Tuesday, December 9, 2008

10 clues: A new bubble is blowing

PAUL B. FARRELL
10 clues: A new bubble is blowing
Bet on Wall Street hyping a recovery, big earnings, new bull in 2009
By Paul B. Farrell, MarketWatch

Last update: 7:09 p.m. EST Dec. 8, 2008Comments: 300ARROYO GRANDE, Calif. (MarketWatch) -- No bottom yet? No problem! Wall Street needs another bull, is already secretly blowing a newer, bigger bubble. How do we know? Simple. They're bubble-blowers by nature. It's locked in their DNA, controls their brain waves. It's the divine spark that guides their destiny and America's too.
Remember Aesop's Fable, "The Scorpion and Turtle:" The deadly scorpion can't swim, asks the turtle for a ride across the river. The turtle's skeptical, but gullible: "You'll sting me." Of course scorpions will say anything to get over to the promised land. He always wants one more shot. He crashed on this side. Over there he just knows he'll win big.

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"That's irrational! If I sting you, we both sink, both drown." So the naïve turtle buys into the scam one more time. Then, halfway across the river, the scorpion's DNA suddenly triggers an irresistible urge in his brain. He stings the poor turtle. They sink amid the bubbles. "Why?" asks the naïve turtle. "Because I am a scorpion, it's in my nature."
Yes, the turtle's just a metaphor: For investors and taxpayers. The scorpion's also a metaphor: For Wall Street and the armies of lobbyists controlling Washington from the shadows. It's "in the nature" of all those scorpions to be greedy, to blow bubbles, to self-destruct.
So think metaphorically as you sift through the following 10 clues: Learn why the new bubble's already blowing, even before the economy and the market hit bottom -- clues masked by the press's relentless breaking-news hype about short-term solutions. Notice the desperate searching for new ways to "the other side."
1. Subprime wolves kept alive by Washington incompetence
A BusinessWeek cover story, "The Subprime Wolves are Back," warns: "Thousands of subprime mortgage lenders and brokers -- many of them the very sorts of firms that helped create the current financial crisis -- are going strong." Who are they? "The same people who propelled us toward the housing market calamity are now seeking to profit by exploiting billions in federally insured mortgages."
Worse yet, "FHA officials seem oblivious to what's happening -- or incapable of stopping it. They're giving mortgage firms licenses to dole out 100% insured loans despite lender records blotted by state sanctions, bankruptcy filings, civil lawsuits and even criminal convictions."
How bad? "Over the next five years fresh loans backed by the FHA that go sour will cost taxpayers $100 billion or more" -- on top of the $700 billion in bailouts.
2. Washington is an out-of-control money-printing machine
Neither party can control the economy and market. Capitalism is now a self-destructive scorpion. The Fed refuses to disclose trillions in loans. Congress has zero oversight. Now scorpions are destroying the $700 billion TARP from inside says a new government report.
The Wall Street Journal reports the Treasury Department "will eventually need as many as 200 full-time employees, the GAO said, but as of Nov. 21 has only 48 employees." Worse: Treasury has no reporting requirements. Zero accountability, repeating Washington's outsourcing the Iraq War to favorite no-bid contractors.
An old trick -- Washington's 42,000 lobbyists love it, they got 42,000 agendas to get all this money to the scorpions!
3. Greed is a virus always searching a new host
In Portfolio's "The End of Hubris," Leslie Bennetts says for "every highflier who is chastened, another would-be mogul pops up elsewhere, convinced he's smart enough to game the system ... When things are very good, people take ridiculous risks, and then things come crashing down and the risk just moves somewhere else ... We don't know where it's going next, but someone will be making money somewhere."
Then the perfect biological metaphor: "Like a lethal virus, it seems, hubris never really disappears -- it simply finds a new host." Get it? Scorpions never lose the toxic hubris in their DNA!
4. Wall Street lays another egg ... and another ...
In a Vanity Fair article, "Wall Street Lays Another Egg," Harvard financial historian Niall Ferguson teases his new book, "The Ascent of Money:" "When our "animal spirits flip from greed to fear, the bubble that [our] earlier euphoria inflated can burst with amazing suddenness ... markets are mirrors of the human psyche. Like Homo sapiens, they can become depressed. They can even suffer complete breakdowns. This is no new insight. In the 400 years since the first shares were bought and sold on the Amsterdam Beurs, there has been a long succession of financial bubbles. Time and again, asset prices have soared to unsustainable heights only to crash downward again."
Yes, scorpions sink. But guess what: They always, always come back. Blow new bubbles. It's in their nature.
5. Wall Street's kids love perpetual panic, it's a fun game
"Liar's Poker" and "Moneyball" author Michael Lewis perfectly captures the scorpion's killer instinct in a Portfolio discussion of his new book, "Panic, the Story of Modern Financial Insanity." He says: "The willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall ... I hadn't the first clue." Lewis says, "The era that defined Wall Street is finally, officially, over."

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