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Moon Kil Woong
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Moon Kil Woong is currently a VP at a SME. Previously he was a tech stock consultant, VP of Research at ING, and sell side Director at Crédit Agricole Indosuez. Moon Kil Woong has a Masters in Public Administration from SJSU.
  • When will it all end? 9 comments
    May 16, 2009 4:16 AM

    "This is the way the world ends. Not in a bang but a whimper." T.S. Elliott.

    Why am I drawn to this poetic line when thinking about our current financial crisis? Actually this is a crisis of conscious more than anything else. Perhaps I am lamenting the end of capitalism by a thousand cuts. The parsing up of risk and reward and arbitrary and corrupt redistribution of financial wealth we are seeing today.

    Sure, people say this is necessary in order to save our economy that we bail out too big to fail corporations like Fannie Mae and Freddie Mac. Then of course by the same measure bail out too big to fail banks. Then bail out too big to fail derivatives/Insurance companies like AIG. And yet, by doing so we loose ourselves and our moral compass. It is no wonder that we find ourselves allowing the unconscionable to occur afterwards. We force big banks to eat one another to become even bigger while failing to prevent the greediest and worst culprit Citibank from shrinking. Likewise, we embrace Fannie Mae and Freddie Mac and ask them to do exactly what got them to go under in the first place, sell mortgages at artificially low rates to people who maybe shouldn’t buy a house. And what happens, they start gobbling up marketshare with even greater added risk to the taxpayer even though the Treasury said they wanted to see them get smaller not larger to lower endemic risk.

    If this is a free market system then our founding father was Stalin. If you believe you can fairly compete with Fannie Mae and Freddie Mac think again. Forget about a fair, solvent, and balanced local bank ever competing with the mega banks/brokerages. After all, they can eat risk like it was bon bons and shovel it all onto the taxpayers platinum card.

    You might wonder why I leave out GM and the auto industry in my tirade against a broken system. I leave it out only because this is still playing out. First, the government prevented the market system to work by preventing bankruptcy. However it has found that this is not enough affront to the tried and true economic system we have in place. They have now stooped to new lows by what they are doing with Chrysler and GM. The fact is, letting Chrysler and GM go under is worse than the following outrages to a free market system.

    Why do I say this? Because the government is trying to corral holders of equity into a system of their own devising and break contract law that is the basic underpinning basic fundamental rights that protect everyone's capital and owner’s equity. I'd much rather see a bailout than see the government say to you that you have no rights to claim assets on a company that you funded when it is written in law that you do. Furthermore, to deny people equity when they are entitled it is scandalous. The not so proud owners of Chrysler should actually be the bondholders.

    And so the slow train to destruction marches on. As the economy deteriorates, so does our moral and legal system that we cherish. Today the treasury is extending TARP funds to too big to fail insurers including Hartford, Prudential, Lincoln National, Principal, Ameriprise, and Allstate. What too big to fail segment will it be tomorrow: homebuilders, shipbuilders, medical companies, computer companies? We lambast Venezuela and yet we seem to be emulating them. 

    If indeed we see green shoots why are the government’s insidious hands plowing even further into the fertile ground of free enterprise?

    Although I invest in equities and enjoy a rally as much as others, I’ll gladly forgo gains, even suck up some losses, in order to insure that the market is fundamentally strong and the rules of the game are on the up and up. This is not the case today. I have never seen a more crooked market than this.

    Although the market has rallied on an infusion of questionable money, mostly from a recent fleeing of government bond’s as interest rates rise, I still look at the economy as eroding precisely because the fundamentals of our economic structure are still being eroded. Doesn’t everyone see that the fair, impartial and organized free market structure is slowly being replaced by a rigid, government dependent one addicted to free money with the expectation of subsidized risk.

    Even China is growing leery of the US government’s actions.

    There is little room for small businesses and innovation if you fill the economy with state run subsidized mega companies. If you prevent financial companies that aren’t solvent from going under you prevent their depositors from depositing their money into good banks that loan to profitable and stable companies and individuals. Our economic future is getting dimmer not just because of the decrease in the money multiplier. It is dimming because of structural erosion created by government intervention. The US can bounce back from a downturn. It can’t bounce back from a fatal blow to a market economy.

    Unless we recognize the rogue cancer that is permeating our system, then the US is destined to slowly get weaker. Jobs will evaporate the economy will keep slumping every time the government doesn’t intervene. We find ourselves in a managed economy cloaked in the guise of a market economy. The world might not end but we will be whimpering fools unable to control our own economic destiny anymore.

    Fear not the depression, fear the destruction of the market based economy.

