Prediction Revisited: Decidedly Correct about The Storm

I should not toot my horn on this one, yet, my prediction came to pass: The U.S. Economy has fallen into a Great Recession, heading toward Depression, unless these policies of Obama can turn around a Titanic ship of economic failure.

On March 14, 2008, I wrote: The Bear is Yet to Come: The U.S. Economy will fall into a Depression. I was looking at the markers in the economy then:

1. Commodity Prices were unreasonably high
2. Oil Prices (and energy) were sapping our spending dollar
3. Weakness in the U.S. currency
4. Unemployment losses were starting to mount (nothing like the last 5 months)
5. Mortgage crisis finally hitting home
6. Zero GDP growth
7. Inflation

The last was a complete error – it was occuring at the moment in commodities and staples – however, the mortgage and used car markets would reflect large DEFLATION, and a much larger piece of the puzzle.

Today, the Fed reported the largest loss in family wealth on record. Since its peak in June 2007 we have loss nearly $13 Trillion in personal wealth. From Yahoo! Finance:

Family net worth had hit an all-time high of $64.36 trillion in the April-June quarter of 2007 but has fallen in every quarter since that time.

The record 9 percent drop in the fourth quarter pushed total net worth down to $51.48 trillion, a level that is 20 percent below the third quarter 2007 peak.

 Meanwhile, the U.S. stock market capitalization has lost nearly 1/2 of its value  which stood at $15.34 Trillion in May 2007. So, all total, approximately $20 Trillion dollars in lost value, twice the National Debt of the United States.

 We are in unprecedented waters with a monster cyclone churning over us. The Great Depression did not have the National Debt problems we currently have – the government had room to allow for deficit spending – and so, pumping money into the system made sense and worked to bring us at least back to the same point we were at in 3-4 years. (1929 the Depression started, 1933 it bottomed, 1937 we were back to 1929 values…WWII brought us to a better point, oddly enough.)

We also did not have a medical crisis – retirees, health concerns, and Social Security claims – piling up on our balance sheet. This made it doable to start such programs back in the 1930’s. Which is why we need a major overhaul of the system else we fall into a quagmire of unimaginable depths.

We had a still growing and developing America. Land was still open; manufacturing still growing; grand infrastructure projects still on the horizon. We are now locked into a complacent viewpoint that we should not redevelop, tear down bad ideas and systems, and unlock the innovative and unique spirit that drove us to the position we still hold as the richest country on the Earth. This is paramount to not slipping further down the slope of economic woe.

We are in these uncharted waters due to poor planning, ideological shifts and the blaming of common folk (that made their mistakes) for the elitist and greediest amongst the Wall Street and Washington power gangs. The latter have the power; the connections; the education; and the we know what is best attitude that comes from their MBAs, Ph.Ds., J.Ds., and billions made off the common rabble making their daily bread.

A History of Worst Days on Wall Street

So, it is up to common folk to make opportunity where little seems to exist. To batten down the hatches, set a new course, and make a new discoveries during an Economic Perfect Storm.

They’re will be likely worst days on this choppy, tsunamic-laden horizon – predictions like mine were made during a bad stretch – however, we Americans have to be better than our educated, snooty and self-absorbed elite. And their predictions of all is well in a free-market, free-for-all but those that ultimately pay for their misguided attempts to casino the market daily. 

And let us hope our President sides with us more than the morons of money in our desire to change the path and make a new America that can weather any of the self-induced problems of the Gangs of New York Finance made.

The clouds are dark, but we can weather through the storm.

ECON 201: ACORN is PEANUTS to OUR REAL ECONOMIC PROBLEMS

A response to: RUN! It’s ACORN to the rescue!

Once again, Mark Kiesling, you write a column that is supported by hyperbole and pot shots more than actual and significant circumstances. Sure, it’s funny and all, but not particularly insightful, or useful.

