Five Things You Need to Know: Where Were You When the Fun Stopped?
Where Were You When the Fun Stopped?... No Shorts for You... Homeless, America Gets a Tarp... Can This Really Be Happening?... Picture This
Where were you when the fun stopped? I was in the back of a New York city taxi about 11 last night, barreling down 7th Avenue toward my apartment in the Seaport when it ended.
I leaned my head through the divider separating me and the driver and shouted, "Do you take American dollars? It's all I have." It's a little inside joke I have with the drivers in this city. Usually, we share a similar sense of humor and a mutual distaste for poor directions and strong perfumes. But not tonight. Not anymore.
"No!" the driver screamed, yanking the wheel hard to the left and sending me crashing hard against the right side passenger door. He slammed on the brakes in a bus lane, threw the cab into park, "Gold! Only gold! No dollars!"
I could see there was no point in arguing with him. I took off my wristwatch. "Gold," I said, handing it to him.
He studied it for a moment and began shaking his head.
"Fourteen karat," I lied.
He pointed to the inscription on the back, "What is this?"
I read aloud: "To Ken, Lest we forget. 27 golden years. Bear
Stearns."
It really read, "Timex, North Little Rock, AR, 100% Stainless Steel, Gold-Tone Case," but there was little time to explain the meaning of that. After all, the meter was running.
The driver seemingly satisfied, we continued on our desperate ride, but it was clear a threshold had just been crossed. I had just witnessed one of the simplest, most basic transactions in America - the pay per distance cab ride - disintegrate into mistrust, anarchy and hate. Worse, I had been a party in the awful transaction, perhaps even the origin of it.
Drivers no longer accepting dollars. Fares passing off stainless steel watches for gold. Ye gods, where will it all end? Will we soon be hoarding canned good and burning chairs for warmth? Maybe not. But it is clear the threads of basic human decency are coming unraveled all around us.
No Shorts for You...
Earlier in the evening, before the cab ride nonsense, the first text message came in. I was six beers into a weird concert set by a band that was so intense about being upbeat I was having trouble deciding whether they were harnessing a religious zeal or a sociopathic fervor when I noticed the text:
KD, SEC 2 BAN SHORT SELLING. END OF CAPITALISM. GOODBYE.
I snorted and held up the text message to a woman in an LSU t-shirt and wide flair pants standing next to me who only moments before had been smacking her boyfriend's ass with plastic spoons. I was told by the bartender it's a Louisiana thing.
"Look," I yelled. "They've banned short selling. What do you think of that?"
She shrugged. "Who cares? It's almost fall anyway. Just make cutoffs!"
Indeed. While the vast majority of Americans have no idea what a temporary ban on short selling of financial stocks really means, they instinctively understand the uselessness of the gesture to its very core. Who needs shorts? Just make cutoffs.
Homeless, America Gets a Tarp...
It is now more than 12 hours since the cab incident and every time I think about it I shiver like a man who was just dragged out of a dank, abandoned fishing pond. Treasury Secretary Hank Paulson is on the newswire right now saying "illiquid assets are clogging up our financial system.":
BLOOMBERG NEWS: Paulson Announces `Troubled Asset Relief Program'
"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy. This troubled asset relief program must be properly designed and sufficiently large to have maximum impact, while including features that protect the taxpayer to the maximum extent possible."
Troubled Asset Relief Program? Yes. T.A.R.P. Tarp. This is going to be difficult to explain without flowcharts and Excel spreadsheets but we have no time to create these now. The news is moving too fast. General Electric (GE), "a diversified technology, media and financial services company" just asked the SEC to be included on the short-sale ban list. The Dow Jones Industrial Average is up 442 points. Lehman Brothers us up 198% to $0.16 cents a share. Traders are punching in tickers at random, creating buy orders upon buy orders. Something is happening here, but you don't know what it is, do you Mr. Jones?
Here's the crystalline nut of the thing. Homeless America was just given a tarp and told to cover up and hunker down. That is all ye will be told, and that is all ye need know.
Can This Really Be Happening?
It's not even noon and I have been asked that question, ordinarily reserved for serious police matters, by more than a dozen people today. Fair enough. Doubtless the reality of it far exceeds the imagination of what it might be like.
