James Grant: “Nothing Is Inherently Safe.”

James Grant of Grant’s Interest Rate Observer put in an extended appearance on Bloomberg’s Taking Stock program this afternoon. You can find the clip here.

With the recent recovery in credit markets, Grant is pulling back some from his “supercredit” portfolio, recommended in December 2008. He also sees currency debasement as an inevitability, due to the Fed’s actions to stave off another depression.

But I found his remarks concerning the concept of risk and safety to be the most prescient. As I quoted in the title, Grant sees risk in everything, including Treasuries, which dovetails with my view on markets. There is no such thing as a risk-free investment. Even choosing to leave your money in a FDIC-guaranteed bank account exposes the saver to inflation and currency risk.

For some reason, they touched upon the Bernie Madoff sentence in the interview as well. I have studiously avoided following the Madoff scandal, both on this blog and in my personal reading, because frankly, it doesn’t pertain to me at all. In the large scheme of things, Madoff’s fraud affected relatively few people, especially in light of all the events of the last two years.

With that said, 150 years seems patently absurd. If rapists or child molesters don’t deserve 150 years (they do and more), then why would Madoff? Why is Madoff “extraordinarily evil” but the whole system that incentivized Wall Street to turn mortgages into Russian roulette allowed to stand?

Once again, the system works to preserve itself. Much like the preceding Wall Street scandals in the early part of the decade, it is far easier to make examples of the Ken Lays, Martha Stewarts and Enrons than to implement substantive changes. In the same way, the authorities send away Madoff for life while largely leaving in place the same system that not only made his fraud possible but led to an economic crisis of the highest order.

Once again, the blame now rests with President Obama, who finds it more convenient to cave in to the status quo than to fix the system. I leave you with two broad and well-deserved attacks from the Financial Times against our “weak” President:

Leave a Reply