ACORN is by most accounts a terribly biased and poorly run organization. But even if they did somehow managed to get 100,000 families into homes at $200,000 per – as you left it open for discussion – their contribution to the mortgage piece of this economic crisis would be a miniscule $20 billion compared to the Sheriff’s new found helicopter money (not spread around by said whirly bird.) I seem to remember he bought a newer model last summer from all those foreclosures he racked up in early 2008. (Great timing to push through a frivolously expensive toy (gotta keep with the law enforcement Joneses) during a recession that started in December 2007.)

Why I say ‘miniscule’ in relation? 

This mortgage crisis, since that’s where it all ’seemingly’ began, is a multi-trillion dollar fiasco. $20 billion is like 1% of the pot – and highly unlikely for a haphazardly, easily decapitated organization like ACORN to matter one lick to this current dilemma. Bernard Madoff caused $50 billion by himself. A French trader did a French bank for $7 Bills. 

These ACORN idiots don’t amount to peanuts.

Sheriff Dominiguez probably isn’t much more than 2-3% of his county’s financial headaches (some law enforcement is untouchable), but he’s done nothing of real value to prove he deserves to take foreclosure fees and spend them like a teenage girl with a platinum card. Look!: Money!!! Gotta Spend IT!!!!

 

For the truest assessment of why America is heading for a Second Great Depression one only has to look at these things:

• Credit Growth (and Indebtedness)
•  Monetarist Policies (Reaganomics, Greenspan Turbulence)
•  Trade Imbalances (The China Syndrome)
• Risk Management (or lack thereof) 
•  Creative Finance & Derivatives (Burger Kingin’ your Bottom Line)

 

Baby GOT PLASTIC! IT'S SO FANTASTIC!

Ever since the 1^st credit card went plastic in the 1970’s – we Americans have been crackheads for credit. Funny though, we learned this from our government, who, since 1979, went from $909 Billion deficit (32% of GDP) to a current deficit of over $10 Trillion (nearly 70% of GDP.) (Statistical Abstract of U.S.)

 

They're comin' to take me away, HA HA!!!

About $7.7 Trillion of that additional budget shortfall happened on the watch of Reagan, Bush, and Bush II, with Bush II giving over to a Caligula impulse running up a debt nearly greater than all other presidents combined. (And Obama will likely increase it by another $5 Trillion…Over $1.25 Trillion on interest payments alone. Unless…Social Security, Medicaid and Defense are reduced significantly.)

Americans, as a whole, played ‘follow the leverage’ – using assets (home equity) and high interest loans (credit cards) to get what they wanted without saving, or saving less and less. (Negative savings during the Bush years for the 1^st time since the Great Depression.) As a result, this country’s total outstanding debt is greater than $55 Trillion – roughly $180,000 for every man, woman and child in America. (Kevin Phillips, Bad Money, and multiple authors, I.O.U.S.A.)

When Bush called for us to travel after 9/11, and go out and spend, while he introduced his tax holiday for the wealthy, meaning less receipts to the Fed Gov, who do you think suffered? You and I – Joes everyday. The wealthiest 1% have reacquired their lofty perch of nearly 29% of all U.S. Assets. (Wall Street Journal, early- January 2009.)  Once again, not seen since SHORTLY BEFORE the Great Depression. They lowered CAP gains to 15% so those Hedge funds could run wild too. (Oh and UBS, a Swiss bank, just coughed up some coin for allowing 19,000 U.S. citizens to park their wealth in banks there without taxation…a no no.)

Meanwhile, you and I are still busting hump for likely the same amount of dollars we earned in 2000 (adjusted for inflation), back when Seinfeld still ruled (even in syndication), Coldplay was just playing a new record, the Yankees won a World Series, Chicagoans loved Sammy Sosa, and no one besides the NSA, CIA, MI-6 and Israel knew who this Osama guy was, or really cared.

The 3rd Millennium still had Seinfeld on the brain: George is getting angry!!!

 

Talk about a time warp. Please take me back.

