It is official. Deloitte reports that the return on assets at US companies has been in free-fall since 1965. Competition has tightened margins. Both consumers and valued employees have benefited as prices have dropped and salaries have increased. And the counterweight to the bottom line problem (at least at banks) has been increasing leverage.

Leverage of course, generates risk; and with Enron as the moral exemplar to the current systemic financial mess, we all recognize that our system encourages the taking (and hiding) of risk. The crucible of capitalism may be creative destruction, but as we self-destruct, we might as well go down highly leveraged with minimal downside to us!!!

As shareholders, we actually risk only the entry cost of our equities when we wager in the belief that the sky is the limit. Despite our perfect desire for above average, secure and regular returns (reflected in the despair of Madoff investors), we are betting on a crapshoot and should recognize it as such. Its even better when the shares come free with the annual bonus— some might even say we’re incentivized to load the dice!

After all, all we personally risk (Who thinks about the “system”? Isn’t it there to be outsmarted?) is the value of the share, when we can gain the moon! This of course, is the economic parsing of rationality.

There is a downside of course to this pseudo-rationality of limited liability, as those of us with battered 401-k’s understand: the personal losses are deeply felt and real —- not rational outcomes of an economic wager.

As brokers understand, most of us enter the equities market with little real knowledge and the motivation only to increase the real value of what we have before it disappears.

The spinning wheel of markets spins faster and faster. In this volatility who can be certain of its multiple variables?

The only sure-thing is betting on the bank: too big to fail and underwritten by governments both on the credit and debit sides, we haven’t really understood that the problem of agency is with the dealer: that tight industry-government linkage ensuring that our financial system works. What is it they say in Vegas? The house always wins. Until it doesn’t.

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