As we sift through the rubble of another popped bubble, I’m reminded of the classic movie, “The Sting”. The story revolves around con men making up a Tale that convinces a Mark to freely give them money.  After the Mark gives them the money, they split up their shares and head into the sunset. It isn’t legal but it isn’t theft; kind of like what we’ve seen with the Internet and Real Estate Bubbles. 

 The Tales

A few short years ago technology and the internet mesmerized the masses. The Marks were invited to the world of privilege, IPO’s. The freshly minted stock was rolling off the printing presses far too slowly to satisfy the Marks who had been whipped into a buying frenzy. The ink on most internet IPO’s, like the ink on the subsequent subprime sequel, was worthless before it dried. Only when there were no new Marks to buy the worthless paper did they realize they’d been stung. 

 

More recently, the floodgates of mortgage finance were opened to millions of Marks, formerly relegated to wasting their money on rent. Houses couldn’t be made fast enough for the millions of pre-approved, American-dream-seekers. Trillions in debt was created and much of it transferred, in a game that only simulated economic growth for the Marks. All those tasty new mortgages were bundled and sold as AAA paper and only when the Marks couldn’t pay their mortgages did everyone realize they’d been stung. 

 

Financial CEOs’ dabbing sweat off their brows reminds me of Paul Newman brushing his nose to give his friends the high sign. The Tales worked and the money is gone. Step back and see these bubbles for what they were - clever cons that seduced a willing public out of lots of money.  Embarrassingly the Feds have been naive accomplices. Desperate to promote the notion that we’ve evolved above recessions, they’ve supplied unlimited credit which provided front money for the cons. 

 

Now that the smoke and mirrors are getting packed up, the Federal Reserve can better see that the colossal credit bubbles are economic simulation not stimulation; accomplishing little more than further elevating the top 1% from what is becoming the proliterate. Could someone please remind them, as we threaten a deflationary spiral, that they are commissioned to regulate leverage, both in the banks and in the markets? If it looks too good to be true, raise the margin requirements!

 

This time the disenfranchised Mark is fighting mad and not interested in taking it on the chin. As the CEO’s pass the high sign, the Mark’s finally questioning why the 25:1 CEO vs. worker compensation of his youth has exploded to the 500:1 ratio of today. He finds it difficult to comprehend that a single human can “earn” a significant percentage of his nation’s aggregated product by running what seems to be a government funded confidence game. And, why those fortunes are retained despite the demise of the very institution that generated them. 

 

The latest “everybody-can-be-rich-con” is now dismantled and the CEO’s are scrambling to fly their jet helicopters into the sunset. This time, however, the con was so big that it almost felled the republic and hopefully the Marks will at least be avenged by a parade of orange jumpsuits. The Wall Street machine that produced these cons is no longer and that may be a happier ending than the original.