The World's Most Dangerous Bubble

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I am, of course, talking about the "Perfect Storm" Bubble.

Has anyone else noticed this? It seems that the people who babble endlessly in the financial media have grabbed hold of the world's most facile description of what's going on in the global credit markets. Yep, you guessed it: It's a perfect storm.

My colleague Seth Jayson pointed out that Washington Mutual's (NYSE: WM  ) CEO, Kerry "don't call me Kittles" Killinger, called the housing market's condition the result of a "perfect storm" of delinquencies, declining liquidity, and sunspots (or somesuch). Seth was dead-on in his commentary: Sure -- the situation in housing is horrid and deplorable. But it's not a "perfect storm." That implies that it was also a surprise or was otherwise unforeseeable. A monkey could tell you that lending huge amounts of money to large numbers of people with poor credit histories at a 2% teaser rate would end badly. Many monkeys did just that. They couldn't say when it would happen. But if? No problemo.

It's a storm! And it's perfect! And, it's a storm!
The "perfect storm" bromide insinuates that the victims are blameless. Reality suggests that such thinking will relieve your conscience but do nothing to refill your wallet. Nor will it help you avoid the next "perfect storm" that isn't. The failures and maimings of American Home Mortgage, New Century, NovaStar, Accredited Home Lenders, WCI, and a host of other lenders and builders was caused by the "perfect storm" of idiotic lending standards -- nothing more.  Same goes for the problems faced by the big banks like UBS (NYSE: UBS  ) , Citigroup (NYSE: C  ) , and Merrill Lynch (NYSE: MER  ) .

See how easy an explanation that is? Credit crunch? Perfect storm. Falling dollar? Perfect storm. Bad hygiene? Perfect storm. World's tallest man? Perfect storm. Carrot Top's nearly inexplicable career? Perfect storm.

Storms as far as the eye can see
Killinger isn't the only person pointing to a perfect storm, and housing isn't the only place that is being lauded for its perfection. Last year, when I took a quick perusal of the headlines, I found perfect storms in:

Technology: eBay's (Nasdaq: EBAY  ) Skype blamed a "perfect storm" for its wide-scale service outage last August.

The Alberta pork industry: Its very existence is threatened. By a perfect storm. Moving on.

Gold: Hey look! The gold "perfect storm" is a good thing! Who knew? Must be another part of the conspiracy.

Asthma: Specifically, Canadian asthma.

Wheat: Prices hit all-time highs. Apparently it was due to a "perfect storm." Apparently, also, that storm didn't even include the fact that the American government has encouraged farmers to turn thousands of acres of cropland over to growing corn as an overpriced source of fuel. Not perfect.

The great Atlanta golf grass perfect storm: Starring "The great Atlanta golf grass perfect storm."

If you're getting the feeling that I'm mocking the perfect storm of "perfect storm" overuse, then you're smarter than the average bear. This term is a zeitgeist whose zeit has come.

You could always blame Canada
The trouble I have with the perfect storm Killinger mentions is that it lets a whole lot of people off the hook for their own actions. The financial market is unforgiving to those who know not what they do. There is no doubt in my mind that thousands of people were put into home loan products without their consent. But their numbers pale in comparison to those who used lax lending standards to speculate on a booming housing market -- and the same folks are being buried under their debts today. Just the same, neither the lenders that made the loans -- like Countrywide (now part of Bank of America (NYSE: BAC  ) ) -- nor the investors who pushed for them and bought securities by the boatload in chase of yield -- like the now-kaput funds at Bear Stearns (now part of JPMorgan Chase (NYSE: JPM  ) ) -- deserve to be bailed out.

The key word isn't "perfect." It isn't "storm." It's "speculate." And sometimes speculation comes with a price that must be paid in full. I'd call it the "perfect storm of reaping what you sow."

But I won't.

More Bill Mann:

Anand Chokkavelu updated this article, originally written by Bill Mann and published Sept. 12, 2007. Anand owns shares in Citigroup. JPMorgan Chase and Bank of America are Motley Fool Income Investor recommendations. The Fool has a disclosure policy.

Read/Post Comments (7) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 25, 2008, at 1:47 PM, prginww wrote:

    Another worthless bunch of nothing from MF.

  • Report this Comment On August 25, 2008, at 2:08 PM, prginww wrote:

    A disappointingly shallow and time-wasting non-article. This is not research or even a commentary. Even attempts at humor fall flat.

  • Report this Comment On August 26, 2008, at 8:01 AM, prginww wrote:

    Ah, come on, folks! I thought it was funny. But then, I didn't have any positions in financial or housing sectors.

  • Report this Comment On August 26, 2008, at 11:55 AM, prginww wrote:

    I think the article by BM explains pretty well with what is wrong with our country today. It's all about money and greed!

    Company shareholders lose money due to stupid greedy CEO's and co-horts!

    CEO's walk away with enormous profits! Some CEO's get paid 80 million dollars a year in salary, plus millions more in company shares!

    Case in point...EBay's old CEO ...Meg raked in the big bucks even though her company shares have lost over 36% of their value in the last 3 years!

    Shareholders can do nothing! They get the shaft!

    The same is true for the above mentioned housing crisis. CEO's through plain stupidity ran their companies into the toilet while at the same time getting paid big bucks. All others involved lost monies or property!

    We need change!

  • Report this Comment On August 29, 2008, at 12:54 PM, prginww wrote:

    I'd be a lot happier reading about future problems to avoid than how intelligently someone sees past problems.

  • Report this Comment On September 04, 2008, at 6:25 PM, prginww wrote:

    On this topic, see '"Perfect Storms" -- Beautiful and True Lies in Risk Management' by Satyajit Das (2007):

    Alex Dumortier (XMFMarathonMan)

  • Report this Comment On September 05, 2008, at 1:50 PM, prginww wrote:

    The "perfect storm" bromide DOES NOT insinuate that the victims are blameless. Claiming you didn't know you were laying the last straw on the camel's back does not absolve you from realizing the camel was already overloaded.

    "Perfect storms" occur when several bad variables combine in such a way as to enhance each other to make a super bad. That a bad thing is going to happen is no surprise. Just how bad the bad thing is is the surprise. Implying that, by definition, a "perfect storm" is "unforseeable" is no different than saying because it was an "accident" it was "unavoidable"

    The entire premise of this article is based on a misunderstanding of the term

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