.

Three simple objectives.

People don't care about the banks what they care about are the implications of their failure.

Now how do move forward on these objectives.

1. Tell the banks that they are only currently surviving with the goodwill of the government and the people. The price of this goodwill is the provision of finance to both big and small business and credit worthy consumers. They must lend to each other.

2. Guarantee deposits for the short term.

3.Announce a plan to break up the banks. No bank should be too big to fail. It is crazy that we are allowing banks to consolidate in the face of a problem caused by the banks being to big.

4. Review the banking infrastructure and stress test it to see which parts are subject systemic risk and prepare plans to cope with failure.

5. Move away from mark to market accounting. Garbage in Garbage out. Markets are not perfect, some times they are close but currently they are far from it. What happened to historical cost accounting? Accounting has become a debate. What use is that. We are trying to convey too much information in one place and at the same time allowing too many places to hide things. Let's get it all out in the open. The books to be a no nonsense approach based on fact. If more information is required require publication of positions and valuation estimates for all to see.


I have hit my self imposed deadline. Publish or perish hey.
I am sure that our followers I mean leaders will provide plenty of fodder for me as I go forward.