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Harry Newton's In Search of The Perfect Investment Technology Investor. Harry Newton

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9:00 AM EST, Tuesday, January 27, 2009: Long-term there'll be more bubbles to enjoy. The next one will probably be new energy. Short-term, however, we're stuck with a mess, as massive continuing firings put pressure on the 70% of our GDP that the consumer accounts for. As world economies crater --the Russian Ruble has been devalued 13 times in the past two months -- gold looks increasingly tantalizing.

Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve. His postmortem published in the New York Times a couple of days ago is educational, if largely designed to protect his tushy:

Six Errors on the Path to the Financial Crisis

WHAT’S a nice economy like ours doing in a place like this? As the country descends into what is likely to be its worst postwar recession, Americans are distressed, bewildered and asking serious questions: Didn’t we learn how to avoid such catastrophes decades ago? Has American-style capitalism failed us so badly that it needs a radical overhaul?

The answers, I believe, are yes and no. Our capitalist system did not condemn us to this fate. Instead, it was largely a series of avoidable — yes, avoidable — human errors. Recognizing and understanding these errors will help us fix the system so that it doesn’t malfunction so badly again. And we can do so without ending capitalism as we know it.

My list of errors has six whoppers, in chronologically order. I omit mistakes that became clear only in hindsight, limiting myself to those where prominent voices advocated a different course at the time. Had these six choices been different, I believe the inevitable bursting of the housing bubble would have caused far less harm.

WILD DERIVATIVES In 1998, when Brooksley E. Born, then chairwoman of the Commodity Futures Trading Commission, sought to extend its regulatory reach into the derivatives world, top officials of the Treasury Department, the Federal Reserve and the Securities and Exchange Commission squelched the idea. While her specific plan may not have been ideal, does anyone doubt that the financial turmoil would have been less severe if derivatives trading had acquired a zookeeper a decade ago?

SKY-HIGH LEVERAGE The second error came in 2004, when the S.E.C. let securities firms raise their leverage sharply. Before then, leverage of 12 to 1 was typical; afterward, it shot up to more like 33 to 1. What were the S.E.C. and the heads of the firms thinking? Remember, under 33-to-1 leverage, a mere 3 percent decline in asset values wipes out a company. Had leverage stayed at 12 to 1, these firms wouldn’t have grown as big or been as fragile.

A SUBPRIME SURGE The next error came in stages, from 2004 to 2007, as subprime lending grew from a small corner of the mortgage market into a large, dangerous one. Lending standards fell disgracefully, and dubious transactions became common.

Why wasn’t this insanity stopped? There are two answers, and each holds a lesson. One is that bank regulators were asleep at the switch. Entranced by laissez faire-y tales, they ignored warnings from those like Edward M. Gramlich, then a Fed governor, who saw the problem brewing years before the fall.

The other answer is that many of the worst subprime mortgages originated outside the banking system, beyond the reach of any federal regulator. That regulatory hole needs to be plugged.

FIDDLING ON FORECLOSURES The government’s continuing failure to do anything large and serious to limit foreclosures is tragic. The broad contours of the foreclosure tsunami were clear more than a year ago — and people like Representative Barney Frank, Democrat of Massachusetts, and Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation, were sounding alarms.

Yet the Treasury and Congress fiddled while homes burned. Why? Free-market ideology, denial and an unwillingness to commit taxpayer funds all played roles. Sadly, the problem should now be much smaller than it is.

LETTING LEHMAN GO The next whopper came in September, when Lehman Brothers, unlike Bear Stearns before it, was allowed to fail. Perhaps it was a case of misjudgment by officials who deemed Lehman neither too big nor too entangled — with other financial institutions — to fail. Or perhaps they wanted to make an offering to the moral-hazard gods. Regardless, everything fell apart after Lehman.

People in the market often say they can make money under any set of rules, as long as they know what they are. Coming just six months after Bear’s rescue, the Lehman decision tossed the presumed rule book out the window. If Bear was too big to fail, how could Lehman, at twice its size, not be? If Bear was too entangled to fail, why was Lehman not?

After Lehman went over the cliff, no financial institution seemed safe. So lending froze, and the economy sank like a stone. It was a colossal error, and many people said so at the time.