 

If Reagan was a savior, give me his devil. The much bally-hooed economist Milton Friedman favorite President started a conservative agenda that has turned America’s Midwest into a Wasteland that only T.S. Eliot could write properly about. While we injected capital into the financial paper market place (usually going to the top dogs) we forgot to rebuild or inject enough into the manufacturing veins of what kept America rolling throughout the 1920s-1970’s.

 

As unions got busted, and immigrants, who were conveniently let into the country (to reduce high wages on menial tasks) came about, the Wall Street hustlers of Michael Milken and Ivan Boesky would be at the forefront of shady and illegal practices that became common place as the unholy trifecta was completed by deregulation. Take away worker’s rights and benefits, find cheaper, more manageable, preferably illegal labor, cook your books (or trade on the inside knowledge), stir well, and simmer for five to eight years. Repeat as needed. Market should soar 100% in five years.

 

Meanwhile, also create a Globalization model that while sounding cool and progressive is usually exploitative and undermines social stability in multiple countries. (Using China as an example we import more in a day from China in 2006 than we did in a year in 1978. But as a result, 70% of Walmart stuff is from China, 75% of your toys are Chinese, and most ($180 Billion) of the world’s electronics are now made in China. (The Elephant and The Dragon, Meredith )  Meanwhile, your son or daughter doesn’t even get the chance to make parts for the China man – unless he or she is frying up rice and chicken down on Crenshaw in LA.

 

Which is a great dilemma to our national security: we pay China in U.S currency for those goods. They hold now somewhere in the neighborhood of $1.3 Trillion in our U.S. debt because they don’t hold all our money, but reinvest it back into America, subtlety, usually as a mixture of short-term and long-term T-notes. (Because we pay our bills…but as our credit worthiness gets worse, those interest rates go higher…more debt to pay…and more assets they hold claim against, in practical terms.)

 

Then, as if by some miracle, the Financial Modernization Act of 1999 came into being allowing banks to deregulate and become anything to anyone. Thrifts, insurance, investments and all shades of gray in between were encouraged.  The big, got much, much bigger, and more confused about the process. (Like a Viagranaire does when a hot, young dumb woman doesn’t think a 55-year old guy should last for 4 hours in the sack, and leaves him without taking his ill-gotten, mother load of money.)

 

(Note: Clinton signed the act with a likely ‘Monica issue’ used as leverage by lead Republican banking member Phil Gramm putting the banking plan together…which isn’t to say Clinton wouldn’t have signed it anyhow. Clinton was far from an ultra-liberal. Some of Clinton’s Economic team is helping Obama…)

 

Risk Management became a joke from all accounts – as interest rates dropped like a stone in 2002-2005 – the money poured out to the public in the form of high-risk, soon-to-be-bundled, sliced-and-diced loans. Cock “Teasers” went to the high school prom with the “Predatory” lending, and banks made God-like fortunes, and Wall Street buzzed with a melodic sound of: “We’re in the money!!! We are wearing… The Money!!!”

 

G. W. Bush is seen as genius by his Lafferite cronies on stock market-focused shows. 

 

But the bets made on the market – Credit Default Swaps (CDS) and Collateralized Debt Obligations (CDO) – would be the undoing of Bear Stearnes, Lehman Brothers, Merrill Lynch, Indy Mac Bank, WaMu, Countrywide Financial, Northern Rock, and a host of others that would soon realize the risks taken on Joe American were indeed about as stupid as giving five 400 lb. brothers all-you-can-eat passes to Red Lobster for life in a town of 500 with only one restaurant.

 

Those boys will eat you out of business.

 

Those boys DID eat you out of business.

 

The start of the unraveling came with Lehman Brothers with Assets of 600+ Billion!

The CDS market makes the U.S Economy look like a 150 lb. cocky QB with a rust-n-ready truck. While it, the CDS market, is upwards of 44 Trillion in size. (New York Times) In the past, only .2% defaulted on their bets. But this total has risen, but how far? What if 10% defaulted? 4.5 Trillion is something the World Market can not handled – no one country could take that catastrophe.

