We live in a world that, at times, seems topsy-turvy – up is down, black is white, and the difference between true and false is non-existent. More than anything else, this scares me because it reminds me of George Orwell’s book, 1984, the classic book depicting total subjugation of the citizenry. In that book, subjugation was possible because of the government’s ability to lie and have those lies believed. The citizenry believed these lies because they had no way to verify the government’s doublespeak. They could not critically think.
Well, we have the ability to think critically, so I encourage you all to use it, particularly when it comes to understanding the reality about our markets and our economy. The excerpt below is an example of doublespeak, which one can easily debunk if one takes the time to search out the facts, which I have done. You see, I carefully researched the 2008 financial collapse for a big writing project, and I did so with an objective eye, as that was required for the project. Now, when I read the excerpt below, alarm bells rang. So, I researched the author of the article. I found out that she is highly educated, an accomplished writer, and she tends to write with a conservative, economic bias. The latter point explains why her article’s slant pushes against the facts (“… financial markets were anything but free.”).
How could the markets have been so wrong? The answer, according to the casual mainstream narrative arc of the crisis, is this: deregulation took the economy down, and the government had to step in to save us from free markets. Yet what becomes clear from reading some of the most significant of the hundreds of books published on the crisis is that the mainstream narrative is wrong. Over the two decades leading up to 2008, financial markets were anything but free.
If you look at the facts, the “casual mainstream media” is not wrong. In 1999, Congress repealed Glass-Steagall, or the Banking Act of 1933. This repeal removed the wall between commercial and investment banks, which allowed two important things to happen. First, banks were free to make riskier investments and, second, it opened the door to take on more risk through leveraging. Simply, when the 2008 financial collapse happened, many of the largest financially troubled banks were sitting on debt-to-asset ratios as high as 50:1. The Banking Act of 1933 limited banks to a 6:1 debt-to-asset ratio. The collapse happened precisely because freeing banks from “unnecessary and prohibitive” regulation gave them license to risk ever more money on ever more riskier “bets.” Sometimes, things are simpler than we are lead to believe.
The point I am making today is not a political one. It is more important than politics. It is about how we make decisions about our money. Do we make these decisions based on accurate information or do we make them on information designed to push a financial, political, or economic agenda? So, again I say to you, research is key to understanding the reality of our economic issues, and, thus, the reality of trading markets. It is easy to use words, form sentences, and create paragraphs that obscure facts and make erroneous conclusions seem true. It is much more difficult to dig for information, to analyze, and to form reasoned conclusions based on facts.
I get it. Many folks will read the article I quoted today, and many will read the books the author references, and, sadly, many will believe the perspective represented. I suggest we all do better, especially when it comes to investing/trading in a world where some sell black as white for the sole purpose of directing our decisions about how we make our money work for us.
Trade in the day; invest in your life …
