The Wild, Wild West
A very interesting conversation on Market Anarchy came up in a Interview Adam Taggart of Wealthion did with Bill Fleckenstein last week:
Adam: I just want to read this quote I saw a few hours ago from Greenleaf Capital’s David Einhorn’s recent letter to investors:
Many who would never support defunding the police have supported – and for all intents and purposes have succeeded – in almost completely defanging, if not defunding, the regulators.
Quasi-anarchy appears to rule in markets … there is no cop on the beat. Companies and managements that are emboldened enough to engage in malfeasance have little to fear.
Adam: Are we letting the inmates run the asylum, and are they going to run it into chaos?
Bill: Where do you want me to start?
Bill: You know the Sarbanes-Oxley Act they passed after the bubble [2002]? It was supposed to be a crime to sign a financial statement that turned out to be inaccurate. We can count on one hand the number of people who went to jail in the wake of the ’08 financial crisis when so many of the financial statements were fraudulent, particularly those at the epicenter of the problem like Lehman and Baer Stearns.
Bill: You’re not supposed to use non-GAAP accounting methods. They [regulators] don’t care about that. They can’t catch the obvious stuff much less all the crazy crap that has happened.
Bill: They can’t possibly understand what they have allowed to happen with the Passive Investing getting so big. It’s a Systemic problem, but they can’t understand the obvious stuff, this is going to be way over their head, but it really should be in their purview!
Bill: So with them not doing their job at any level we are now left with this Wild, Wild West of the Marketplace that we have today!
Bill: Whose Job was it to make sure that firms didn’t allow the kind of leverage and swaps that we just saw with Mr. Crouching Tiger? [Bill Hwang, Archegos, formerly Tiger Management.] Credit Suisse managed to lose seven billion dollars on one account. Should that stuff be happening?
Bill: Some guy living in his Mom’s basement gets a tip, trades on inside information and makes a couple thousand dollars. They go after him!
No Cop on the Beat? Inmates Running the Asylum? The Wild, Wild West? Pick your metaphor, but there’s some “crazy crap” going on out there!
