Thursday, May 17, 2012

Hedge Hogs

Jamie Dimon, CEO of JP Morgan Chase, was in town this week to address the annual shareholders’ meeting. Despite losing 3 billion (and climbing) dollars of their money due to bad investments, he was cheered and praised. He gave a great “My bad” speech instead of blaming the weather, the regulators, or his pencil. Wait and see if that is his response to the FBI inquiry just begun. 
Why should we care if we aren’t shareholders or investors? Well, as taxpayers, we have a stake because we are guaranteeing those funds through FDIC, and Morgan has access to low cost capital from the Federal Reserve. For those of us who worry if our checking account is off by a few cents, how can we ignore this misuse of our money?
How they did it is not too complex. Pigs get fat, hogs get slaughtered. Greed brings risk. Hedge funds are risky, and some people are willing to assume those risks. However, this risk was taken with ordinary deposits in their commercial bank, not their investment bank or a hedge fund.
Hedging is not complex. We do it every day. Buying more beans than you need today when they are on sale is a hedge against paying higher prices next time you run out of beans. Grandma said not to put all your eggs in one basket, so we don’t put  all our rainy-day money into some speculative investment. We stash some under the mattress.
This debacle is a prime example of why we need  more regulation of the financial industry. Next time a politician cries that regulation is killing business, think about a company “losing” 3 billion dollars by gambling away funds that we have insured. Mr. Dimon, incidentally, is on the board of directors of the Federal Reserve Bank, thus responsible for more of our money.
Makes us want to stash a bit more under the mattress, doesn’t it? Now don’t ask me to explain credit default swaps. Nobody understands them.

Thursday, May 3, 2012

Dancing with Pigs

I have a strange admiration for politicians. I wouldn't want to be one, but they have a big task. Ever try to convince someone to do what you want, when they don't want to? Harder still is to convince someone to agree with you when they don't.

One reason is that we're all averse to change. We may think we like it, but what do we do on vacations? Go to different places and look for familiar faces, foods, bed pillows just like at home on the bed. Even those are easier to accept than fond beliefs.

We are attached to our own beliefs, and even more so when they are challenged. We accept statements that agree with our own beliefs, reject those that don't. Did you ever hear anyone, other than a recently  jilted lover, admit that their beliefs were all wrong? Say "How could I have been so stupid?"
Picture a rabid Tea Partier at an Obama rally saying that, in a conversion experience? Ain't happening.

I get e-mails from well-meaning but misguided friends, daily updates to prove that I, like all Democrats, are short on facts. "Obama sent all our money to Finland!" "Obama's Kenyan birth certificate found!" I either ignore them or thank them profusely. They will not stop.

As a wise person said : "Don't try to teach a pig to dance. It won't work, and it only annoys the pig."