When I invest I tend to look for solid investments with a track record of solid management, growth and longevity. That is one of the tenets I teach students of Market Taker Mentoring who are interested in investing. And really, I don’t think I should even have to teach this concept. It’s what you might call common sense.
Well, “friends,” you (by proxy) are considering such an investment. That’s right. That is the proposal the people in D.C. managing OUR investments are looking to institute on our behalf. Let’s just call this investment fund our collective discretionary account.
Now, to be fair, something needs to be done to prevent an all-out collapse of our financial stability. But let’s not oversimplify. Let’s fully understand the subject at hand (which is more than I can say about the managers of our collective discretionary account).
It appears that our investment managers are looking to buy mortgages under the assumption that they are riskless investments–that they will be paid back. Perhaps not an entirely reasonable assumption, at least not for all these loans. Certainly, some of them will be defaulted on. Typically, what investors do when faced with such a dilemma is to assign a risk factor to the investment. That is, they discount the price they are willing to pay by a certain percentage based on the perceived risk of default. So, unless our discretionary account managers think there is no risk of default, they ought to be recommending we drop our bids. Maybe the government needs to step in (maybe not), but why remove all the risk after the fact to keep afloat companies that made bad (very bad) investments (maybe even knowingly, but that is for the feds to determine)?
And one more bit of conventional wisdom that ought to apply. Usually when an investment manager does a really poor job, he or she gets fired. Some of those at LEH, AIG, et al, are suffering that fate (although “suffering” may not be the right word when getting fired means walking out the door with more money than most poor suckers ever make in their lifetime). But we now have the opportunity (make that civic duty) to watch our collective discretionary account managers very closely to see how they do. Their performance is up for review every few years.
Dan Passarelli
markettaker.com
