Fannie and Freddie: Now Too Big to Regulate

The arm-waving continues further into the story when Ip says, "The ratio of capital spending to depreciation -- which compares how much companies spend on new equipment with how much value their old equipment has lost -- is at its lowest level in more than 30 years, according to a J.P. Morgan estimate. Companies may have to start investing more, simply to replace what's worn out or grown obsolete."

Depreciated Desktops Put on a Pedestal: That's basically a non sequitur. Simply because you've depreciated a piece of equipment doesn't mean it can't still do a fine job. Everybody with a computer on his desk already knows that. The real problem is, there's just too much capacity, and businesses have what they need. Or, as Ip puts it, "Many of its [Connecting Point's] customers, like companies around the country, have delayed needed purchases for several years because they bought more than they needed in the 1990s [emphasis mine] ," and Mr. Warner is "himself holding off on purchasing the latest technology."

Nevertheless, the aforementioned anecdotes of hopefulness are deemed to be sufficient evidence on which to base a front-page story in The Wall Street Journal. This just goes to show what passes for supporting data, for what folks expect to see in the second half of the year. In typical Wall Street fashion, it's a case of feeding on bullish expectations, this time by publishing a much-ado-about-nothing article. If in place of this, the Journal had run a story about the companies that sell the things Mr. Warner would be buying -- i.e., Ingram Micro(IM Quote), Tech Data(TECD Quote), Anixter International (AXE Quote), or any of a myriad of other companies (like Siebel(SEBL Quote), which preannounced last Thursday -- it would be clear how absurd this article is.

Not Making Waves on the Potomac: Now for a look at the second Journal story, "Freddie, Fannie Dodge New Rules; Congress Fears Upsetting Housing." After reading it, I decided that the marketplace dictum "Too big to fail" should be tweaked to "Too big to regulate or rein in." We now have organizations that are not only too big to fail, but also regulators who don't want to hold them accountable to playing by the rules. It's the ramifications these lawmakers fear, which of course just postpones the day of reckoning, while ultimately setting up a much bigger calamity. Folks in a position of authority want to completely abdicate their responsibility, just to make sure the party continues. That's the moral of that story.