Economists tell us that capitalism works best when buyers and sellers are fully informed. Or, to use the buzz word, when markets are “transparent”. How transparent are US markets? Back in 2006 Treasury Secretary Paulson lauded the US capital markets as “the most transparent in the world”.
For an update and a real world view lets check in with Bill Gross, manager of $700 billion in fixed income securities at PIMCO. Here’s how he describes his job these days:
There’s a card game most boomers know as “Old Maid.” ….. If you had the “Maid” the object was to dump it on someone else, but doing that involved numerous deceptions not totally unlike today’s shenanigans involving our capital markets and their imploding financial conduits. First of all, you had to pretend you didn’t have it in your hand. A calm, “no problem” facial expression was a requisite, but then you still had to entice your opponent on your left to pull the old lady out of a handheld mini-stack of perhaps 6 or 7 of your remaining cards. Placing “the card” at either end was one tactic, but the most successful maneuver always seemed to be exposing one edge of a middle card just a little bit higher than all the rest – the bait. Once dumped, you could breathe a temporary sigh of relief until, until…well until it was your turn to draw again from that all too suspicious player on your right.
Old Maid now has a second life mimicking our financial markets, and at PIMCO we’ve played it frequently in our Investment Committee over the past several months. “Who’s got the ‘Old Maid’?” we ask over and over again …This shunned lady in asset form was originally identified as a subprime mortgage, … No Old Maids in those hands, investors were assured; they were Babes with a stacked deck. Ah, but Father Time has a way of exposing plastic surgery and there have been implants aplenty in recent years.
Yep. Most transparent markets in the world! How did the best and brightest financial brains in the world end up playing Old Maid with so much money that it threatens the economy? Only a game that big would convince Uncle Sam to take a seat at the table.