    TARP, PPIP, and all incarnations thereof need to be revoked along with the Fed’s ability to secretly absolve their closest friends of all risk associated with lending. Congress needs to monitor the Fed’s ability to manipulate interest rates. So far they have plunged the US from one crisis to another using this instrument to wreak economic disaster time and time again. Banks, insurers, and brokerages probably should be broken up from one another not married together.

    Government should not commit any funds to any private institution until they declare bankruptcy. They should only care about the fundamental need to preserve a functioning business for the economy’s sake, not to look after management, appease illegitimate vested interests, nor keep derivatives contracts or their nature under cloak and dagger.

    If banks feel government funding comes with too many quid pro quos think again. Getting government funds should be a mark of absolute shame. It should come only with bankruptcy and be painful. There should be no reward and no incentive to get it. None, whatsoever.

    Off balance sheet accounting should be abolished. It is an affront to the eyes of shareholders who have the full right to see and know what assets they possess. Likewise all shareholders have the right to know a financial institutions derivatives position. Shareholder’s rights are being restricted because the government doesn’t legitimately view the shareholder as the true owners of the bank and views such things as a national secrecy. This is absurd as it is preposterous. Management does not own a bank as perhaps the Fed would like to think since it is part of the millionaire’s club. They are only the caretakers.

    I suppose I am getting a bit long winded here. I mainly am writing this article in hopes I don’t see announcements next year that the government is going to start bailing out a whole new slew of industries because frankly it makes me sick to my stomach.

    If the government wants to make a difference, invest in infrastructure and education: preferably mandatory classes on democracy, economics, and history that the Fed and Treasury can take, because God knows, they need it. Maybe then they will quit undermining the economic system they are suppose to protect.

    The fact of the matter is, for too long has the Fed and Treasury been interested in making friends rather than upholding the tenants of a free and fair market economy. It shows! The world in which you could invest in a free and fair market is ending and yet, seldom do I even hear anyone scream. T.S. Elliott's assesment about the death of things seems to be as pertinent as ...

     

    I don’t own any bank stock, insurance companies, or brokerage like bank holding companies nor short them. Rather I hold real companies making honest money like CAT,SYT, IXYS, and XIDE. Buy them at your own risk and only if they fit your investment needs.

     

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Comments (9)
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  • Agreed Moon, in spades.

     

    Perhaps looking to Canadian equities which are commodity based
    might be indicated by the socialist intervention in our market economy.
    There are many trading at one quarter their true market value, and demand
    for their products will come from overseas.The USA will become isolated
    and will need rebuilding after the ideologues who parasitically infect our hitherto freemarket are unelected and sent packing. That will happen as the USD declines and the standard of living in the USA goes South.But it will take perhaps 15 years to rebuild.

     

    The present administration has its own surreptitious agenda of wealth "redistribution." This is what ruins our free market economy.
    Strident protests from journalists like Charles Krauthammer are now seen as politically incorrect, but he and men of similar thinking are historically accurate.

     

    I believe the key to future money making in such an envirinment is to examine what Asian investors did to accumulate wealth during the era when China was still starving under its socialist 5 year plans, which were later abandoned in timely fashion. In those days essential commodities required by China were targeted, and investors acumulated wealth by investing in thse sectors. And today they remain strong as China's demand still inflates those markets, such as fertilizer, oil, grain, and others.China now owns considerable chunks of those sectors.

     

    In what sectors will the US continue to thirst for resources because and despiteof the destruction of the free market economy? Agricutural, energy,
    health care, and some areas of R&D come to mind.Also some military
    supply sectors, such as the small arms industry and its ammunition requirements also may be areas of interest. Ammunition production in the USA is currently evolving to off shore sources in Russia and elsewhere, for example.This will also happen in many other sectors.

     

    I agree with your premise, that the US economy is compromised by ideology . In the short term we can make money from the dynamic, but we also need to have very well planned strategies for diversifiation away from
    U.S. markets, to others which have the desired characteristics which the USA's now lacks,

     

    In doing such planning it would be advisable to move one's capital to a situs which is favorable, in case the current evolution of adminsitrative isolationism results in locking down the free movement of capital abroad.
    Such a restriction would be easily imposed by executive order,once the government controls the boards of our "19" larger banks, which will soon be a "fait accomplis." It will likely be couched in terms of Homeland Security /IRS concerns, and will be applied to individuals rather than corporations that are given a "pass" by the government's "wealth redistribution" paradigm.

