When I wrote yesterday about "uncertainty" in the retail atmosphere, it was before the 'bail-out' bill failed. I expected them to fix the short term crisis so we could continue on our national profligate self-destruction. Interesting mix of right and left populist politics scuttled the bill.
Unfortunately, they'll probably still pass the bill, after more damage is done. I'm thinking, now that they've gone this far, let's live with the consequences.
I've tried to get worked up and worried about this, but can't quite get there. I've always been a bit of a sucker to being told it's an "emergency."
But Bush and his cronies just cried wolf one too many times. And it stuck in my craw that it looked like to me that money was going to Wall Street. I just don't trust them to structure the bill so that most of the money wouldn't go to the fat cats.
The stock market? A bunch of ninnies. They did themselves no favors in my eyes when the stock market actually went up on Thursday in anticipation of the bail out. It smelled. And yesterday's drop looked like a tantrum.
I am almost convinced that the market will go up today. Like I said, ninnies.
The credit market? Again, all I can see it that they'll loosen credit for the big banks, but most of that won't trickle down to the regional or small banks, and certainly not to the small borrowers.
As a small businessman, I really should be hoping they do something to settle the uncertainty.
But damned if I trust them.
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17 comments:
duncan,
i love your stuff but i have to say i'm more than a bit frustrated with people being so vocal against the paulson plan without first educating themselves about both the structure of the plan and the real problems the economy currently faces.
bernanke and paulson are two of the brightest minds in the world of finance. their plan has been endorsed by former fed chairman and current obama advisor, paul volcker and even more brilliant, private-sector dems like warren buffett and republicans like bill gross. so to make this a partisan issue is just silly.
to think that this is not an emergency is to both reject the collective wisdom of those mentioned above and to simply fail to understand the current problems and potential solution. financial institutions are dropping like flies in a situation that could easily become an epidemic (already has?) and literally bring down the entire economy. great depression redux, anyone?
i understand your political feelings. i think most Americans feel as disillusioned as you do. i know i do. but coloring the issues with these feelings is nothing more than politics as usual. real CHANGE will require a real change in mindset, imho.
best,
jesse
The stock market is aside show in this. Look at the credit markets . In particular the TED spread. The TED spread is difference between the interest rates on inter-bank loans and short-term U.S. government debt. That is the best indicator of immediate health of the credit market. The stock market will bounce all over the place day to day.
To get an idea of eactly why people are concerned go look at
http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP%3AIND
Take a look at the 5 year chart to see what the normal pattern is.
Also it is not just the US. You are seeing European Banks failing. Massive drops in other country's stock markets. It is not a question if there will be a global recession. Only how deep and how long.
Jesse and RDC.
Granted.
Everything you said.
If I had a little red button to push that would make it so, I'd push it.
Seems like a huge thing to gamble on, and at worst, we just go deeper in debt (isn't that the problem in the first place?)
But damned if I trust them.
The political part of me, the liberal part, wants to say, Screw You Wall Street.
The small businessman in me suspects it's totally necessary to smooth things out.
The political part of me, says then nothing will be changed because they got bailed out and the moral hazard was removed.
But the small businessman in me says, it's a hell of a gamble not to pass it.
Duncan,
You sound a bit conflicted.
"they got bailed out"
who are "they" and how are we "bailing them out?"
the paulson plan simply proposes buying securities at fair market prices to provide liquidity. this is what market makers do every day on every financial exchange in the world.
there are no market makers (there is no market at all, in fact) in many of the securities causing problems right now (CDS, MBS, CDO, etc.) and all the paulson plan does is create a market maker (which is a for-profit business, btw).
this is not a "bailout" for anyone unless, of course, you consider the new york stock exchange to be a "bailout" mechanism for stock market investors.
without this liquidity, the daisy chain that is the CDS market could easily bring the entire financial system to collapse (it makes the LTCM scare look tame). this is precisely why institutions like AIG are "too big to fail." if they go down they take everyone down with them - and i mean EVERYONE.
so we either decide we're going to literally "bailout" every other AIG out there or else simply provide liquidity to a system that now lacks a market making mechanism, precisely what the paulson plan intends to do.
I probably don't understand all this. But we're talking 700 billion here, and my suspicion is that that money will be used to shore up the banks bottom lines; but still not reach the people who need it.
All the money would fill the slack, the bad debt and toxic loans, and never free up to create new loans.
That's what happens when people on Wall Street reward themselves for outrageous bonuses. People like me don't friggen trust them.
