Market Needs Touch Of Skepticism

When all the really important stories are on the bidness page, I get worried about our fellow citizens who are hanging on every word of the O.J. trial. Because they don’t hear the T. Rex coming. Remember the ominous thud … thud … thud in “Jurassic Park”? Well, there was just another heavy thud from the derivatives market.

The case of the 28-year-old trader who bet $29 billion of his company’s money and lost did hit the front page for a day because it forced the bankruptcy of the 233-year-old Barings Bank of Britain. But there are still a lot of 28-year-old traders out there. In fact, traders tend to be junior. Novelist Po Bronson, in an essay for The New York Times, said, “Thirty-year-olds manage mutual funds for the same reason we send 20-year-olds to fight our wars: They don’t realize they could get killed out there.”

Bronson is not the first, or the 100th, Cassandra to point out what’s happening in the financial industry. The industry got hooked on the easy profits from the huge drop in interest rates during the early ‘80s. When interest rates started up again, the industry tried to sustain growth by inventing new investment products: closed-end mutual funds, collateralized mortgage obligations, interest-only strips, specialty stock indexes, special investment vehicles, swaps, straddles, futures, junk bonds, derivatives. No one knows how much money is out there in those high-risk markets, but it’s enough to make October 1929 look like a day in the country.

Meanwhile, the new ideological blinders in Washington prevent anyone from even discussing the problem, much less doing anything about it. Mention the word “regulation,” and you’re told it’s not in the Contract With America - they’re busy saving us all from peril by throwing out the environmental laws. The fact that the markets look like the beginning of the savings-and-loan disaster seems to interest no one. The only pol I know of working on this is Sen. Tom Daschle of South Dakota (thank God for the populist tradition), who would like to get the government out of guaranteeing losses in these nut-ball trades. You recall that’s how we wound up with the tab for the S&L mess: The FDIC still guarantees $100,000 in bank accounts.

Another sporty little item on the bidness page is the grand jury looking into whether Wall Street has been screwing with the taxpayers on municipal bonds. According to an insider who is, in his own words, “ratting on the industry,” securities firms have been charging artificially high and potentially illegal prices for securities sold to local governments in complex bond deals. Keep an eye on this little hummer; we’re talking hundreds of millions of dollars in losses to the Treasury. Hell, the Republicans might not even need to cut poor crippled kids off SSI if we had that money.

For those who like the easy read on complicated financial stuff, Michael Ridpath’s new financial thriller, “Free to Trade,” is a humdinger. But it’s hard to tell the difference anymore between the financial thrillers and non-fiction accounts like “Barbarians at the Gate.” It’s all the same stuff.

Now here’s a nifty-thrifty cost-saving idea for the R’s in Washington. Here we have the poor old Securities and Exchange Commission outmanned, outgunned and generally unable to regulate. We also have the CIA sitting around with dog-all to do since the Soviets collapsed. They’re all at loose ends at Langley, all that great spy gear to catch do-badders just lying around. Why not give the CIA a new mission and sic ‘em on the market? Of course, you’d have to do just a tee-tiny bit of regulation - say, make it illegal to bet $29 billion of other people’s money on Japanese interest futures.

I realize that all this flies in the faith of the new religion in Washington: that the free market solves all problems. Even Adam Smith never believed that. Faith is a wonderful thing, but you know, just a touch of that old skepticism never hurt anyone. Those who remember the ‘30s - or, for that matter, the ‘80s - will recall that a touch of oversight is not a bad thing.

I remember that some mischievous populist in the Texas Lege once threw an amendment into something else entirely that was designed to screw in all the bond lawyers. Everyone hates bond lawyers, so all the boys in the Lege went along with it, knowing full well that it would be reversed once the lobby onslaught got started. They were pleased with themselves for having for once kicked a major lobby in the nuts, as it were, and were high-fiving all over the House. Former Rep. Paul Colbert of Houston, one of the smartest people in Lege, came up quietly and said, “Hear that?”

“Hear what?”

“The sound of all those corporate jets revving up on the runways in Houston and Dallas.”

According to Bob Woodward’s book “Agenda,” on the fight about President Clinton’s first budget, Clinton, who wanted to invest money in the country, at one point said in exasperation: “You mean my whole program is ——- because of bond dealers?”

It ain’t just Bill Clinton. It’s all of us.

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