 

And what else do we have for our guests in the Second Great Depression but a helping of 1980’s revisited. Ponzi schemes are just another financial scam instead of insider trading. Bush Era deregulation left the SEC (Securities and Exchange Commission) fellas, who, must be the lowest paid, most ignorant, and most unqualified MBAs on Earth to never come to a situation before the financial cow has been milked, stolen, butchered, and eaten, with only with the feces of the humans left as evidence.

 

Lots of crap from lots of people.

 

Ready to get down and dirty???

 

Millions of jobs lost only add into this downward spiraling plane that has seen Irrational Exuberance of Stock Pricing, mixed with Catastrophic Failure of Banking, Tinged with Turbulent Politics, and Sheer Greed and Avarice from Market Makers to Average Joe Bakers.

 

It will take a ‘Sully’ Sullenberger water landing by President Obama to keep this plane from disintegrating on impact…

Can President Obama do what Capt. Sullenberger did?

 

When that final impact is will be determined by the ability to sacrifice and set aside our bitterness about things no longer changeable, but possibly, correctable with time and planning.

 

It is up to all of us.

 

God Help the United States of America…

The Perfect Storm of 2008: Working Preface

A Cover of The Financial Crisis 2008?

 

Here is the working preface. (meaning: I just had the overall book idea this morning.)

October 6, 2008. It was early in New York on Rockefeller Plaza at NBC.
A place where the mention of Rockefeller drew contrasting opinions
based on what economic class you came from or currently held at
present. His was a fortune made in Standard Oil; Rockefeller’s behemoth
was then broken apart into 27 companies, and the famed ‘seven sisters’:
Exxon, Mobil, Shell, BP, Chevron, Gulf and Texaco. By 1999, these oil
giants would remarry with almost zero objection to their offspring. But
today was not about oil – even as it had soared to all-time highs just 3
months prior of nearly $150 per barrel – but instead, about the
economics of the “credit crunch.” 

   
Before another hectic day of following the casino-like markets would
take hold of an imperiled nation’s imagination, the mood was decidedly
uncertain even after the announced $700 Billion dollar ‘bailout’ or
‘workout plan’ was approved during a 2-week span by U.S.
congressional leaders on the Friday prior. The leaders had thrown
together a bill at the insistence and design of Treasury Secretary Henry
Paulson, ex-Goldman Sachs CEO, to buy up mortgage back securities
and other illiquid assets that banks and finance companies were unable
to sell amidst the crisis of confidence seen on the Wall Street markets,
European floors and newly emerging Asian trading sectors.
With more news of national banks from across the pond being 100%
insured by their governments, namely Germany, the 4th largest economy
by GDP, people with enormous financial stakes and reputations to
protect were speaking to Americans.
 
Jim Cramer, a 25-year trader of stocks, a former Goldman Sachs
employee and host of CNBC’s Jim Cramer’s Mad Money was a guest on
NBC. His call to action for folks nearing retirement age was “ to remove 5
years worth of money,” from the market. This after a weekend of
contemplation about where the markets where heading. Many folks
called this a ‘chicken little’ panic call, shouting ‘fire’ in a smoke-filled
room and other ways to express over reaction to recent events. Cramer
though was panicking back as far as August 2007 during the first shock wave of events that would inevitably become the worse banking collapse since the days of Herbert Hoover and the Great Depression.

 
The string of collapses in long-standing institutions, some that
survived through the Depression Era, made it harder to swallow for
people like Cramer that had more than one CEO of an investment bank
tell him things: “We’re ok. Just a short-term hiccup. Just need an infusion
of fresh capital.” Lehman Brothers had been one of those firms – now
gone after establishment back during honest Abe’s timeframe. [Added: And Kramer's own Bear Stearnes dilemma.]
 
