Nobody Knows Anything

Last Updated May 28, 2010 11:52 AM EDT

In this financial world of ours, we've got enormous issues to deal with, from the crisis we've just been through. Some are pretty much over, such as the capital shortage at the banks. Others, such as the millions of homeowners who are upside-down on their mortgages, are no longer boiling over, but certainly still simmering. More recently there is the sovereign debt situation in Greece (and possibly Spain and Portugal) which has yet, in my opinion, to hit a crisis point. And while there are a lot of smart, or at least successful, people out there offering viewpoints and ideas, no one seems to know what to do. In the words of veteran screenwriter William Goldman, "Nobody knows anything."


Earlier this week the NY Times gave over nearly a page of op-ed real estate to David Einhorn, a hedge fund manager renowned for, among other forays, taking the right side on Lehman Brothers in 2008. Two thousand words -- that's a lot.

He begins:
Are you worried that we are passing our debt on to future generations? Well, you need not worry...
The question we need to ask is this: If we don't change direction, how long can we travel down this path without having a crisis? The answer lies in two critical issues. First, how long will the capital markets continue to finance government borrowings that may be refinanced but never repaid on reasonable terms? And second, to what extent can obligations that are not financed through traditional fiscal means be satisfied through central bank monetization of debts - that is, by the printing of money?
These are questions that scare me to death, and I would love to get some answers. If there is a rampant inflation that comes out of these crises, due to government inaction or mangling, my retirement account, which I am planning to mobilize in about 10 years, will be worthless.

Einhorn never gets around to answering those questions. Maybe it's the Times not wanting to edit a famous guy too much. He first talks about how the credit rating system is useless. Then about how reported inflation is understated. Maybe true, on both points, but he doesn't move us closer to an answer on how and why we need not worry about a U.S. government debt crisis.

O.K., he does say that the government pays people too much and doesn't lay them off fast enough. I'm not sure how adding to the rolls of the jobless would have been helpful lately, but I am open to hearing why. Einhorn also offers that the Fed should abstain from printing money -- but then concedes that policy will be irresistible. I think we all know that by now.

Many words later Einhorn closes with:
Though we don't know what's going to happen next, the good news for our grandchildren is that we will have to face our own debts. If we realize that our own future is at risk, we might be more serious about changing course...
But that's it. No grand plan, no small plan, just "Get serious." I'll keep looking and will report back, but if this is as far as the ideas go, and nobody knows anything, we are in big trouble.

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