why i'm not a libertarian (part 1)

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[this post is a continuation of the comments from this post, and thus very 'inside baseball'--feel free to skip]


so silver hit a new 30-year high yesterday, and promptly plunged today--just like it did on the days following the last couple times it hit new 30-year highs--and, as a result, lots of people who weren't prepared for it lost a lot of money.  a very smart friend emailed me this morning and said, "looks like dr. evil's reared his ugly head once again."

dr. evil, you ask?  allow me to explain.

back in 2004, the british arm of a very big, powerful american investment bank had been given a directive by the mother ship to "increase profits through the development of new strategies."

so a few of their more clever bankers devised a plan to (a) short some eurobonds in which said big, powerful bank held a big, powerful position; (b) then flood the market with all of said eurobonds at once, thus causing the price to plunge precipitously; and (c) in the midst of the ensuing mini-panic, cover their shorts and buy back said newly-devalued eurobonds at a handsome profit.  pure genius, right?

and their clever plan (dubbed "dr. evil" in the emails which surfaced later) went off without a hitch--almost.

i say "almost" because the european union--whose various governments lost untold millions as a result of the bank's clever plan--turned out not to have anywhere near the sense of humor that we americans have about such things.  see, rather than being allowed to keep their obscene profits resulting from the day's activities, the kill-joy british regulators made the bank give it all back, plus pay a big penalty--and instead of receiving huge year-end bonuses for their cleverness, the traders in question damn near lost their british licenses.

the other consequence of that day's mischief?  since its shenanigans were brought to light by said british regulators, said bank (citigroup, if you're curious) lost and has never recovered the confidence of the various european governments that were so badly burned by its actions--its bond business there is still a fraction of what it used to be.

[and not to mention, no american investment bank has dared pull that shit in europe since.]

but the most remarkable thing (to me, anyway) about the incident was the injured incredulity of the clever traders when they were called on the carpet--their attitude was, "hey, this is how we do things in the states--what's the matter with you people?!"

and, of course, they were right--this shit happens routinely here in america and has for years, all under the benign aegis of that joke of a regulatory agency known as the SEC--you know, the guys who couldn't even catch bernie madoff.

which is only one of the reasons why the financial markets of america have become a rigged casino for the big banks, and the laughingstock of the civilized world.

i mean, seriously--where else but modern-day america would a bank able to effectively buy insurance on its neighbor's house and then burn that house down and collect from the government when the guys it bought the insurance from turned out not to have any money to pay off the claim--and then laugh along with the guys who sold the fraudulent insurance as they're given a total walk?

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i was 24 years old when ronald reagan became president and started deregulating things.

one of the first things he deregulated (well, finished deregulating, anyway) was the phone industry, which has turned out pretty well.

but one of the other things he deregulated was the savings-and-loan industry, whose members couldn't wait to run with the big boys on wall street--woohoo, right?

yeah--right up until, within just a couple years of being freed from the regulatory shackles which had kept their industry stodgy-but-safe since the depression, they'd blown all their depositors' money on bad investments and run their newly-deregulated asses straight into bankruptcy, thus prompting the taxpayer bailout which started us down the ugly road to where we find ourselves today, that is.

needless to say, i've come to view government deregulation with somewhat of a jaundiced eye.


[part 2 to come, because i'm seriously starting to nod off]