     

    For the private investor, this necessity is almost a no brainer, but it really depends on how far one wants to look ahead. We may have another 10 years of this dynamic, and so one's vision may need to adjust to see fifteen years ahead. This is a reach, given that most of us only look at the present quarter, and perhaps the next two.But at the end of this excursion into socialism, whether it be in 2013 or 2017, there will be huge opportunities
    for wealth accumulation as America rebuild after rejection of this dysfunctional socialist paradigm.

     

    Thanks for writing this piece. Many have similar thinking, and are trying to formulate plans of action. So here are my two cents of contribution, for what they are worth.
    16 May 2009, 09:08 AM Reply Like
  • Author’s reply » Candor7, thanks for your comment. I truely hope the backwards thinking so profligate in these days can be put behind us and a focus on individual achievement can surmount the dive towards benefitting off the collective.

     

    This has not been a purely Republican or Democratic drive. The stripping of Glass Stegall was done by a Republican bill, supported by Democrats. The deficit has been a nighmare diven by Republicans from Ronals Regan to Bush Jr. just as much as by Democrats. In essence tax and spend has been the mantra of both parties for far to long.

     

    Domocratic supported CRA undermined credit worthness of mortgages just as Republican sponsered banking deregulation. Both Republicans and Democrats supported Greenspan as he piloted the economy through bliss by sanctioning deficit spending and low interest rates. Only once it became clear he had driven the economy into a ditch, did everyone bail and started blaming him. In reality he was the nmessenger for those who wished to look the other way and keep partying it up even though they knew they had to pay the piper someday.

     

    In reality, the gross moral delinquency of those in power can't be overlooked. It is amazing, that despite this, the free market system, the innovation of our entrpeneurs, the brilliance of our educational system and our scientists and engineers, and the sweat and toil of our workers have been able to overcome every wrench thrown into the system.

     

    It is my hope that this will continue to be the case. I write in hopes that there will be less obsticles for future generations to come. In order for that to be the case, we need a reveral of the government intervention we see today. America can suffer economic hardship. What it can't suffer is injustice, ineptitude, corruption, and theft. It goes against our moral grain as it should.

     

    I hope to be much more uplifting once the dark clouds lift.
    16 May 2009, 01:16 PM Reply Like
  • Very well written, especially the moral hazzard part. What will it take for Americans to wake up and start turning around? How bad will things need to get?
    16 May 2009, 02:00 PM Reply Like
  • Author’s reply » Thanks for the response Ergo. Hopefully things will not get worse. They are bad already.

     

    Unfortunately, this is a vicious cycle. The more you bleed a sick patient the worse their condition gets. And the more often the doctor is called to bleed the patient more to remedy their ills. This is the way doctors killed patients in the old days. So I guess the answer is it can always get worse until we break the cycle.
    17 May 2009, 09:41 AM Reply Like
  • Moon thank you for the well written commentary.

     

    The center of money is not Wall Street the center is Washington. The more interference with the free economy the more pain it will induce in the markets. Present government policy is geared to voters and getting re-elected, not strong monetary policy. I look at politicians and watch how many go against their party platforms, it is probably less than 5% when it comes to monetary policy.
    9 Jul 2009, 09:18 AM Reply Like
  • Plus there's this to keep in mind: seekingalpha.com/insta...
    3 Sep 2009, 02:25 PM Reply Like
  • Sorry Moon, you should expect future bail-outs. They won't be called bail-outs like cash for clunkers, but they will be bail-outs. The government can't create demand. It can only shift it from one industry to another or from the future to the present. When we have a cash for clunkers, we take $4,000 from one tax payer to help another. That is one tax payer spending $4,000 that another cannot spend. Worse, if it is debt, it is $4,000 that will not be spent in the future. But cars don't cost $4,000. So it is more likely that the $20,000 that is spent on a car is not spent else in the economy most of which is borrowed from future consumption. So hunker down it might be a long ride to prosperity.
    19 Oct 2009, 07:00 AM Reply Like
  • Moon Kil Woong for Secretary of the Treasury.
    11 Dec 2009, 06:44 PM Reply Like
  • What a synopsis of our national woes. As a rabid Republican, I have to take issue with your assertion that Republicans are as much to blame as Democrats to a degree. No Republican could hope to win any elected office in America if he or she pledged to balance the budget and gave specifics. The nation has demanded its own destruction for decades now. Had Democrats been elected the last few Presidential cycles, the Supreme court would be even more liberal and we would be even deeper in the hole. Those 9 have more power in all of this than the other 2 branches of government yet have used that power largely to make the nation more liberal and less fiscally moral. But for free(er) spending Republicans the Ninth Circuit would be running the Supreme Court.
    21 Mar 2010, 05:11 AM Reply Like
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