My collegue Zac Bissonnette posted a story about Societe Generale, the French bank that suffered a $7 billion loss at the hands of a 30-year-old trader. He points out that according to French law, the bank could not fire this big time loser without a formal explanation of the problems they have with his performance. I guess they have no dollar limit. Zac confessed to wanting to be a fly on the wall and I went into my Saturday Night Live alter-ego adding the following:
- You don't need to be a fly on the wall Zac. You know what will be said:
"We find that your performance over the last year has been quite extroadinary. We have never seen or heard of anyone losing $7 billion that was not a government official. This is so far outside of our expectatations that we feel we must put you on notice that should you lose another $7 billion we will be forced to ask for your resignation. However, you should not worry because, as is blatantly obvious the government would probably jump at the opportunity to retain someone of your experience. You would need no training and could start to lose money on the first day."
Tracking Zac's keen stories, I see my colleague struck again with S&P sees end of subprime mess in sight, but it seems to me that this is not the light at the end of the tunnel. The light that may be shining on S&P's optimism is more like looking up to see the sky from the bottom of a very deep well, waste high in water, cold and damp with little hope of rescue.
In this metaphor, all you can hope for is even more water, soaking you with more misery until it rises to a level where you can rise with it to make your escape. Like any down market, it is all about surviving the lows so that you will be around to see the highs and hopefully receive some benefit.
- In the case of S&P's forecast, I was reminded of those famous last words: Give me a match, I think my gas tank is empty!
My own vision is that we still have a lot of pain to absorb before we can see a clear path to recovery.
Almost every day this week, Bear Stearns (NYSE: BSC) kept stating we'll be fine, there is no liquidity issue, you're all worried for nothing. Then Friday morning it was announced that BSC had run dry "overnight" (for sure) and the Federal Reserve Bank will be bailing them out with short-term funding support; this seems to be the major economic theme coming from Wall Street and Washington DC, in 2008. From their perspective, each wrung of the ladder leading out of our financial mire is another infusion of cash, another bailout, more ammunition for dollar destruction and future inflation.
Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns.
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