The failure here is two-fold: One, the editors’ choices of who’s to blame, and two, the reader poll ranking those choices.

Let’s start with who’s on the little list — or more to the point, who’s not.  Time did an OK job of unearthing lesser-known names who definitely bear some culpability in the disaster — such as AIG’s Joe Cassano, who did much to unleash the nightmare of credit-default swaps.

But how can anyone take this list seriously when it doesn’t include Ben Bernanke?  Yes, Greenspan (who did make the list) laid the foundation, but Bernanke built on it with abandon.  Perhaps it’s because the intelligentsia regards him a genuine scholar on monetary matters — you know, historian of the Great Depression and all that.  A far more respectable background than Greenspan, who hung out with Randians and extolled the virtues of the gold standard.

Where’s Tim Geithner, the guy whose fingerprints were on every boneheaded decision of 2008, from Bear Stearns to Lehman and beyond?

And where’s Robert Rubin?  What, is there some numerical limit of Goldman Sachs guys the editors arbitrarily applied to the list?  Hank Paulson’s on there, so Rubin can’t be?  Seems like Time lays a lot Rubin’s faux-deregulatory handiwork on the shoulders of Bill Clinton, which I daresay might be a bit unfair.  Clinton revealed his naievete on such matters when he remarked early in his first term, “You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of f*$(#@g bond traders?”

Oh, and then there’s Time’s inclusion of “The American Consumer.”  Oh, that was clever, alright.  I bet the editors were congratulating themselves over the brilliance of that one — “Gee, this is almost as good as choosing ‘You’ as Person of the Year a while back!”  But this too is too harsh — consumers were merely taking their cues from the politicians and central bankers driving the ship.

Even worse than Time’s 25 choices are the rankings furnished by its readers.  I guess letting the readers vote is Time’s idea of Web 2.0.  But the sheer folly of this is revealed when the number-one choice as ranked by the people who drove by the website, the premier villain of the financial calamity that’s befallen us is… drum roll, please… Phil Gramm.

Phil Gramm?!?  Yes, his name was the first on the faux-deregulation legislation that repealed Glass-Steagall in 1999, and he’s worthy of inclusion on the list.  But I suspect the reason he ranks so high is one that Time doesn’t even mention in its writeup: His Kudlowesque comment last year, while on UBS’s payroll and consulting the McCain campaign, that the recession is a mere figment of the collective imagination.  Must’ve stuck in the craw of a lot of political junkies.

And if we’re going to beat up on former members of Congress, shouldn’t we beat up on a couple of others who are still around, like Barney Frank or Chris Dodd?

But whatever.  Time’s payroll and page count shrinks as the economy and the Internet take their toll.  Let us celebrate.

Source: I Have a Little List

We spent Saturday looking at penises. Big ones. Little ones. We had never seen so many.

“They used the erect penis as a symbol of fertility, abundance and good luck,” said Carla, our guide at Pompeii. “So, as you can see, it is everywhere here. Even sticking out of the walls.”

In front of us was a masculine protuberance poking out over a doorway. Another was carved into the stone of the roadway itself, pointing the way to a brothel. Others were on the walls, some of mythic size. One man had his pride and joy on the scales. Others used them in more traditional ways…

But today is Monday, a working day. So, we set to work and leave our discussion of 2000-year-old dongs for later.

First, we look at how last week ended.

Stocks rose a bit; the dollar fell; gold held steady – but at $889, well below $900.

These are the times that try our confidence. Stocks and gold are going in opposite directions – opposite, that is, to the direction we think they should be going. Stocks seem to want to go up. Gold has wanted to go down for a long time; now it is doing so.

But if our guess is right – ‘flation’ is inevitable in the financial system. And our guess is that this flation will show itself in rising prices for gold, commodities, and emerging markets…but lower (relative) prices for stocks, property and financial assets, generally.

Flation is inevitable because there are billions…no, probably trillions…of dollars worth of financial mistakes in need of correction and a world full of financial authorities trying to prevent it.

“A lot of people made a lot of mistakes,” says former Treasury Secretary, former CEO of Goldman, and now chief of Citigroup’s executive committee, Robert Rubin. Rubin made one himself, says today’s International Herald Tribune, by failing to rein in Citigroup’s excessive risk taking over the last five years.

