Marx made a wry observation in the opening lines to one of his historical tomes, “Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past. The tradition of all dead generations weighs like an nightmare on the brains of the living.”
So it is with us. We are experiencing a crisis that is the result of a decades long deconstruction of the United States economic, political and cultural infrastructure. It began with the dismantling of our manufacturing base. It continued with the transformation of our capital markets. The purpose of the stock markets was to facilitate capital formation for the creation of businesses and industries. Today the markets function principally for speculative investment and the enrichment purposes of monied interests. Our deconstruction accelerated with extreme political Rovian partisanship and the fear mongering and self serving righteous divisiveness incessantly screamed by the howling yodelers of Talk Radio. Finally our enlightened republic is threatened with extinction by the intentional dismantling of our public education system and the virulent attack on secular learning and civic participation.
During times like these weird things begin to happen. We need to be prepared for anything and everything. That said it is heartening to see the Fed, Treasury and SEC act with such dispatch to address the US role in the global banking crisis. An economic meltdown serves no one. The long term impact of these swift concerted actions will be profound. Undoubtedly these actions will add to the national debt. Some think it unfair to assign this burden onto the backs of future generations. Indeed this country started a revolution on the idea that taxation without representation is an intolerable injustice that cannot stand. Years from now the yet to be born will curse the long dead for their poor stewardship of our national wealth and resources and how it contributed to an extreme and unfair taxation they are forced to pay. That is of course if America does make good on its debt. Alexander Hamilton may be stirring in his grave. So this is a time out from the heat of a global market implosion. What is happening?
PROHIBITION ON SHORT SELLING: Shorting can now be considered a criminal enterprise. At present it only applies to large financial services firms. Lots of firms are clamoring to get on the you can’t short my stock list.
The new national slogan from the SEC should be “GO LONG ON AMERICA!”
REPO MAN:Global Repo Desk was created to facilitate liquidity amongst the global central banking system. London, Tokyo, Frankfurt and the other G8 central bankers are all counter parties to Bernanke’s $180 B liquidity infusion. Paulson’s putting on his old Goldman Sach’s trading cap and promises to trade us out of this bad position.
The Feds new slogan, “NO CENTRAL BANKER LEFT BEHIND!”
GOOD BANK / BAD BANK:Bernanke is using his infinite balance sheet to segregate all the bad debt from the good stuff. Its kind of like what ENRON did as it packaged all its poor debt obligations and parked them in offshore SIVs. Maybe it will work this time because unlike ENRON the Fed can print money. Lots of it.
New Slogan “BERNANKE AND PAULSON, SMARTEST GUYS IN THE ROOM.”
CORPORATE BAILOUTS: The US taxpayer is now the owner of the worlds largest insurance company. It’s $80 B capital infusion in AIG will keep this company solvent for the time being and keep the credit rating agencies from lowering AIG’s credit condition to junk. Cox has requested a copy of Lloyds of London Names List.
New Slogan: “PRAY FOR NO MORE HURRICANES, WE CAN”T AFFORD TO PAY OFF THE CLAIMS”
SHOTGUN WEDDINGS: First it was Bear Stearns and JP. Now its Merrill and B of A. Who’s next?
New Slogan: “WE DO MORE MARRIAGES THEN ELVIS AT A LAS VEGAS DRIVE THROUGH”
INFINITE BALANCE SHEET: That is what they keep saying. The Fed can do these financial gymnastics do to its access to an infinite balance sheet that can finally match infinite assets to cover infinite liabilities. Sounds like a tall order to me but i must admit it sounds pretty good from where I’m sitting today. Don’t know how it will go down with the future generations. From Bernanke’s lips to Gods ear.
New Slogan: “INFINITY, ITS MORE THEN ENOUGH TO GET IT DONE”
Bailout politics will sure to become a bloodsport. Every once in awhile you see the commentators on CNBC smugly ask about a threat to free markets and contemplating about the evolving form of capitalism. I can also hear Palin’s squeaking voice proclaiming she’s ready and offer some sage advise concerning our current plight. Palin would say that if she were so blessed to take the oath of office with her fellow Maverick John McCain, she would immediately put AIG up for sale on e-bay and return the proceeds of the sale to the American taxpayers.
