Revenge of the Beta Males

There’s only a few places in the real world where Beta Males get to whoop it up and extract their revenge on the Alphas that shoved them around during their model-building, star wars loving, well-spent but unhappy youths. Those places would be on Wall Street, what passes for journalism these days, and Washington D.C.. It’s occurred to me that these places contain Beta Males that are natural allies. Since none of these folks ever got to sit at the kewl kids lunch tables in high school, they’ve built their special lunchrooms where no one else can venture without getting hall monitor passes from the former high school hall monitors. It’s also probably why we’ve now built an economy that no longer builds anything useful but gets increasing amounts of money from mathematical gambles and laws that favor insiders. It’s the only area where the Beta Males can dominate. If you can’t play football, at least you can bet on the game, win big, and eventually buy yourself a former cheerleader.

I went out in search of some evidence that we might rein in the market malpractice on Wall Street, and instead found that we’re just as likely to be setting up another financial crisis as not. Maybe I should throw up my hands and follow the lead of George Soros. I should start a hedge fund that bets on the stupidity of Wall Street aligned with the duplicity and complicity of politicians and journalistic misinformants. That way I could buy my own island and avoid the next financial crisis.

It seems bringing translucency to the market (a goal in a true market economy) would only benefit those on the outside looking in and we can’t have that. It might bring the rest of the world back to the lunchroom tables. We continue to have Republicans blocking everything because of their incessant worship of the idols of false capitalism. How can so few understand so little and gum up the works for so many? This quote appalled me.

“The president has offered a reform proposal that would grant broad new authorities to government bureaucrats while intruding in private markets and restricting personal choice,” said Spencer Bachus of Alabama, the senior Republican on the House Financial Services Committee. “The obvious lesson of the events of September 2008 is that we need smarter regulation, not more regulation, not more government bureaucracy, and not more incentives to engage in harmful business practices.”

This is a man truly devoid of intellect and any sense of how a competitive market functions. Removing frictions like information asymmetry, huge single powerful players, or moral hazards makes markets work beautifully. Civilization has regulated its financial markets since Hammurabi for very obvious reasons. How can you come up with real political discourse when the opposition is so obviously factually handicapped?

Well, that leaves the democrats to do what they do best, fritter away any opportunity to make things better. Still, they can find a way to get themselves re-elected with pots of cash from the K Street Beta Males.

One major difficulty is that many of the issues do not break along party lines — they tend instead to force disagreements between industries and their various supporters in Congress. So the fight is as much among Democrats as it is between parties.

Big institutions and community banks have unified against a central provision of the plan to create a new consumer finance protection agency. The new agency would regulate mortgages, credit cards and other forms of consumer debt. The companies, and their Republican and Democratic allies in Congress, fear that the new agency would lead to unnecessarily burdensome oversight.

Let me make one thing clear, creating standardized and predictable legal processes, forcing honest reporting on funds with fiduciary responsibility, and keeping the foxes out of the hen house isn’t unnecessarily burdensome oversight. It’s the central role of government. Speaking of foxes and hen houses, check this out.

In recent weeks, Mr. Frank has been saying that the Fed might have to share the role of systemic risk regulator, indicating that there was not enough support in Congress to give the Fed alone the wider authority that the president had been seeking. Other central elements of the plan have come under assault.

Major Wall Street companies, for example, have also worked to water down the president’s proposal on tightening the rules for derivatives like credit default swaps. They have also lobbied heavily to make sure that any attempts to impose tough new restrictions on executive pay do not come to pass.

Have we even begun to discuss what to do with the nation’s mortgage market and the fact that our government is involved with 80% of the loans these days? Noooooooo, why do anything like try to solve problems in the market that caused the collapse in the first place? Just keep feeding the fire with shovels of taxpayer cash. I bet that’s something about which Senator Spencer Bachus remains willfully ignorant.

Over the past year, the government has intervened heavily at essentially every stage of the home-buying process. In fact, more than 80% of the new residential mortgage loans made this year benefited from some form of government support, according to the trade publication Inside Mortgage Finance.

Oh, and on the back end, you know that securitization process, check this out.

