TICK FEVER

I admit it. I have tick fever. No, not Lyme disease. I have been glued to CNBC watching the rise and fall and rise again of the equity and debt markets. Tick fever is a term applied to people who watch every movement, or tick, of the market.

Everyone gets tick fever from time to time. The leadership at AIG and Merrill got it when they went to the outer reaches of investment product universe in order to goose their revenues. Through the use of deriviative products like securitized mortgage pools, risk became detached from reward. The sages like Warren Buffett wagged their fingers in warning and were disregarded as completely old fashioned and out of touch. No telling how many smart middle managers issued the same warning only to find themselves transferred to "Special Projects." Senior managers became so focused on month end, quarter end and year end returns they lost sight of what it would mean in five years or ten years and they weren't interested in hearing about it.

Political leaders get tick fever. There is no better example of that right now than Jefferson County Alabama. Instead of focusing on short term revenues, political leaders sometimes focus on short term voter sentiment. Trying to avoid the inevitible grumbling that accompanies even the most modest sewer rate increases, the Jefferson County Commissioners turned to the wizards of Wall Street (who today bear a greater resemblance to the one in Oz than the one in Camelot) to get them off the political hook.

Abracadabra, they were borrowing long term at short term interest rates. What a deal. Lots of money at low cost. Debt costs commensurate with the needed capital work were avoided, Wall Street collected its considerable fees, everyone got re-elected and lived happily ever after. Well, they did until the short term Adjustable Rate Securities market failed.

Oops.

Short term debt became long term debt, monthly interest costs soared and bankruptcy looms. They basically endangered the financial health of an entire Alabama county to get a few more votes on election day.

I don't have much hope that Wall Street will ever change its ways and I am not sure it would it would be a good thing if they did. Capitalism without painful losses really is like Christianity without hell. We have had periods of speculation and their accompanying crashes since the Dutch thought tulips were more than pretty flowers. I have much more hope for political leadership. While investment bankers will always be more intersted in what is best for them, policy makers and political leaders have a stated obligation and responsibility to look out for - or at least not negatively impact - the long term well being of the citizenry.

Having such responsibility isn't easy. It would have taken months of education and discussion for the leadership of Jefferson County to explain that they had assumed responsibility for miles of sewer lines that were leaking raw sewage, that the EPA had mandated $1 billion in work and that this work would have to be paid for through rate increases. It would have taken a good deal of time eto xplain that the needed repairs were not going to disappear and the costs were not likely to decline. It probably would have taken courage to face down unhappy voters who didn't want a rate increase no matter what. It would have taken some brains to ignore the conventional wisdom of political advisors and the chattering classes who love to tell politicians how to act so they get re-elected.

Had Wall Street and Federal regulators listened to Warren Buffett I would not have tick fever today. Had the Jefferson County Alabama Commissioners avoided thier own case of tick fever, their citzens would not be sold down the river of debt.