Tuesday, August 18, 2009

From Woodstock to Toxic stock

"Everybody talks about 'transparency' these days like they used to talk about 'free love' at Woodstock. What does it mean?"

This is a question posed by Andrew Butter a couple of days ago on the Seeking Alpha forum, in his article about securitization of mortgage-backed assets, many of which have come to be known as "toxic assets" in the financial markets.

After presenting the problem, Mr. Butter then defines transparency. It means, in the context of investment transactions, that "that participants need to be provided with sufficient information about the stuff they are buying in the marketplace to be able to make rational and well-informed decisions."

This need for transparency comes as a result of a convoluted mess in which investors purchased, during the years 2000-2007, about $14 trillion in securitized debt. But the buyers paid too much for these assets--probably somewhere between $2-5 trillion too much.

Securetized debt based on mortgage-backed securities had contributed largely to the stock market bubble that later burst in 2008, bringing the whole American economy down with it. The toxic securities are just about impossible to evaluate, and so they become a source of confusion, like having millions of little black holes that suck value out of the financial universe. That's my take on it anyway. I'm not a financial analyst, but I did learn a lot by reading Mr. Butter's report.

And Mr. Butter definitely added an element of generational interest in the comparison between transparency in money matters and free love at Woodstock. That's a stretch, but there are, you know, a few parallels.

Alex Garcia-Ditta reports in the Charlotte Observer that "an estimated 200,000 people bought $18 tickets to Woodstock." But then, hey, 400,000 kids showed up. The concert organizers, realizing that they did not have the personnel on hand to properly manage the situation, wisely declared the event to be a "free concert."

So as it turns out, about half the people paid to get in; about half did not. Do you think the paying celebrants cared? I don't think so. Most folks were just groovin on the music and passing joints, and were not interested in asking such questions. (questions like, "who's paying for this thing?") Or that's what I heard anyway. I wasn't there. I was back in Louisiana winding up my first semester of college at LSU.

So this went on for about three days. "Three days, man!" And while a great time was had by all, it was not what you'd call a sustainable situation. It was a euphoria not unlike the bubble that later kept our money floating around, intoxicated, for several years until we all had to come down, go home and wonder what the hell happened.

Many have said that Woodstock was that muddy weekend concert back in '69 where "everything went wrong but turned out right." Maybe so. Jimi's star-spangled finale brought an appropriate end. And it's a good thing it did.

Then Monday morning blues were probably twanging and jangling around in all those homebound hippie heads. And who could have then found, in Yasgur's field, a fresh flower with which to brighten their hair? The place had become a mudhole that would require a major cleanup. This is what humans do.

The coming-down was similar to, like, what we're in right now. The party's over. Time to clean up the mess. And I think, in spite of all the deflowering and deflating, things have gone rightly, because a bubble (there has to be a correction some time) cannot inebriate forever. Janis and Jimi later proved that, and so has our economy.

And I'm like, the coming-down-after-the-free-for-all has come to an end. We've learned a few lessons along the way. Don't eat the brown acid, and don't buy toxic stocks unless you're ready to do some serious cleanup.

Carey Rowland, author of Glass half-Full