Round Up All The ETFs

I've really gotten a kick out of all attention ETFs have gotten in the last few days but I wasn't sure exactly why and then it clicked; scapegoatism. We are having severe financial problems on an almost global scale (I say almost because there are plenty of countries that have just been dealing with cyclical downturns) and "we" need someone or something to blame it on.

The crisis came about from some combo (define it however you want) of a flawed regulatory backdrop and greed on the part of people (banksters if you like, and people who lied on mortgage applications). We are now at a point where the newness of it is long over but in the most affected countries there does not appear to be an end in sight.

This is slogging on with various market abnormalities (real and perceived) with no signs of returning to the way it used to be and so we need something blame. Actually we need more than one thing to blame as blame for one thing exhausts we need something new to blame.

Right now the blame directed toward ETFs is relatively intense. They are distorting the markets in several different ways, the non-plain vanillas pose serious risks to the unsuspecting, investing public and they cause obesity in children--yeah, it's been scientifically proven.

This is a manifestation of herd mentality that I think is similar to the need to explain things along the lines of the market was down today because... We need to understand why even if that means blaming the wrong thing for the wrong reason or somehow just not being correct. As I've said a couple of times the blame-ETF meme misses the mark in terms of understanding how much of the current malfunction is attributable to ETFs--far less is attributable than people think. Although I concede that they might contribute to distortions, they are a small and possibly insignificant part of the equation. It is even possible that it is something else that is distorting ETFs in such a way as to make it look like it is ETFs' fault.

We did not understand what the financial crisis really was in real time (we probably don't fully understand it yet, several years after it started) and so I believe we are very unlikely to understand what it really distorting the market in real time.

Some traders will be able to trade this environment and some won't. But how is that different than any other time in market history? Some investors will keep their heads and navigate through fairly successfully and some others will not. Again, that is the same as any other period in market history. Invariably that will draw comments telling me why this time is uniquely unfair or whatever, but it is not as different as many think.