Gone was the ability of banks to lend to each other too. They had free-
wheeled hundreds of billions of dollars in the housing market from coast
to coast, sea to overseas, at sub-prime lending rates with adjustable
kickers. As a result, the borrower usually got overmatched intellectually
and financially, and took their only recourse: skip out on the house and
leave the bank or lending institution to resell the home. Meanwhile,
packaging up thousands of homes of various investment qualities and
labeling them Mortgage Backed Securities, Credit Default Swaps,
Collateralized Debt Obligations to be offered on an open market only lent
more fuel to this 3-alarm fire. As these packages got divvied up further,
combined in unique ways that only a Rubix Cube master could solve or a
Ph.D. candidate in quantum physics might find interest to mull over, the
investment bankers suddenly looked like Masters of a Failing Urban
Housing Project more than any Universe known to these bonus-baby
millionaires.
 
The U.S. Economy has grinded to a standstill. Hefty layoffs have
ensued. The U.S. car industry is in steep decline due to lack of loan
approvals and abysmal choices of inefficient cars, trucks and SUVs.
Financial services have taken a beating. Construction of new homes is
nearly non-existent in several key markets, such as California, Nevada,
Florida and Michigan. The commodities exchange have rollercoastered
from all-time highs and back down as asset deflation on homes and cars
has strangled people’s ability to shed or service debt or live within their
means.   The Perfect Storm of 2008 has not come to an end. It has reached
landfall status, hitting the United States, Europe and Asia at nearly cat 5
strength. The devastation of this financial crisis will be measured in
trillions of dollars lost.  The economic machine of the United States is a
$14 trillion dollar-per-year economy, but this storm will suck possibly 50-
100% of 300,000,000 Americans productivity for an entire year before it
is all done.
 
The explanation of why it happened, who got victimized and what the
events were to cause such a catastrophe will be seen through the prism
of an ordinary citizen with his eyes and ears tuned to this channel of
economic despair and policy blunders. 
 
The overall goal may be seen as two fold: to shed light on behavior
and ideas behind the financial hurricane and to see the ramifications to
all people of various social-economic backgrounds. The calm before the
storm that contributed to lagging response to the problem from decision
makers may ultimately prove to be the most salient topic broached. 
 
No matter the analysis, many have and will suffer from the greatest
crisis of nearly 4 generations. And no one will forget how they survived
during it.

WaMu is shamu-ed: Another bank failure amid no way out

WaMu becomes the latest victim (or victimizer) in the credit crisis as it is bought out by JPMorganChase. The sale now makes JPMorganChase the 2nd largest bank until Bank of America completes its purchase of Merrill Lynch & Co, another large entity on the bands of this hurricane-strength credit meltdown.

With the inability to keep its cash, as exhibited by this quote:

Washington Mutual was shut by the federal Office of Thrift Supervision, and the Federal Deposit Insurance Corp was named receiver. This followed $16.7 billion of deposit outflows at the Seattle-based thrift since Sept 15, the OTS said.

It is clear the market (and people) are spooked. As well they should be. The Perfect Storm of financial meltdown has brewed up the seas of Wall Street, Main Street and Washington to a lather not seen in 79 years.

On Capitol Hill, the fury of this storm has generated more emotion than was supposed to happen. As this quote from Yahoo! reports:

Financial Services Chairman Barney Frank, the feisty Democrat who has been leading negotiations with Paulson, reacted angrily, saying Republicans had waited until the last moment to present their proposal.

McCain, who dramatically announced Wednesday that he was suspending his campaign to deal with the economic crisis, stayed silent for most of the session and spoke only briefly to voice general principles for a rescue plan.

After the session, Paulson, hoping to prevent any chance for agreement from being torpedoed, pleaded with Democratic leaders not to publicly disclose how poorly the session had gone, said three people familiar with the episode. Frank and House Speaker Nancy Pelosi responded angrily, and Paulson, in an attempt to lighten the mood, got down on one knee, said the sources who spoke on condition of anonymity, like the others, because the conversations were private.

Weary congressional negotiators then resumed working with Paulson into the night in an effort to revive or rework the proposal that Bush said must be quickly approved by Congress to stave off “a long and painful recession.” They gave up after 10 p.m. EDT, more than an hour after the lone House Republican involved, Rep. Spencer Bachus of Alabama, left the room.

