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BPI-MF-LogoLondon financier Nathan Mayer Rothschild is credited with the phrase, "Buy when there's blood in the streets and sell to the sound of trumpets."

Google [buy when blood in streets] and you'll find many financial articles citing the first half of the phrase as a guide to "contrarian investing." In hard times, the articles say, prices will fall and those with money can buy property for pennies on the dollar ... if they have courage. Yet times are hard in places like Somalia, and we don't see investors rushing to create opportunity. The reason, as Thomas P.M. Barnett wrote in The Pentagon's New Map, is simple: "Money is a coward."

But the Janitor Professor of Astrology is not. Despite the continuing overnight storms in South Blogistan, he went out to look up at the stars. So your Kossascopes are all wet.

More below the fold....

'Free' Markets, Part II - Money Is a Coward (Plus Kossascopes)

This week Morning Feature considers a claim often made by conservatives and libertarians: "free markets" are good, government is at best a necessary evil and usually not necessary because the "smart money" in the markets will solve problems if left alone. But truly "free markets" don't exist. Yesterday we saw that unregulated markets concentrate under giant corporations, because "money is stupid." Today we'll see how corporate giants rely on government support, because "money is a coward." Tomorrow we'll see that we can be better than stupid and cowardly.

Of course, financial journalists don't tell the story that way. A Forbes article from last February used a subhead that began "Market blood baths make most investors squirm." But....

"The best investors sprout fangs."

Perhaps that strokes the egos of those who like to believe they are the two-legged equivalent of lions. Or maybe they're secret Twilight fans. Regardless, the gist of that article and others like it is that smart investors have courage in hard times. They buy when everyone else is selling, at a discount. Once the good times come back, they reap the just rewards of their courage ... plus their having had a large enough bankroll that they could still afford to buy hard in times.

That last part is really the sum and substance of that "courage." Fred - our archetypal median American - didn't lack courage when he sold his grandmother's silver on eBay last year. He lacked grocery money. Yes, the person who bought Fred's heirloom silver was getting a good price on property that was likely to be worth more once things settled. But that "once things settled" wasn't about faith in "free markets." It was about faith that a functioning government would still exist to enforce contracts and regulate commerce. How do we know that?

Why not invest in Somalia?

If "contrarian investing" were about faith in "free markets," why not invest in Somalia? Many have quipped that it should be a libertarian paradise, having almost no functioning government. But of course Somalia is not a libertarian paradise, and that quip is offered as an argument-by-extreme. Absent a functioning government, the formula for property ownership is "possession plus better weapons." Most libertarians don't believe that's what the formula for property ownership should be; they think it should be a function of law, enforced by government.

As Barnett explained in The Pentagon's New Map, why would anyone build a factory, a hospital, or a school in a place where it's likely to be blown up before it's completed? It won't recoup its investment, or even help the local people. It becomes just another pile of rubble. For an investment to make sense, there must be a functioning government that can protect it and make it useful. Barnett summarized that argument with the phrase, "Money is a coward."

That makes sense, but it's hardly an argument for trusting "free markets" to sort everything out. Sometimes people need things - a way out of a burning building, or food and water and medical care in the midst of a natural disaster - even if it's not profitable or safe to provide them.

Cowardly money won't do that for us. But government often will. Alas, too often government has also been used to create the "blood in the streets" that draws those "fang-sprouting" investors.

"War is a racket."

Major General Smedley D. Butler was one of the most decorated servicemen in our nation's history. One of only 19 to be twice awarded the Medal of Honor, Butler was a career Marine who saw combat service in China, the Philippines, Mexico, and throughout Central America. You might expect he was proud of that. You would be wrong:

I spent 33 years and four months in active military service and during that period I spent most of my time as a high class muscle man for Big Business, for Wall Street and the bankers. In short, I was a racketeer, a gangster for capitalism. I helped make Mexico and especially Tampico safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefit of Wall Street. I helped purify Nicaragua for the International Banking House of Brown Brothers in 1902-1912. I brought light to the Dominican Republic for the American sugar interests in 1916. I helped make Honduras right for the American fruit companies in 1903. In China in 1927 I helped see to it that Standard Oil went on its way unmolested. Looking back on it, I might have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on three continents.

As Deoliver47 noted in a comment yesterday, that pattern continues today. Too often the "free" in the conservative mantra of "free markets" means simply "exposed for exploitation." It's government holding someone's hands behind her back and pulling her head to the side, so her neck is "free" ...

... so those investors who sprouted fangs can sink them in.

Money is a coward.


Your Kossascopes are still drying and will be posted soon. Actually they're still all wet....

Pisces - Not that it's raining, but be glad your sign is a fish.

Aries - No one thinks you're a coward. Maybe that's why you're broke.

Taurus - Coloring your hair blonde will not make you as stupid as money.

Gemini - But if it's done wrong, your hair may come out green.

Cancer - Yes, tennis is fun, but Butler meant a different kind of racket.

Leo - No, I won't buy a beachfront condo in Somalia.

Virgo - Not even with the money I'm supposed to get from that Nigerian prince.

Libra - Yes, I'm blonde. Why, did it turn green?

Scorpio - Oh, that's why the Libra asked? ::pops gum::

Sagittarius - So about that boat trip this weekend. It's for 40 days?

Capricorn - No, they didn't have wifi on the ark. They used birds.

Aquarius - No, they didn't have flame wars. The rain put the flames out.


Happy Friday!

Originally posted to NCrissieB on Fri Mar 12, 2010 at 04:24 AM PST.

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