From the December 01, 2009 issue of Futures Magazine • Subscribe!

A year of folly?

‘Tis the season to be jolly, so the song says, but after a whiplash year such as 2009, I’m sure many are anything but. They might just want the year to be over.

On that note, let’s review some of the key turning points of this year:

1. Democrats took over the White House and won majorities in the House and Senate.

This event, especially Barack Obama winning the presidency, itself was historic. But it may not have happened without the seismic events that occurred in the days before the November 2008 election. People were unhappy with the previous administration and its policies, many that led to some of the events that shook the financial system to the core. (Before I get letters stating that George W. Bush wasn’t to blame, I’ll stipulate that his administration may not have been totally at fault, but the top fell over on his watch.) What this swing has done is given Congress the incentive to beef up or change regulations covering everything from short selling to mortgage buying to bank policies to derivatives clearing to Wall Street salaries. The pendulum has definitely swung the other direction, for good and/or bad.

2. Billions of dollars in government bailouts were added to an already feathered nest.

Never before has such a huge bailout program been passed to thaw the frozen credit markets, help banks make loans and get the smartest guys in the room out of trouble. Was it the right thing to do? Perhaps. But it certainly became more controversial when several receivees, such as Merrill Lynch (now Bank of America) and Goldman Sachs, passed out huge bonuses. Further, Goldman just announced huge profits and, to be able to pass around multi-million dollar bonuses, Goldman double timed “paying back” the government as not to be beholden to the taxpayer. Will the government intercede again? That’s debatable, as it appears the taxpayers would rather see companies fall than help out Wall Street.

3. A stimulus program was passed and worked itself into creating jobs and projects.

Not so fast on this one. A stimulus program, again, larger than ever done before by the government, has claimed to create thousands of jobs thus far. That may be true, but job losses outpaced its pluses to move into double digit unemployment rate territory. This isn’t surprising to anyone who was watching the wave, but it will be interesting to see if the unemployment rate will keep rising or has topped. The bad news now causing concern is the stimulus, both in terms of jobs programs as well as bail out money, could be flaming inflation. The good news, or so we hope, is the Federal Reserve doesn’t seem worried as it held rates to near zero.

4. Regulatory changes coming down from on high will impact all areas of financial and commodity markets.

It doesn’t matter that the futures markets performed as they should have during the fierce market volatility. Like an Atom bomb going off, even if you aren’t at the epicenter, somehow you will be touched by the fall out. It’s the nature of the beast, and it shows how close the financial system came to collapsing.

In our annual look at the Top 50 Brokers by Managing Editor Dan Collins, many of these points were touched on during the course of our interviews, as each of these actions impacted the business of derivatives and those who service them in some way. Let’s just hope the new regulations, if passed, aren’t pure folly.

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