Friday, January 2, 2009

(No. 2) Crap & Lavender: the financial services meltdown.

I have occasionally been asked why I have often differed publicly and privately with the views of various so-called leaders of the financial services industry.

For me there has often been too little basis on which to defer to the supposed superior judgement and expertise of the industry's sophisticated 'big brains'.  Had I had doubts about my not deferring to such supposed expertise,  they would have disappeared in recent months as I watched the results of so-called expert financial wisdom at work:  the U.S. housing bubble,  the financial establishment's underestimation of risk and the regulators' failure to intervene.  We have witnessed the evaporation of trillions of dollars of equity,  plus (at the very least)  the prospect of not a $700 billion dollar bailout bill for U.S. taxpayers to bay  but a tab based on U.S. government 'bailout' commitments to date of  $7.8 trillion -- and counting.

My conclusion based on this and any number of other miscalculations by senior North American financial executives (from Canadian banks' debacle with LDC loans through the failure of 700 de-regulated Savings and Loan institutions in the U.S. in the late 1980's and early 1990's which cost U.S. taxpayers  $125+ billion,  to the high tech 'bubble' of the 1990's):  be very suspicious of claimed superior executive expertise if that claim is really based on little more than corporate rank,  publicity and self-promotion.

If something looks like crap and smells like crap,  chances are it isn't lavender.  It doesn't smell any sweeter because it emanates from a CEO or an industry pundit -- or for that matter when it originates in Canada.  Canadian banks have admitted (thus far) to  $10 billion+ of exposure to U.S. stinkers and are already relying on loan interest rates for their Canadian retail customers to help offset the squeeze on their profits.  The failures in Europe echo and enlarge upon these North American headlines.