Cui bono?

Have you read this?

If not, go check it out. It's not just a rundown of what happened to Bear Stearns. It makes you wonder-- What if it was intentional? What if Bear imploded because someone(s) wanted it to implode? Why would someone want to take down Bear?

I've been thinking a lot about the markets recently. Oil up, dollar down, inflation up, housing prices down, foreclosures up, stock market down. It seems more amplified now than ever before in my lifetime (and I remember the 70's oil shortage). It's all connected, thanks to the efficiency of computers. Think you understand how it all works? Read this then come back and tell me you still think you understand.

Most people believe that the markets are too efficient to be gamed or manipulated; that it's impossible to time it or consistently better the returns without running afoul of insider trading laws. It's all just risk and reward.

But over the last 20 years a whole class of professionals has sprung up-- investment bankers. By all accounts the sharp ones make obscene amounts of money. They're the ones who dreamed up the Collateralized Debt Objects that wrapped risky mortgages in what appeared to be low-risk, high-return investments. Nobody understands these things. Maybe not even the people who created them.

According to Bad Money, our GDP is now made up in significant part (20%) by "financial services." It's the single largest sector of the private economy. These things aren't real. You can't see them or touch them. They're just ways of packaging up debt and credit. Mostly debt.

Who provides the "financial services"? Banks. Run by investment bankers. Smart investment bankers. Some who probably have a really good idea how markets work, and just what would happen if a certain sequence of events occurred to a certain company like Bear Stearns.

Bear tanked, and though JP Morgan bought the remains, it was a shotgun wedding with the Fed holding the shotgun in one hand and a Bible in the other. You can bet that the American taxpayer is going to wind up picking up the tab. The same thing is happening to Freddie and Fannie, and you-know-who is going to get stuck with the bill again.

Maybe these catastrophic failures are just accidents-- unintended and unforeseen. Or maybe not. I don't know, but I think it's worth asking, "Cui bono?"