And talk about conflicted.
The stock market is up, giving the unintended (I'm sure) message to Congress that everything is O.K. whereas the real message may be that they believe Congress will pass a message.
I've been trying to come up with an analogy that works, and the best I've come up with is this.
It's as if the Captain of an ocean liner has told us that unless we give up the wood in our cabins in steerage, that the liner will sink. And I suspect that all they're going to do is build some lifeboats for the crew and first class passengers.
They're saying trust us, the same guys I saw gorging on the upper decks, who pushed me out of the way in the corridors, the same guys who ran us into the iceberg.
Problem is, what if the ship really is going down?
And then, after you agree to give the timber out of your cabin, you catch them partying on the upper decks again.
Duncan,
Your analogy is pretty good about the trust part. Except while the ship has been saling nicely along and the upper desk have been gorging, a large number of people on the lower decks have as well. Ordering meals that they could not afford, in some cases knowlingly, in other cases because they could not understand the prices printed on the menus. But they really didn't care because they did not have to worry about the bill until the ship reaches port.
Now the ship is taking on water and unless the people on the lower decks cooperate and let the crew patch the hole the ship is going to sink. Now patching the whole might cost them because some of their luggage might get damaged, but they won't know for sure until the hole gets patched. But because of that lack of trust, the hole may not get patched and the entire ship may sink. However, some are cheering because they just want to watch the ones on the upper desk go down, and don't realize that they and their luggage will go too. Some are cheering because if they feel that if the shipping line won't forgive their tab, then it deserves to sink.
A good analogy is worth pushing too far....
What if the crafty little buggers in the lower decks are building their own rafts, instead of handing over the wood?
If they want to brave the North Atlantic in a small raft where they might freeze to death , or starve, etc. then I woudl say their choice. Atleast it gets the out of the way of the repair crews.
I'll always remember my experience with sports cards. (Everything I've learned, I learned in cards.)
The hobby became infested by fools and greedy bastards.
One day, my wholesaler and I talked about how things never seemed to get quite bad enough to drive out the fools and greedy bastards, and that maybe we needed a severe downturn...
The severe downturn came, and almost no one survived; saints or bastards, fair merchants or greedy bastards.
Learned my lesson about getting what I wish for...
Speaking of small businesses, this may be of interest:
In 1929, Meyer Mishkin owned a shop in New York that sold silk shirts to workingmen. When the stock market crashed that October, he turned to his son, then a student at City College, and offered a version of this sentiment: It serves those rich scoundrels right.
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A week ago, Treasury Secretary Henry M. Paulson Jr., left, and Ben S. Bernanke, the Fed chairman, testified in the House.
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A year later, as Wall Street’s problems were starting to spill into the broader economy, Mr. Mishkin’s store went out of business. He no longer had enough customers. His son had to go to work to support the family, and Mr. Mishkin never held a steady job again.
Frederic Mishkin — Meyer’s grandson and, until he stepped down a month ago, an ally of Ben Bernanke’s on the Federal Reserve Board — told me this story the other day, and its moral is obvious enough. Many people in Washington fear that the country is starting to spiral into a terrible downturn. And to their horror, they see the public, and many members of Congress, turning into modern-day Meyer Mishkins, more interested in punishing Wall Street than saving the economy.
All of which may be true. But there is good reason for the public’s skepticism. The experts and policy makers who so desperately want to take action have failed to tell a compelling story about why they’re so afraid.
It’s not enough to say that markets could freeze up, loans could become impossible to get and the economy could slide into its worst downturn since the Great Depression. For now, the crisis has had little effect on most Americans, beyond their 401(k) statements. So to them, the specter of a depression can sound alarmist, and the $700 billion bill that Congress voted down this week can seem like a bailout for rich scoundrels.
Mr. Bernanke and his fellow worriers need to connect the dots. They need to use their bully pulpits to teach a little lesson on the economics of a credit crisis — how A can lead to B, B to C and C to Depression. -- David Leonhardt, NY Times
He goes on to explain how the market dynamics that led to the Great Depression are in many ways similar to what we are seeing today. Worth reading: http://www.nytimes.com/2008/10/01/business/economy/01leonhardt.html?em
"The hobby became infested by fools and greedy bastards."
It's the way of the world; Homo sapiens is a herd animal. I think you've been around long enough to remember the Llama Mania of the 1980s-early '90s? At one point llamas were the most valuable agricultural product of Central Oregon.
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