They Shoot Horses, Don't They?

I'm not sure the point of the following Op-Ed by Roger Cohen, but I agree with the tone! Things are a changing!



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new_york_times:http://www.nytimes.com/2008/10/27/opinion/27cohen.html
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By ROGER COHEN
Published: October 26, 2008
I was talking to a banker friend, and he told me the “unraveling” could go on for ages. I thought he meant the unwinding of all the leverage that had inflated everything from the price of stocks to the price of homes.
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But, just to be sure, I asked him: “Unraveling of what?”
He paused, before saying, “Almost our way of life.”
A friend of his, he went on, has a horse farm north of New York City. “I told him, for heaven’s sake, you have to get rid of your horses. Shoot them if necessary.”
That got me thinking. Are we going to be living on horse meat before we get to the bottom of this?
It’s now clear that our credit system the world over was rotten all the way through, a giant house of cards maintained by the ingenious connivance of banks, rating agencies and insurance companies in a monumental heist. The only buyers anyone trusts any more are governments.
No wonder Alan Greenspan says he’s in a state of “shocked disbelief.” He’s not the only one.
But as the state intervenes, in what Ed Yardeni, an investment analyst, called “a giant global game of Whac-A-Mole,” the moles keep popping out of new black holes in our financial system.
“We’ve tried rubber mallets, now we’re using bazookas, but we’re flying blind,” Yardeni told me.
It’s really a wonder, when you think about it, that there are still two guys in the race to become U.S. president, pulling out all the stops in these last eight days of campaigning to be chosen as the one to face the nightmare.
Let’s fast-forward a year to October 2009. The U.S. unemployment rate stands at 10 percent. Crime is up across the country. The economy is shrinking. No arm-twisting from the Treasury has managed to restore the broken confidence between borrowers and lenders. Banks, the few still standing, are holding fast to their cash. Property prices are down more than 25 percent from current levels.
The Dow is still heading south as people get used to the idea of stocks trading at no more than 10 times earnings, rather than the much higher ratios our former leveraged world delivered.
New buildings stand empty all over New York because at the end of a boom — that’s to say right now — a lot of new construction comes to market. Exports, long a bright spot in the economy, have plummeted because of a rising dollar. The deficit and national debt stand at unprecedented levels.
The hedge fund industry is decimated — its model of flipping cheap borrowings into leveraged bets around the world has blown up — and one desperate, even contrite, former master of the universe has just sold a Rauschenberg for $9 million less than he paid in 2004.
People still have way too much debt, and the collateral for it keeps evaporating. They are angry. Civil unrest is stirring.
I ask you, Senator McCain, Senator Obama, do you still want the job?
It may not get that bad, of course. On the bright side, gas prices are plunging. There’s a lot of money sitting on the sidelines in places like Dubai. And, as I mentioned, the dollar is up — more than 20 percent against sterling and the euro in the last three months.
You can get a plate of pasta in central London now for less than $50. You can even take a short tube ride for less than $6. There must be hope for us all!
In a way, what’s going on with the dollar is a measure of the extent of global desperation. Here’s a currency backed by debt so massive that it will presumably have to be inflated away some day — and it’s rocketing upward.
Every investment position that made sense during a global boom and doesn’t make sense during a global bust is being unwound, and the people doing the unwinding want dollars. They are buying U.S. Treasury bills yielding basically zilch because they are too plain scared to buy anything else. Capital preservation is the name of the game if you have any capital left.
Of course, there’s the option to try preserving that capital in euros or other currencies. But at some very basic level — and we’re down to basics — the full faith and credit of the U.S. taxpayer is still deemed more credible than any other. That’s a confidence vote, slim but real, in the United States and its ability to come back.
As Avinash Persaud, the chairman of Intelligence Capital Limited, told me: “Money, in the end, is confidence. It’s a check the Federal Reserve has issued.”
Perhaps that’s why Obama and McCain are still in the race: because they believe confidence can be restored.
But both candidates should be clear-eyed about what’s looming. They shoot horses, don’t they?