Smart People, Good Intentions, Unstainable Plans, Collapse

Smart people with good intentions, start with some promising ideas and initial good returns...after selling the ideas to the public and/or investors, the truth is slowly revealed that the idea isn't a silver bullet and the promised results prove elusive.  Unwilling to admit that their ideas and/or management is flawed, pride and arrogance prevent them from admitting defeat and they push on.  Unfortunately when the chirade is finally impossible to continue, millions are hurt and the biggest financial disasters of the past decade remain:  Global Crossing, Enron,Worldcom, Madoff, Subprime mortgages.  In the coming years, the new Health Care schemes will join the ranks of the scams that were unrealistic and unsustainable.  They will cost investors billions.  Instead of private investors this time...the American government and taxpayers will be hurt.  It will be ugly.

The numbers just don't work.

In the late 90s and early 2000s, a bunch of guys found that trading energy futures inside an oil and gas pipeline company could create incredible short term returns.  They decided to realize the value of the good ideas immediately by taking the future earnings now in return for the wealth of investors to whom they sold the idea.  When they discovered that the returns and growth could not be sustained, they started to book bogus revenues and hide account issues in off balance sheet entities.  After the company, Enron, collapsed- we as Americans determined to get wiser.

Unfortunately, another super smart guy who found that he could get incredible returns in the market, started to offer his services to others.   What was probably started as a great way to help his friends and charities get some good returns on their investments, became the world's biggest Ponzi scheme.

The biggest Ponzi scheme going right now is called Social Security.  Government bonds is a close second.  New social programs and misguided healthcare schemes are only hastening the collapse.  Not sure when it will end, but the numbers dictate that end it must.

On the Brink

I've been reading Hank Paulson's book, On The Brink and I now know why the Wall Street bailout happened.  Hank was a Wall Street guy who thought the world rose and set on spreads and the capitalization of large banks.  If you are a deal maker with a Wall Street centric view, the world ends when the banks get into a jam.  He called anyone who disagreed with him an idiot.  He brought even more government power,  fear and panic over an apocalyptic economic collapse, and as many of this Wall Street friends as possible to achieve his ends.

Now I'm not so naive as to suppose that the collapse of a major bank or an insurance giant wouldn't have far reaching impacts on the economy as a whole, but I believe those shocks fix systemic imbalances.  Americans and their economy are resilient.  The whole TARP and stimulous has simply kicked the can down the road and delayed the day of reckoning.  I believe despite his tireless work, and belief in what he was doing, history will not judge him well. 

In the future, if you don't want a one-trick (M&A), Wall Street centric government, don't hire an ex-investment banker to be Secretary of the Treasury.  As an interesting aside, the current administration power players: Obama, Geitner, Bernake, Pelosi, Reid, Frank and the Chinese all seemed to be more prominent players than anyone in the Bush administration, who Paulson supposedly worked for.