Music: Temptations, Ball of Confusion
Risk: economy, market, future generations
My neighbor Hank has had his home on the market since the fall. He retired years ago and spent a good portion of his time attending to the care and maintenance of his beloved home that he has shared with his wife Judy for over 40 years. Last summer he decided it was time to move to an assisted living community. He bought a home in a senior community down by the Jersey Shore and put his place up for sale.
He just missed the real estate market peak in early 2007. He hung on to his beloved place a year too long. Soon after putting his home on the market the sub-prime mortgage meltdown hit and as the contagion spread through the credit markets Hank couldn’t get anyone to come to see his nice home. Over 6 or 7 months numerous open houses and a couple of St. Joseph statues buried around the property he had one offer that fell through because the buyer couldn’t get a mortgage. Hank now has two homes; one at the senior community with a new mortgage and his beloved home of 40 years which he could not sell. As a guy on a fixed income Hank was and still is in a pickle.
Yesterday I was doing the spring cleaning outside; getting the grass, garden and gutters ready for the summer. A real estate agent pulled up with an open house sign. She planted it into Hanks perfect lawn and entered the house. I said yeah, good luck. My skepticism soon turned to joy for Hank as car after car parked outside and went for the tour. He must have had 20 visitors. I would greet everyone with a smile, a wave and a cheery hello to try to do my part to help Hank sell his home.
Either the St. Joseph statues are working or maybe Bernanke’s interest rate cuts are adding a little liquidity to the credit markets. Hopefully this is going on across the country and hopefully things will get unstuck in the real estate market.
We’ll keep you posted on the state of the housing market from our little corner of the world and our business development plans to consider marketing St. Joseph statues.
You Tube Video: The Beatles, Fixin a Hole
Risk: credit; senior citizens; mortgages; real estate; fixed income
It really doesn’t matter. What’s called for is how to get the economy back on track. Policy makers and market participants must come up with some creative solutions to address the new economic realities confronting our nation.
One thing is certain. Any governmental recovery program must squarely address the support of small mid-size enterprises (SMEs). SMEs are the principal drivers of job and wealth creation and economic development. This is a segment that must be viewed as too big to fail. And policy and programs must be at the forefront of any recovery package under consideration by our elected officials.
An interesting article by MR Pridiyathorn Devakula on government policy and support of SME financing provides some valuable clues to guide our policy. Writing for The Nation he outlines the inefficiencies of the SME State Bank as the appropriate credit channel to fund the development and support of SMEs. The interesting point he makes is that commercial banking sector is a more efficient credit channel.
There are many interesting corollaries with how the US banking and credit channel market is evolving.
We will explore them in more detail in future posts.
Well he finally almost said it. Fed Head Bernanke hinted at the “R” word.
“Recession is possible” he said. “Our actions appear to have stabilized the situation in the markets somewhat, but markets remain under considerable stress.”
Now don’t you feel better? I do. But my level of warmth and fuzziness would be enhanced if his declarative statements on our current political economic condition weren’t clouded in such existential nuance.
Words like “possible”, “appear to”, “somewhat” gives me the feeling he’s hedging his words. Evidently he takes his role as the nation’s supreme fiduciary seriously. He will stop at nothing to protect Jim Cramer’s innocent day traders as they madly thumb the volume button on TV clickers while they eagerly finger the enter key on their E-Trade accounts.
You are allowed to say the “R” word Mr. Bernanke. Just because you say it, don’t make it so. You are a powerful man no doubt. You must adhere to restrictions as to what you say particularly during times of acute precariousness of the capital and credit markets. But great leaders take a stand. They articulate a vision and make known a course of action that your constituents (tax payers’ aka free citizens) can understand and believe so as they can prepare to take the action to protect themselves, their assets and liberties during times of great national duress.
Let me say that the “R” word is being spoken on Main Street. Particularly in neighborhoods surrounding Detroit where I understand the moral hazard casualty list is excessively high and continues to mount.
Say the “R” word Mr. Bernanke. It would be a refreshing departure from the “don’t ask, don’t tell”mantra that guides the American psyche deep into denial and an administration that is mired in a Pollyannaish view of its self created reality.
People do tend to blame the messenger. I guess it’s the association and connection with the awareness of a pending or present malady that requires considered action to mitigate. That’s not a bad thing. That is a good thing and is what effective risk managers do. They honestly assess risk factors and take earnest action to adapt to fluid situations. And by doing so, risk managers triumphantly overcome the pressing challenge by transforming it into an opportunity.
This is your opportunity Mr. Bernanke.
God speed on your endeavor.