Normally when the US Congress House Committee on Agriculture discusses CDs they are talking about Conservation Districts (or Chickens and Ducks) but on November 20th the congresspersons were delving into the murky depths of Credit Default Swaps.
Hello? What has Credit Default to do with agriculture (except maybe that the market is in the fertilizer at the moment)?
It turns out that, in the Byzantine world of US banking regulation, Agriculture is responsible for overseeing the Commodity Futures Exchange Commission (CFTC), which looks after trading in pork bellies, orange juice etc. And with the CTFC which, to quote the Chairman, is a "model of transparent and above-board central clearing process", all we have to do is to get CDs into the (soft rather than hard) commodities futures clearing system and all will be well.
Next they will want to regulate Hedge funds, as forestry assets. Giddy up, rein em in!
Now without wishing to denigrate the good representatives, the committee's members are (very sensibly) from the wheat belts of Kansas and the nut farms of Georgia, but none from Wall Street. While that may not, in itself, be an automatic disqualification (given the history of the current crisis), one would hope that there was some insight on this extremely complex issue from somewhere outside the pork barrel.
In his book "Animal Farm", George Orwell described what happened when the animals literally took over the farm, as occurred around 2004 in Wall Street. Initially all was well, the animals worked hard and the farm prospered, or at least appeared to do so. Orwell wrote that every human being [here read, investors, rating agencies and regulators] "held it as an article of faith that the farm would go bankrupt sooner or later . . . Yet, against their will, they had developed a certain respect for the efficiency with which the animals were managing their own affairs". Sound familiar?
But soon it became obvious that some animals were not pulling their weight and, while the managers were up to their snouts in the trough, the field animals started to go hungry. However, the economist on the farm, appropriately named Squealer, proved from the figures collected that "they had more oats, more hay, more turnips, their drinking water was of better quality, that they lived longer, that a larger proportion of their young ones survived infancy, and that they had more straw in their stalls and suffered less from fleas". Thank heavens for FASB accounting standards.
At the end of Animal Farm, the smartest pigs in the pen rise to the top and decide that humans may not be so bad after all. The book ends with the starving field animals gazing through the window as their leaders wine and dine with their hated enemy, the humans.
As in Animal Farm, Wall Street has abandoned any veneer of equality in the markets and, when push comes to shove, it is more important to bail out insolvent investment banks and busted insurers than companies on Main Street; some firms are definitely more equal, $700 billion more equal.
Watch out then, in the near future, for some bi-partisan commission on the financial crisis where the animals sit down with the farmers to work out how to fix the farm. Of course the manure will have to be cleared away, probably dumped on some pension funds, and new crops will have to be sowed, lots of money for lawyers and salesmen, and new machinery will be acquired, with loans from now fertilizer-free financial institutions. Maybe the Agriculture committee really is the best place to consider this dung heap?
However, we can but hope; but as the Chicago wit, Irv Kupcinet, wrote "an optimist is a person who starts a new diet on Thanksgiving Day". Happy Thanksgiving.
