Security Pie

After 6 days of riding my mountain bike through 300km of Mongolian Steppes, I come back to learn that the US government had to bail out Merrill Lynch and AIG, meanwhile letting Lehman Brothers go belly up. SEC had banned short calls on most of the financial institutions in the United States. This boosted confidence in other SHODDILY run financial institutions (like Wamu) who saw a sunny day first time in months. Wamu’s spring was short lived, and now it is a part of JP Morgan. Now they plan to give away $700b of our hard earned money to wall street.

Having been completely without cell or Wifi coverage, I was oblivious to all this throughout my journey.

I met people who did not care what the heck Lehman Brother’s CEO Dick Fuld did with THEIR hard earned money. Or who Merrill Lynch decided to give THEIR money to. These people had trust in their own stash of food supply: milk products (cheese curds, butter, condensed milk and other products) and meat (Yak/Cow, Sheep, Horse or Goat), and they had faith that the sky would be kind to them.

Sheep stomachs sewn into sacks maintain the freshness of the home made butter for the brutally cold winter

I had grown up rather naively believing in a western movie style banking system: A large safe, a clerk, a pen registry. Money was safe in a large steel enclosure. I had faith in the bank’s existence and I had trust that the bank was not being reckless with my money. 1929 was some obscure date in history that was irrelevant for today (side note: sort of like the “new wave” belief that negotiating with Iran’s president Mahmoud Ahmadinejad is reasonable; not so “new wave” when you consider the belief nearly 100 years ago that Lord Chamberlin gingerly negotiating with Adolf Hitler will prevent World War 2 from happening; both, BTW seem to stem from the belief that all people are “reasonable”).

Mr. Paulson, unfortunately, is correct in his reasoning, that the belief in the trustworthiness of banks is much more important than the real trustworthiness (execution) of the banks. A run on the bank’s coffers is the least desirable of outcomes. It will hurt us all.

Just like security and safety. It is much more important that we believe that our money is safe in a bank, than for it to be safe (it isn’t), and that flying is 100% safe (it is reasonably safe, but far from 100%). 

Will the eternal blue sky be kind to the nomads of Monglia and their herds?

Now for the Mongolians in their Ger, their trust does get put to the test by the eternal blue sky: in 2000, temperatures were so low, and snow was so deep, that a substantial portion of their livestock (read: equity) died. It was natures equivalent of wanton carelessness that the management teams of Wamu, Lehman Brother’s and Merrill Lynch expressed with our money. In the case of our guide, from his uncle’s entire herd of 168 Yak most all perished, all but 6. Devastating, kind of like losing 30% of your home equity…