Wednesday, September 19, 2007

The Simple Noir Rule of Finance

The Financial Times has a two-part gee-whiz what-happened thumb-sucker today about the iron laws of finance - as they are this week. They're upset about the loss of liquidity: it couldn't happen, then it did happen, how could it have happened?

I've blogged about this silly stuff before - no systemic failure is possible, until it happens, markets are efficient, until they're not, we know best about everything, until we don't know anything!

A week from now, we won't know anything again. The paradigms won't expand, because then the simple political battering-rams would look like the medieval engines they actually are: markets are always right, central banks manage perfectly, equity funds create liquidity and value at the same time - except when they don't.

What if markets only worked some of the time? What if private equity geniuses where right only now and then? Well then we'd need other stuff too - governments, democratic inputs, democratic cooperation, institution building, public services, innovation as something ordinary people and not just bankers and CEOs do. Forget about it - no way we're letting all that come back.

The state of honest financier confusion is temporary, since all will be explained soon enough, contradictions fully intact, in spite of the best efforts of various angry columnists and shocking Greenspan-doubters.

But before the Men in Black memory stick flashes, let's remember the simple Noir Rule of Finance, spoken by banks to Feds everywhere. There is only one rule: do what we want when we want it. Tightening yesterday, cash flooding today, rate cuts tomorrow. Whatever. Just shut up and wait like the limo drivers outside the Warburg UBS building on 6th Ave 2:15 am until we send the new order.

No comments: