Frozen markets and the waiting game, by gimleteye

The Miami Herald editorial page (No ‘safe’ haven without some risk, December 14, 2007) sheds no light on the reality behind the $13 billion dollar losses of the state-run Local Government Investment Pool. Those losses are tied to financial derivatives that underwrote suburban sprawl and the political fortunes of elected officials sitting at the knee of the Growth Machine.

So far, municipalities and other state-run organizations whose employees paychecks are tied to the pool have been able to withdraw limited deposits, to prevent a “run on the bank”, but in that key respect, they are cued in line like nervous depositors milling outside the local bank branch in 1933.

It is important to explain to readers the nature of this waiting game—an exercise in finger-crossing that at some indeterminate point in the future, investors will be made whole, or, at least to know the value of their deposits.

Lowering interest rates, as the Federal Reserve and companion national banking institutions are doing, will not solve the massive uncertainty related to re-pricing of assets in secondary markets, not to mention newly issued debt.

Monetary policy is a flimsy tool for an economic crisis of this scale, tied directly to irrational growth policies embraced by government.

The Herald argues that the state of Florida has taken prudent steps in its effort to “firewall” the investment in financial derivatives, tied to housing mortgages. Its attitude is–hey what the hell, we’re all in this together.

“The state investment pool, moreover, never guaranteed a risk-free investment.” It takes very tight blinders to make that statement with peace and equanimity. They said the same, from behind the bank vault doors in 1933.



What the mainstream media needs to do is break free of lock-step with the Growth Machine.

Understand that what comes next had better not be more of the same—because big sovereign nations underwriting our national debt are not waiting for fiscal sanity’s appearance on the scene.

The reason the Florida Local Government Investment Pool is in trouble, is because it invested in exactly those risky derivatives tied to mortgages that have fueled the Growth Machine, which in turn bribed local legislatures in the cash-infused atmosphere where regulation was thrown straight out the window. They used to get away calling it, “the free market”.

No longer.

It is not enough to regulate the lenders, the mortgage brokers, and tighten standards for consumers. The operating parameters of the Growth Machine need to be fundamentally changed, or, we can just wait for the result: an ownership society rewarding, first and foremost, vultures.