Trade Ideas Blog

It Feels Like Animal Farm

Oct 10, 2008

George Orwell writes how the animals rose up against their human oppressors and took over the farm. 

However it was soon evident that once they were in power, not all animals were created equal. Some animals were more privileged than others. It seems that Wall Street and Main Street have a case of Animal Farm-itis.  

“Animal Farm” tells the simple and tragic story of what happens when the oppressed farm animals rebel, drive out Mr. Jones, the farmer, and attempt to rule the farm themselves, on an equal basis. What the animals seem to have aimed at was a utopian sort of communism, where each would work according to his capacity, respecting the needs of others. The venture failed, and “Animal Farm” ended up being a dictatorship of pigs [led by Napolean, their leader], who were the brightest, and most idle of the animals.
Source: Anna Hassapi Book Review, Animal Farm by G. Orwell

“All Animals Are Equal, but Some Animals Are More Equal Than Others”

The government is coming in to rescue the big houses. Enron was allowed to fail, Worldcomm was allowed to fail, Bear was not allowed to fail, Lehman was allowed to fail, Merrill was spared, and Goldman and Morgan are going to be spared along with AIG.

How does this resemble a free market? While we get that the turmoil from the failure of these institutions can be very painful, at what point do you have to look in the mirror and say, “this is just not right.”
Where were the auditors who audited the financial statements of these companies? How are they not accountable? How are the CEO’s allowed to come on CNBC and state that everything is OK only to file for Chapter 11 in the next few days. (See Howard Lindzon on the split between Jim Cramer and CNBC at the house GE built).  No wonder credit markets are frozen – how can any business make a decision with nothing but knee-jerk and unpredictable government action?  How can the world still respect the financial system of a country that is randomly turning the free markets on and off?

When everything else failed [Squealer, the pig in charge of propoganda] would use the threat of “Jones returning” to silence the animals. In this simple but effective way, Orwell presents the tragedy and confusion of thought control to the extent that one seems better off simply believing that” Napoleon is always right”.

There are serious things to consider here. 

What is the point of earnings calls and announcements when at any point and time the government can come in and do whatever it wants. Take the recently floated idea that the government may buy equity positions in several banks.  The ban of shortselling is another idea – the craziest thing that I can imagine ever seeing in a free market. Next it will be sex-with-the-animals and bong hits required for floor traders.

What’s worse is that there is a vacuum of leadership at the helm: an out-going, highly unpopular President and a country on the eve of a century-defining election.  This feels like the morning after a very big party and you just woke up with a huge hangover and you have no idea who is laying next to you or where you even are.  Somebody come and clean the stables – it stinks in here!