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Thursday, May 6, 2010

The "Fat Finger" got us

I know all about the "fat finger". It's why I've never been able to feel comfortable texting. But I never dreamed it would be the culprit for the biggest intraday trade off ever in stocks. This reminded me a lot of the recent Goldman Congressional testimony that morphed into a circus type atmosphere.

There's going to come a point where, to use the popular vernacular, we need to get "real." There are economic laws; and, if we violate these laws, there is a price to pay. In physics, if we throw a brick in the air and stand under it, there will be a consequence. In economics, we've borrowed too much and played too many games with leverage. When the problems manifested themselves in the U.S., we were able to contain them at least for the short-term. Fed Chairman Bernanke, astute student of the 1930s, understood the dike can be plugged temporarily by the federal government guaranteeing everything in sight and printing money like crazy. He is applauded today along with his cohort at Treasury Tim Geithner.

But now the chain of events has extended. The laws are immutable. Now the ability to solve the problem is out of our hands - unless the U.S. is willing to guarantee Greece's debt or take an equity position in its government and other governments in Europe. At this juncture I have to admit nothing would surprise me - but I've said that a lot over the past few years.

The point is that the root of the problem is governments being too free with tax payers' money and making outrageous promises.

At one time I would have argued that the consequences (as John Maynard Keynes labeled it) of the peace settlement after WWI taught a lesson the world would never forget. But time goes by and lessons are forgot. Now, once again, we face a Europe that is imploding. Once again we have been whooping it up in the U.S. as the economic numbers surprise us on the upside. Once again contagion arises.
It is time to get "real".

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