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	Let Freedom Reign
	Why Wayward Banks Deserve Lynch Mob

	MaryEllen Tribby Publisher
	Jedd Canty Business Director
	Jon Lewis Managing Editor
	Nicole Reynolds Marketing
	Jon Herring Editor

	Charles Delvalle
	Andrew M. Gordon
	Dr. Russell McDougal D.D.S.
	Rick Pendergraft
	Chris Johnson

Wednesday, December 26, 2007

Let Freedom Reign


	Chris Johnson

A few weeks ago, I wrote an article that discussed the government's plan to help distressed borrowers affected by the subprime mess. This comes as the housing market sees foreclosures increase at an incredibly rapid pace.

Believe it or not, most of the feedback I received largely agreed with my thoughts. Some readers even thought I was too soft. But one reader sent me the following email:

Like most inexpensive criticisms, yours, of the U. S. Treasury Secretary's proposal, focus on suspicious negative effects, but it is void of suggesting a positive solution to the looming housing problems for 2008. If you would be the U. S. Treasury Secretary, what is your proposal?
-- WS

My response is fairly simple. I believe that we should let free markets be exactly that - free.

Investors are very passionate about our "free" market being the best market on the planet … when the going is good. It's when the going gets rough that investors look for the government to intervene. Sure, there are situations when government intervention makes good sense. But they are rare.

In this case, we are talking about combining one of the most efficient entities on the planet - a free market - with one of the most inefficient things on earth - good old-fashioned politics. I’d like to know the last time a dollar created by government aid cost less than twice that to produce. The problem, of course is that you and I have to make up the extra dollar.

To describe the housing and stock markets as being on delicate ground would be an understatement. The market has been in such situations and managed to survive because of the strong fundamentals inherent in the free market system. It may fall, but it will also rise again.

Here’s a quick analogy. Years ago the steel industry succeeded in having tariffs levied on foreign steel coming into the U.S. Domestic manufacturers didn’t like imported steel forcing prices lower. These tariffs succeeded in curbing steel price declines (temporarily) and kept several steel companies on the brink from going out of business. The problem? Well, the companies that were on life support thanks to the tariffs added unnecessary competition to domestic steel companies that were doing the right things to successfully compete in a lower-price environment.

The end result? You and I now pay for higher steel prices (thanks to the government, not free market prices), while the companies that were on tariff life support will still probably go out of business once the tariffs run out.

Free markets work … in both good and bad times.

Chris Johnson

P.S. To let me know what you thought of today's article, send an e-mail to: feedback@investorsdailyedge.com.

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Why Wayward Banks Deserve Lynch Mob


Andrew Gordon

Is it possible to give big banks the benefit of the doubt on maybe not deliberately deepening and extending the credit mess we’re in? No way. Good business is one thing. But selling securities that have already gone bad and knowing about it beforehand is quite another.

How the heck is this any different from selling bad meat, toys with lead poisoning, or medicines with serious side effects?

I’m not the only one asking these questions. For example, one reader, Gisbert, can’t understand why customers stuck with heavily discounted securities don’t form a lynch mob and go after the big banks which screwed them. Go ahead, Gisbert, tell it like it is.

As a German and living in Germany, I am not very much affected by the current banking mess. However, the one question that keeps coming up again and again in me is about all these fund managers and investors that invested in these instruments and lost money. Seeing that GS [Goldman Sachs] shorted them, wouldn't they be so pissed off as to never ever make business with GS again and go to a different firm? Or is it that a lot of fund managers simply don't care?

Oh, they care, alright, Gisbert. I think they want revenge. Wouldn’t you? And the rich investors who have their savings tied up in hedge funds? And let’s not forget the not-so-rich investors whose savings in pension funds have also come under attack.

Right now the funds are waiting to see what kind of evidence the SEC can dredge up from the more than three dozen investigations it has launched into this very issue. At that point, they’ll have a better idea of what they can do about it.

I got a feeling that hard evidence is going to be scarce and the banks are going to get away with conducting themselves in such a shameless and dishonest way. So, where would this leave the hedge funds? Red-faced. And looking a bit stupid. They should’ve known better. They’re not dumb. But greed overruled their better judgment.

Happy Holidays,

Andrew Gordon

P.S. To let me know what you thought of today's article, send an e-mail to: feedback@investorsdailyedge.com.

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