Monday, March 25, 2013

We must prune back the Cyprus tree ... or else

While driving to my stock group Saturday morning I listened on the car radio to the program hosted by Ric Edelman, financial guru to the masses.

Edelman and his two yes-men sidekicks (I wonder what he would do if one of them happened to disagree with him sometime) were having a knee-slapping laugh at all those upset about the plan to loot bank depositors in Cyprus so Europe's financial Godfathers would keep the country on the dole and in the Eurozone. How small was Cyprus's economy? One of them said, about the size of Shreveport, Louisiana's, har har.

Edelman, Mr. Conventional Wisdom, hasn't yet noticed that it isn't still 30 years ago. The world of global finance is far different, and far more dangerous, than when Jimmy Carter was telling us to remove our malaise and put on our sweaters.

Of course Cyprus's spot of bother is microscopic in numbers of euros involved, by comparison with the economic devastation wrought on Spain and Italy, which threatens to spill over to other countries. It's nonetheless shocking that the banking-EU cartel felt safe in openly helping itself to depositors' savings.

We read that one reason they imagined most of the world would approve their grab is that Cyprus was a storeroom for Russian money, a lot of it dirty. That faith seems spectacularly naive: will the Russian mob sit still for having their euros siphoned up? More likely, one way or another, they'll send a message understandable in any language. But that's not what matters to you and me about this official pickpocketing.

It's no exaggeration to say that it strikes at the heart of everyone with any degree of wealth to protect, if it can arbitrarily be confiscated to prop up countries and central banks that have maxed out their credit cards.

Karl Denninger writes in The Market Ticker:
When you enter into an investment, whether you make a deposit in a bank or buy a bond or something else, you are buying into a capital structure in a given place with a given and declared level of both risk and potential reward.  You price that risk and your willingness to enter into the transaction with the full understanding of where you are in that capital structure.

When that is unilaterally changed retroactively you are being stolen from.
The amounts involved are almost beside the point. The point is, the rule of law, the protection and enforceability of contracts, can no longer be assumed.

Lest you believe that such treachery is performed only by perfidious Eurocrats kneecaping citizens of an off-the-freeway country like Cyprus, recall that something along similar lines happened right here in the Formerly United States. In using taxpayers' money to bail out General Motors, the government saved the feather-lined union pensions while stiffing GM bond holders. In a bankruptcy, bond holders are legally at the front of the queue when it comes to dividing up the surviving assets. 
These thefts in our financial system are increasing in severity and frequency.  They have destroyed the belief in the capital structure. 

They have and will make it difficult or impossible to attract capital, since the aggrieved parties cannot find solace in the law. But worse, these thefts are and remain actionable until they are compensated.  They remain actionable whether or not the law recognizes the cause of action or dismisses it with the wave of a hand. They remain open like a festering wound.

They will continue to fester and poison free enterprise until some group decides they've had enough of both the annoyance and injury and decides to obtain recompense through whatever means are necessary.
The essence of the conservative outlook on life isn't simply a matter of tried-and-tested tradition, or even the rule of law, as important as those are. The rule of law is only a particular case of an even more basic principle. 

To those of us who remain conservatives in a leftist and neo-con nation, civilization ultimately depends on a bond of trust. Not necessarily trusting any particular person or institution, but trusting that words and agreements mean what they say; that what is yours cannot arbitrarily be taken from you because it is convenient for the state or its banker overlords, because the judiciary rubber stamps the taking, or because you belong to some class of people labelled as dangerous, irresponsible, or crooked.

Even Ric Edelman might wake up if all bank deposits in Shreveport, Louisiana, received a "haircut" one fine day.


YIH said...

Edelman is typical for weekend talk radio (other than the 'best of' weekday shows) it's an 'infomercial' even if live and takes listener calls.
The host's company buys the hour(s) and so long as they don't swear or advocate anything illegal they are free to program however they want (and plug whatever they want, as often as they want).
That said, I'm not surprised he sneered at the mess in Cyprus.
I quit listening when it became clear that this 'investment adviser' is a stock tout, to him every possible penny you can make liquid (including from your home) should be in stocks with investment diversity being as broad a range of stock as possible.
As you noted in a previous post, investing is dead. The markets are little more than Vegas without the glitz.
Wonder how he'll react when his clients 401ks and IRAs get forcibly 'entrusted' (HA!) to the government to 'bail out' Social Security or various minorities and/or the cities they infest.

Rick Darby said...

Back in the '90s stock boom, AM radio (around Washington, D.C. anyway) was chock full of stockbrokers who paid for airtime to publicize themselves and lure new clients. But with callers they offered recommendations about specific names to buy or avoid. They weren't always right, of course (the rest of us aren't either) but at least it could be stimulating to hear their opinions with rationales.

Edelman is a cheerleader, a soothing presence, a stocks-for-the-long-run guy ... but not, in my view, a serious analyst either of particular investments or the macroeconomic situation.

YIH said...

A cheerleader - an apt description of him. I literally did hear him advising on the air for people to take money out of their home (via a HE loan) to invest in stocks.
I remember about the time loan spam outstripped the more typical stuff (about '04) listening to another such show and nearly all the calls were ''should I take out a HE loan to buy a car?'' his answer was ''Not a good idea... Can't make the car payments, you lose the car - can't make the HE payments you might wind up living in the car''
By that standard, obviously doing that to buy stocks is downright insane. Not to mention the fact that although RE can and does lose value (In FL, I've seen plenty of that) it will never go to zero. You remember the 90's too - stocks sure as hell can!