TARP’S DETOUR The final major error is mismanagement of the Troubled Asset Relief Program, the $700 billion bailout fund. As I wrote here last month, decisions of Henry M. Paulson Jr., the former Treasury secretary, about using the TARP’s first $350 billion were an inconsistent mess. Instead of pursuing the TARP’s intended purposes, he used most of the funds to inject capital into banks — which he did poorly.

To illustrate what might have been, consider Fed programs to buy commercial paper and mortgage-backed securities. These facilities do roughly what TARP was supposed to do: buy troubled assets. And they have breathed some life into those moribund markets. The lesson for the new Treasury secretary is clear: use TARP money to buy troubled assets and to mitigate foreclosures.

Six fateful decisions — all made the wrong way. Imagine what the world would be like now if the housing bubble burst but those six things were different: if derivatives were traded on organized exchanges, if leverage were far lower, if subprime lending were smaller and done responsibly, if strong actions to limit foreclosures were taken right away, if Lehman were not allowed to fail, and if the TARP funds were used as directed.

All of this was possible. And if history had gone that way, I believe that the financial world and the economy would look far less grim than they do today.

For this litany of errors, many people in authority owe millions of Americans an apology. Richard A. Clarke, former national security adviser, set a good example when he told the commission investigating the 9/11 attacks that he wanted victims’ families “to know why we failed and what I think we need to do to ensure that nothing like that ever happens again.” I’m waiting for similar words from our financial leaders, both public and private.

How Swiss banks make their money. Marketing is wonderful. It sets images in people's brains, like Swiss banks are honest and competent. Based on personal experience, I'd say they're less competent and less honest than all the U.S. banks I've dealt with. Latest nail in the coffin of Swiss bank honesty is that many of them ran fund of funds which funneled investor money to Madoff. Many of the banks knew something was fishy about Madoff. But they thought it was because Madoff was front-running -- which is 100% illegal in the United States. And the Swiss banks conveniently ignored their fears in favor of their fees. From today's Bloomberg piece, Madoff Enablers Winked at Suspected Front-Running

One Swiss bank, Geneva-based Union Bancaire Privee, which had $700 million invested with Madoff, told clients in a Dec. 17, 2008, letter that “in essence, the perceived edge was Madoff’s ability to gather and process market-order-flow information to time the implementation of the split-strike option strategy.

Sometimes you wonder. John A. Thain, the former chief executive of Merrill Lynch, spent $1.2 million renovating his office at Bank of America. The renovation included a $35,000 commode and an $87,000 area rug. After the sh*t hit the fan about his renovations, Thain said the renovation was a "mistake." Thain is clearly a piece of work. He forgot to tell Bank of America about Merrill's much bigger-than-expected losses in the fourth quarter, which caused Bank of America to go back to the government for another round of financial aid. He also paid discretionary bonuses to Merrill employees just a few days before the sale of Merrill to Bank of America closed — considerably earlier than such bonuses were paid out in years past.

How to live longer: Reporters report on what interests them. Since most of 60 Minutes' staff is between 80 and death, they're obviously keen on living longer. Latest secrets: More sleep, eating less, and drinking more red wine. You can watch 60 Minutes segments on the Internet -- CBS News Videos. You can also listen to 60 Minutes via Podcasts you get free on Apple's iTunes store.

My son's latest discovery. He's living in an old, cold rented house in Boston. In desperation he bought this $10 Duck Window Kit.

Says Michael, "It is great. Installs quickly. It made an immediate difference to the temperature of my room. The temp has gone up by 5+ degrees without doing anything else. I'm warm. I can study better. You are now getting more value for the outrageous school fees you're paying for me."

Only $10 at Amazon.

Australian Open Tennis continues. The huge time difference between us and Australia makes this ideal for TiVo.
M = Men, W = Women, D = Doubles. All times EST. The tennis is unbelievably exciting. Sadly, every one of the players is better than I am. My wife points out they're also younger.

Great spam is rare.
But this one is the best.

A woman proudly told her friend, "I'm responsible for making my husband a millionaire."

"What was he before he married you?" the friend asked.

Replied the wife, "A billionaire."

In the old days
A tour guide was showing a tourist around Washington, D. C. The guide pointed out the place where George Washington supposedly threw a dollar across the Potomac River.

"That's impossible," said the tourist. "No one could throw a coin that far!"

"You have to remember," answered the guide. "A dollar went a lot farther in those days."

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.