As Gold Sings, Wall Street Performs a Weak Karaoke
by "farfel"One of America's favorite recreational activities takes place at various bars all across the nation. Almost any night, you will find raucous, boozy revelers grabbing a microphone in an attempt to imitate their favorite song artists. Unfortunately, most of the amateur singers pale in comparison to their singing idols and the audience requires strong eardrums to withstand the aural assault. Originally developed in Japan, the popular sing-along event known as Karaoke has become an entrenched American import --- and more importantly it has become a true metaphor for the US financial markets today.
Once upon a time, there was a gold standard in America -- and the value of
paper instruments derived from the value of gold. The US dollar was a proxy for gold and
every financial instrument denominated in dollars (treasuries, bonds,
stocks, etc.) had an indirect relationship to gold. Since gold was the
arbiter of monetary value, then gold stood as the highest quality asset any
individual could own. In Karaoke terms, gold was the original singer of
the hit song while Wall Street's paper instruments were mere Karaoke
performers who could only aspire to be as good as gold, yet never quite
attain its hallowed status.
When America abandoned the gold standard, the Federal government and Wall
Street began an earnest mission to change the gold/paper relationship.
Instead of financial paper serving as a proxy for gold, the US Establishment aimed to
demonetize gold and transform it into a mere commodity, thus making all things connected to
gold into servants of the US dollar. Again, in Karaoke terms, it was as though the owners of
America's Karaoke bars decided one night to throw away all the original singer soundtracks
and replace them with their patron's inferior recordings. As a result, Karaoke performers
would have to sing along to poor quality
recordings of themselves, without any reference to the superior renditions
of the originals. The inevitable result: a progressive deterioration in
the quality of the Karoake to the point where the performances would become
complete unbearable trash.
So it is with paper/digital financial instruments today: a rapidly
escalating moutainous pile of derivatives whose meaning is oft
incomprehensible and whose real value is entirely dependent upon
the interpretations and perceptions of the derivatives' creators.
"If X is derived from P and P is partially derived from R and R is entirely
derived from C and C is the mean average of S, then what is the true value
of X?" Now how would like to own that particular piece of paper?
Nor does the financial Establishment do much to inspire mass confidence in
derivative instruments or any other kind of financial instrument.
The Treasury Secretary resigns....yet there is no immediate replacement.
When the replacement is finally announced, he turns out to be the leader
of a rail freight corporation whose major claim to fame is his co-chair
position on an organization to explore the reasons for declining ethics in corporate America (The Commission on Public Trust). Sounds nice huh...until you look a little deeper. Included amongst the members of this group: Arthur Levitt, former head of the SEC, who merrily sat upon his hands during the Nineties' stock bubble and looked the other way as one IPO scam after another was perpetrated upon a gullible investor public. So much for the integrity of that commission.
The SEC chairman resigns ...yet there is no immediate replacement. Then
when the announcement finally comes, we are treated to the anointment of yet another Wall Street crony. William Donaldson may not be a member of a bullion bank but he is far too well liked by Wall Street to be the right man to restore integrity. The proper regulator should be somebody who inspires fear and loathing amongst the predatory wolves of the financial community. The proper regulator would have the respective chairmen of the NYSE and Goldman Sachs providing outraged comments to the Media, something along the lines of....
"Are they kidding? THAT guy is a complete jerk!"
Speaking of Goldman Sachs, the White House Economic advisor resigns...and a former co-chair of that bullion bank is proposed as his replacement. Still MORE cronyism and MORE substantive evidence that the Bush administration has no genuine intention of restoring good faith to the financial markets. Since the stock market bubble and all its gross malfeasance occurred during the tenure of former Treasury Secretary/Goldman partner Robert Rubin, would it not be reasonable to expect that any earnest attempts to reform the financial system should preclude returning "the same old foxes (and their proxies) to oversee the chicken coop?"
As a gold investor, it is tremendously depressing to see various economic appointments designed to protect the corrupted status quo even as the Establishment proclaims it is the champion of aggressive reforms. Although the ultimate result might lead to a dramatic escalation in the gold price someday, nevertheless, as good faith in the markets' integrity continues its decline, some days you cannot help but feel as though you are living on a sinking Titanic where gold merely provides you the most comfortable deck chair.
Alas, the existential dilemma of the gold investor continues.
In Karaoke terms, all we can do is suffer and endure one atonal, screechy singer after another while awaiting the return of the one sweet golden voice capable of reminding us just how beautiful a song can be. Let us just hope that by the time that golden voice is ready to shine in all its glory, the bar is still in business.
16 December 2002
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