Saturday, October 31, 2009

Grantham on a Lost Opportunity

Jeremy Grantham's 3rd Quarter update to his investors is wonderful. If you're a financial nerd, the whole thing is a great read. If you're an average Joe, than the closing section titled, Lessons Not Learned, is short and to the point. How have we missed this opportunity to restructure the fiancial system?", he asks. I've embedded the whole document below but this is one of my favorite parts.

"We have a once-in-a-lifetime opportunity to effect genuine change given that the general public is disgusted with the financial system and none too pleased with Congress. I have no idea why the current administration, which came in on a promise of change, for heaven’s sake, is so determined to protect the status quo of the financial system at the expense of already weary taxpayers who are promised only somewhat better lifeboats. 

It is obvious to most that there was a more or less complete failure of our private financial system and its public overseers. The regulatory leaders in particular were all far too captured and cozy in their dealings with reckless and greedy financial enterprises. Congress also failed in its role. For example, it did not rise to the occasion to limit the recklessness of Fannie and Freddie. Nor did it encourage the regulation of new financial instruments. Quite the reverse, as exemplified by the sorry tale of CFTC Chairman Brooksley Born’s fight to regulate credit default swaps. 

But, at least now, Congress seems to realize the problem: the current financial system is too large and complicated for the ordinary people attempting to control it. Even Barney Frank, were he on his death bed, might admit this; and most members of Congress know that they hardly understand the financial system at all. Many of the banks individually are both too big and so complicated that none of their own bosses clearly understand their own complexity and risk taking. The recent boom and the ensuing crisis are a wonderfully scientific experiment with definitive results that we are all trying to ignore. And, except for bankers, who have Congress in an iron grip, we all want and need a profound change. We all want smaller, simpler banks that are not too big to fail. And we can and should arrange it!"

Enjoy the rest of the article.

Jeremy Grantham Third Quarter 2009 Letter height="500" width="100%" > value="">