A simple case of reflexology

I sit here tapping away at the keyboard on the day/weekend that marks the 5 year anniversary of the fall of Lehman Brothers. Most attribute this solitary event as the pinnacle of the mountain from which the world came sliding down ass first at break neck speeds to finally end up at the depths of the global financial crisis (or at least the 2008 model). Whether this is a symbolic event or whether it’s simply the most notorious of the lot will be for others to judge, but the undeniable fact remains that from here on in things were going to be different. Just how different though, is another matter entirely.

I remember (like one those horrible clichés) exactly where I was and what I was doing as the news broke. I sat shaking my head like many others at what was unfolding and simply put was incredulous that what previously seemed an impenetrable, rock solid castle was coming toppling down like that proverbial house of cards in a sudden gust of wind. Reliving these happenings now is both irrelevant and sycophantic and perhaps best left in the realms of “cover bands” that seek to remember past glories of artists of far greater stature and notoriety. If however, you are indeed so inclined then I can draw your attention to a Twitter account (@TBTFLive) which has been doing an outstanding job of just that. I have neither the inclination nor patience, luckily though, they do.

In the months following the aftermath of this crushing fall from grace and all that it brought with it, I was sitting with an old friend of mine, chewing the fat, shooting the breeze and generally talking a whole manner of sh*t while imbibing adult beverages to help the conversation flow as it were. Now this pal of mine, is by no means an ordinary man, a colourful employment and life history has seen him perform the tasks of educator, serial entrepreneur, taxi driver, Afghani logistician (remember those first democratic elections a few years back, yeah he was there) and even (for not an insubstantial while) a futures broker (yes part of the rank and file to which we all belong or have belonged at one time or another ourselves). As the conversation drew on and lips invariably became looser with each sip of social lubricant topics flickered by until we somehow ended up discussing the state of the financial world, markets and what the bloody hell was going on. As I said, sat across from me, was a man who’d seen a lot and done even more, a man of vast intelligence (despite his simpleton appearance) and experience. Not a fool regurgitating the latest mass media vitriol, rather someone with a discernible, objective and mainly rational understanding of the world (and as noted, things financial due to his prior brush with markets). What he said next though, at first made me giggle quietly, which as he repeated his statement trying to validate its relevance and correctness turned my giggle into a full blown hearty belly laugh, eventually with me wiping away the tears running from my eyes as the hilarity of what he said truly hit home. For the life of me I can’t quote him verbatim now, but the sentiment of what he said went something along the lines of “those f*cking bankers, look what they’ve done to the world we live in. They’ve padded their own pockets with the blood, sweat, tears and lives of ordinary people, brought untold amounts and years of irreparable damage and in the end have gotten away rich and entirely unscathed. And worst of all he shouted, the authorities haven’t lifted a finger and in fact where were they this whole time?”

I’d honestly expected this sort of rhetoric from your layman on the street, the one that reads the tabloids (and even broadsheets at the time as the case happened to be), the same man that listens to right wing conservative nut job radio shock jocks etc, but never from an old pal of mine, especially one (as noted previously) who’d for a long enough period of time been a part of the very world he was now vehemently defaming. But why was I laughing so hard, surely there was nothing funny about any of this. No, I was laughing because, in a brief moment of clarity, for the first time in my life it had occurred to me what the NRA’s key defence of firearm ownership in the US had actually meant. “Guns don’t kill people. People, kill people” Charlton Heston emphatically proclaimed at countless NRA meetings as has every card carrying member yelled for years. That’s right, guns don’t kill people, people kill people. So too here, it’s not the bankers that did this, it’s the system of inept governing bodies and authorities that allowed the situation to fester, grow and ultimately explode in a haze of toxic gas and radioactive fallout. The article written just this weekend in the Washington Post http://www.washingtonpost.com/wp-dyn/content/article/2008/10/01/AR2008100101149.html?sub=AR goes a lot further than I possibly could to illustrate and drive home this very point.

In simple terms, the world needed a scapegoat, and promptly found it in the form of the devilishly horn headed banker! Ok, but my laughter, the NRA etc? Simple, we live in a world, an economic model, capitalism which promotes and rewards the smartest, quickest, most clever and ruthless. Get in first, be smarter, play harder, do it legally, do it quickly and get the hell out of dodge, all that much more rich for your efforts. That’s the model and world we live in, think otherwise and quite frankly, you’re just fooling yourself. And that brings me back to the argument of who actually inflicts death. It isn’t the banker that while behaving entirely amorally in raping and pillaging for pure self interest, no. Instead, it’s the morally vague, corrupt and entirely inept authorities that allow such practices to proliferate, because they are simply unable (if not arguably unwilling) to keep up with the times, understand the loopholes which they themselves create (and fail to close in a timely fashion) which do most, if not all, the damage. In failing to understand the playing field which they seemingly create, police and adjudicate, they are the ones doing the most irrevocable damage.

In the now 5 years that have passed since the fall of Lehman, the onset of the GFC and the plethora of all manner of other milestones, a couple of things have remained constant and unchanged. The authorities are still alarmingly lax in their pursuit of fair and equitable markets (exhibit number one, the still incomplete Volcker rule), stamping out corrupt and unethical practices. What little progress that has actually been made has been invariably futile at best. The participants remain well ahead of the regulatory curve, having the means and resources to seemingly stay that way forever. New forays into technology have meant that markets have developed and evolved in almost Darwinist fashion, we now have the onslaught of HFT and all the pandemonium that brings, and perhaps more pronounced than ever before the case for simple reflexology.

Markets and the most successful of their participants have always been rewarded for being smarter and quicker than the next guy, spotting new fads, trends, events et al that would make the discoverer so much the wealthier for that eureka moment. Now however, what was previously a product of hard graft, innate intelligence and a certain degree of discretion is now nothing more than genuine reflex. With markets twisted, tangled and quite frankly f****d 7 ways from Sunday, the containment that central banks and respective governments have sought to attain to avoid another Lehman moment has led to shooting first and asking questions later (if at all for that matter).

If ever you needed evidence of this very fact, just have a quick glance over how all markets have traded this year. Beginning with the overhang of the introduction of Abenomics late last year, culminating in the fervent rush for exit doors out of the burning theatre that was EM around midyear. Not to be outdone, check out what US treasury paper (in all tenors) as well as the USD has done since the mention of the taper was uttered. What about bazookas fabricated but not fired by the ECB. The list surely goes on. The point is that rather than actually thinking about an event, policy change etc, the implications and repercussions, the market simply acts and does so with a veracity not seen before. The herd mentality is sharp and deadly and it’s only truly those with the sheer massive size and accompanying market influence that are reaping the bulk of the benefits.

The rules might have “changed” but certainly the behaviour hasn’t and perhaps most poignantly of all, that turn of events 5 years ago, has done little else than hone and sharpen the killer instincts, the reflexes, that have always been innately present in the great white market hunters.

Get in, get out, shoot first, ask questions later (if ever) do it quickly, claim your prize.
Ladies and gentlemen I present you, the post Lehman market.

Disclaimer