At the Fed, the question of whether to start dismantling the scaffolding is a dominant one. Since the beginning of the year, the Fed has purchased $836 billion of mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae, the federal body that securitizes FHA loans. The purchases have helped push down interest rates on mortgages guaranteed by the firms from more than 6.5% last October to 5.15% today, according to HSH Associates, which tracks the mortgage market.

That seems to have helped to put a floor under housing sooner than many officials expected. At the same time, it has created distortions in the market.

When the Fed buys up to $30 billion in mortgage securities every week, regardless of price, “it makes it very difficult for the market to find its own equilibrium,” says Ajay Rajadhyaksha, head of U.S. fixed-income research at Barclays. He said investors are trading instead in Treasury securities, where activity is less skewed by central bank purchases, and pushing rates lower in that market, too.

The Fed is likely to decide to carry on buying until it reaches the $1.25 trillion target it set in March and taper off the buying gradually. Some Fed officials will likely argue for stopping sooner, even as soon as next week’s regular policy meeting.

If the Fed stops sooner than expected, it could jolt the mortgage market and short-circuit a housing recovery. Barclays’s Mr. Rajadhyaksha estimates that even if the Fed carries on as planned, mortgage rates will rise by half to three-quarters of a percentage point, simply because the Fed will cease to be as a big a presence in the market.

The Fed will face a challenge managing its portfolio of mortgage-backed securities even after it stops buying the securities. When it bought the securities, it effectively flooded the financial system with cash. Officials at some point will need to find ways to drain that cash from the financial system.

So, again, it’s okay to infuse entire markets with taxpayer cash on the front end and back end fully knowing if we turn off the spigot it will collapse the market, but it’s not okay to demand accountability for the process. That would be too much government interference. Meanwhile, the Beta Males get to package, sale, repackage, distribute, and churn their fees until they collect their bonus checks. What a way to run an economy!

Even more disturbing than the facts above is that the chance of actually get a loan to do something like start a nice little manufacturing firm that might employ people continues to decrease. (H/T to RalphB for this one.) After all, we wouldn’t want those sweaty, muscular longshore men to load American goods on boats to China, would we? We certainly wouldn’t want any broad shouldered construction workers making an actual living constructing something usable. Better to let the Beta Males gamble it away on self-created market momentum. After all, they can sit at their screens, run up gasoline prices for every one, and make bonuses from bankrupt Citibank, all in one fell swoop.

Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an “epic” 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.

“For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew,” he said.

The NASCAR set at this weekend’s tea parties understand that something is afoot, they just haven’t read enough textbooks to figure out where they need to aim their rifles. They too, are taking the words of Beta Males gone wild. After all, can you imagine Glenn Beck or Rush Limbaugh actually having to do something useful for a living? And what about Markos Moulitsas Zúñiga of dkos fame? Can you imagine him making an honest living?

Meanwhile, get ready for another wave of bad things. Don’t worry, the Beta Males will continue to bail themselves out at our expense. No decent regulation or dealing with bad assets appear to be on the horizon any time soon. If we didn’t do it this year under our Beta Male President, we’re unlikely to do it next year either.

Mr Congdon said IMF chief Dominique Strauss-Kahn is wrong to argue that the history of financial crises shows that “speedy recovery” depends on “cleansing banks’ balance sheets of toxic assets”. “The message of all financial crises is that policy-makers’ priority must be to stop the quantity of money falling and, ideally, to get it rising again,” he said.

He predicted that the Federal Reserve and other central banks will be forced to engage in outright monetisation of government debt by next year, whatever they say now.

So, my hedge fund is also going to invest heavily on these things too and unlike the Beta Males of Wall Street, I don’t gamble. After all, I wouldn’t want to be Beta …

“Alpha children wear grey They work much harder than we do, because they’re so frightfully clever. I’m really awfuly glad I’m a Beta, because I don’t work so hard. And then we are much better than the Gammas and Deltas. Gammas are stupid. They all wear green, and Delta children wear khaki. Oh no, I don’t want to play with Delta children. And Epsilons are still worse. They’re too stupid to be able …”

Brave New World by Aldous Huxley (from chapter 2)

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