The partisan reality of this crisis is this: Republicans, who consider bailouts taboo, are in the wrong. I hate to side with bailing out greedy, immoral Wall Street investment bankers and their 2nd class ilk, but without a market that functions, this baby is going to reach irrepairable levels.

Great Depression. No Jobs. No investment. No loans without ample capital upfront. Industrial might lost. Technology lags.

And chaos that comes from financial calamities. Crime. People acting irrational that once were rational and decent people. Emotional depressions. Suicides. And resentment toward anyone with a buck.

Additionally, we are seeing big banks getting bigger. No competition. A sign of omens to come?

So while CEOs lie, such as Dick Fuld of Lehman Brothers in this interview from June 2008 by the Financial Times:

 “Do we have some stuff on the books that would be tough to get rid of? Yes,” he [Fuld] said, referring to commercial and residential mortgage assets. “Am I worried about it? No. If you have some repricing of these things will we lose some money? Yes. Is it going to kill us? Of course not.”

Lehman is a dead bank walking, say its critics who argue the reason it has not yet suffered the same fate as Bear Stearns is the emergency facility that allows it to borrow from the US Federal Reserve. “Lehman is propped up now by the US taxpayer and nothing else,” said one financial services industry chief executive. “When the Fed window goes away, so does Lehman.”

That is why the CEOs, CFOs, CIOs and key employees of any major financial concern should be asked to come to Washington, or New York, and required to sit in a large conference room and straighten this all out. Communications via overseas is a necessity; and these jokers have to figure out what can be done to fix mortgages (within the framework of United States) and to get these markets working. If it takes 2 weeks, it takes 2 weeks and 100s of hours per man, so be it.

Time is nearly gone. This Hurricane is only hours (read: days) from landfall. And it will take this country down, and nearly the entire world, with it as this quote shows the fear of other nations:

Still, officials from France to China voiced alarm.

 

“A crisis of confidence without precedent is shaking the global economy,” French President Nicolas Sarkozy said in a speech in Toulon, France.

 

As Thursday’s meeting began, Bush warned, “We’re in a serious economic crisis in the country if we don’t pass a piece of legislation.”

So, it is incumbent on the party in power to realize the clock is nearly out and you don’t have a Plan B. At least not one that works.

Note: I have been following this story for nearly a year. Books that might be of help:

• Bad Money – Kevin Phillips
• Trillion Dollar Meltdown – Charles R. Morris
• Chain of Blame -Mathew Padilla, Paul Muolo
• Twilight in the Desert – Matthew R. Simmons
• The Dollar Crisis – Richard Duncan
• The New Paradigm for Financial Markets – George Soros

Letter to the Editor: McCain’s judgment in economics is inherently flawed

Economy is inherently sound

As the markets spin out of control, with wild swings based on calamitous events such as Countrywide, MBIA, Ambac, Bear Stearnes, Fannie Mae, Freddie Mac, IndyMac, Lehman Brothers,  Merrill Lynch and AIG, why do many insist that Bush’s administration, or his party’s nominee, John McCain, have gotten anything right at all?

John McCain’s former top economic advisor, ex-U.S. Senator Phil Gramm of Texas, had a primary hand in the Gramm-Leach-Bliley Act of 1999 that eliminated the firewall protections made by the Glass-Steagall Act of 1933 between investment, commercial banking, and insurance services during the Great Depression when so many banks failed. As a result of this deregulation, we are now seeing the enormous problems of integrated services spread like a plague throughout the market as many of these financial players mixed investments and savings and high-risk loans together and across various business entities.

 

You are a nation of whiners

McCain’s economic proclamations and company kept should be an albatross around his neck. You cannot expect change from a man that hires people that called Americans, “a nation of whiners,” during an economic crisis of their making. Meaning: Phil Gramm had his hand in your misery and now blames you for it.

Phil Gramm continues to be major cog in McCain’s campaign.

How is that change we can believe in?