But just because a lot of people made a lot of mistakes, it doesn’t prevent the authorities from making more. They’ve bailed out banks in Britain…and Wall Street brokers in America. The Fed has cut rates six times already…and is ready to cut a seventh time this week – bringing the key Fed lending rate to about half the level of consumer price inflation.

The result: money and credit flood the system…but many investors still drown.

Ours is not a common view. Most analysts think the authorities will either succeed or fail. If they fail, everything goes down. If they succeed, everything goes up.

Of course, no one really knows. We’ve never been in this financial situation before…so it is almost all guesswork. All we can do is to try to strip it down to the essentials to see if we can make sense of it.

“Is finance’s economic role ebbing?” asks a Wall Street Journalheadline.

Yes, is our answer. Wall Street made money by ‘financialising’ the economy. Businessmen, for example, ceased thinking about how to produce better products at better prices; instead, they became much more interested in mergers, acquisitions, stock options, asset shuffling, IPOs and buybacks. Some of these activities may have added value, but not many. But for Wall Street, these were the glory days. Billions in fees could be charged…and, as long as prices were rising, few people complained. But when prices began to go down, lenders looked at the collateral and discovered it wasn’t worth what they thought it was. The triple-A credits were marked down…banks teetered and had to beg for more capital…the government stepped in to protect the rich and, so they said, avoid a meltdown.

Wall Street also helped turn homeowners into speculators. Instead of buying houses to live in, people bought them – often with no money down – in the belief that they would go up in price. What is a no-money-down mortgage but an option to buy a house later? And now that house prices are going down, the mom-and-pop options are expiring worthless. Housing speculators are putting the keys in the letterbox, dumping cement down the toilet, and walking away.

“The bright new financial system,” said Paul Volcker a couple of weeks ago, “has failed the test of the marketplace.”

Volcker is right. Wall Street has peaked. The credit cycle has peaked along with it. Now it is time to make “painful but necessary adjustments,” he says.

Instead, the current leaders of the Fed seem inclined to try to avoid pain at all cost. This week, they are expected to announce another quarter point rate cut. The smart money considers another 25-bps cut in the bag. The smart money is not wondering what the Fed will do…but what it will say. If it signals the end of the rate cuts – what more will investors have to look forward to?

But here at the mobile Daily Reckoning headquarters in Rome, we’re still trying to look at the essentials. And the essential condition is this: the boom in the financial industry and things that depend on it is over. Now it is time for painful but necessary adjustments. The only question is how those adjustments will be made – by inflation or deflation, or – our guess – both.

*** First, news comes that Americans are hoarding food. The big discount stores are apparently rationing rice, for example.

“Sam’s Clubs, Costco limit bulk rice purchases,” said an AP story last week.

Today, the New York Times talks of a “recession diet,” in which shoppers try to switch to cheaper foods. And there is talk of a drought this year, further reducing the supply of available grains.

The LA Times mentions consumers “coping with soaring prices.” And the Boston Globe reports that drivers are trading in their gas-guzzling SUVs in favour of smaller cars. Maybe that is why Toyota is now the world’s leading automaker – selling more vehicles than General Motors.

Gasoline is at about $3.60 a gallon. Milk is even higher, at more than $4 a gallon. Consumers have no choice – they have to cut back. That, too, is one of the essential verities of today’s economy. Ours is a consumer economy in which consumers have less money to spend. .

*** Everyone should spend some time amid the ruins. It cultivates a sense of humility. “Look on my power,” the old stones of Pompeii seem to whisper…“and weep.”

The city of Pompeii sits on the coast of Italy, near Naples, about two hours’ train ride south of Rome. It also sits beneath a volcano – Vesuvius. It was this latter detail that brought it to an abrupt end…in 79 AD…and earned the city a notable place in history. In late August, Mt. Vesuvius began to rumble. The people looked up at the mountain and noticed a strange cloud over the peak – it was orange, and the shape of a typical pine tree from the area. Some Pompeiians took to boats to get away. Others went by land. Then, nothing happened. Pliny the Younger says his uncle returned to town, confident that it was nothing to worry about, and took a nap. Others came back to town to get valuables and other properties. Still others just seemed to go about their business.