Ours is a Stealth Depression. It's been with us for some time, it's just that most of us haven't bothered to notice it. As social mood continues to shift from what have been two decades of underlying positive and optimistic sentiment, the cracks in the facade will become more apparent.
Household debt-service ratio remains near a record high 14.3%, while the personal savings rate hovers near a record low 0.5%. In many cases debt service is as much about perception as reality. Optimistic social mood creates the right conditions for enhanced credit appetites and an optimistic view of how much debt one can service without stress. That is one reason the high-debt service ratio and low savings rate has been able to persist, and to grow to unimagined heights, for so long. A negative social mood can take things to an opposite extreme, where debt is repudiated or shunned.
There were many books written in the 1970s about how over-indebted U.S. society was. Those books seem laughably naive now. There is no question that at least based on the preceding decade the debt burden of Americans in 1980 seemed extraordinary. We managed to grow our way out of that. I am not so sure we can do so this time. In fact, our debt-service ratio has grown more over the last six years than in the preceding 39 years.
One thing to keep in mind is that the Depression was not an event, it was an era. And even during the peak of unemployment during the Great Depression 75% of the country continued to work, a lot of children continued to go to school, colleges continued to teach students who could afford to attend, sporting events continued to take place... the point being that the world didn't simply shut down.
The media often portrays that hard era as one where everyone in America either stood around on street corners panhandling or in a bread line. That is simply not the case. A closer look shows that, similar to today, economic hardship for what would then have been considered middle class and lower middle class began well before 1929. The stock market crash of 1929 was simply one manifestation of the spread upwards (the trickle up effect) of economic hardship, similar to the subprime mortgage implosion. In other words, the stock market crash didn't cause the Depression, it was merely a symptom of it.
Even after the crash, for the first couple of years, the stock-owner class, far and away a more elite class than stock-owners today, felt things would get better. And also similar to today, the rush by government to "do something" didn't really occur until after the economic elites were impacted.
This is what we are experiencing now. Economic hardship for a large number of Americans began more than eight years ago. It is quite true that, comparatively, living conditions for the vast majority of Americans are much better today than 70 years ago, arguably even for those living below the poverty line. But that does not change the socionomic impact of what is taking place.
It is doubtful we will ever experience the massive degree of unemployment that the U.S. saw during the Great Depression, but not because the Federal Reserve or some other such entity is better at preventing recessions and depressions, only because government in general is better at creating publicly funded employment for citizens.
We will likely come to view this bout of recession, retrenchment, whatever one calls it, like those living in the Depression did: "Just when we thought it was over, it was really only beginning."
Picture This
When it gets down to the awful point that you have to ask, Can this really be happening?, the best remedy for this reality shock syndrome is a picture of the offense. Just a picture. Nothing more. Something to capture the moment and slow it down to a meditative still-frame. Enjoy.
BLOOMBERG HOLDINGS SEARCH, US GOVERNMENT
Click to enlarge
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Rather than live within their capitalist framework, they decided to play God, rewrite the rules, and "correct" the structural imbalances on the backs of Main Street.
Profiles in Courage or Profiles in Corruption. Yes, ordinary Americans can be heroes, but these celebrities are not heroes or gods, but simply turned taxpayer money into blood money.
A pox upon them? Heroes are made of far sterner stuff.
But I suppose now that the gun has been used, the short side won't know when the gun is coming out again.
And none of this matters if everyone heads for the exits at the same time because there is no demand layer underneath.
I attempted to make it positive, I think I made it worse.
This just in (not really), The UK just asked to be included under the TARP.
But lets not overstate the downside of government intervention here. One thing that I keep hearing is the tax payer is on the hook for $85 billion with the AIG deal. That's a LOAN that will be repaid. And it comes with a massive equity kicker - 80% of AIG. AIG was worth over $200 billion just six months ago. Clearly, it's not anymore but to say that AIG is worth $0 and the loan will never get repaid is also an understatement. Frankly, I think Hank Paulson's vulture investing style is making Warren Buffett look like an amateur. I wouldn't be surprised if the government makes a couple of billion on this deal.
And the US government isn't going to take over the entire economy. It's clear to everyone in room that if you get yourself into so much trouble you need government help, Hank Paulson will step on your neck, rip our your heart and shove it in his back pocket as collateral. No CEO in the US is going to accept those terms if they can at all avoid it.
Don't think about a revolution, though. We are too broke, they have all our money and now they are cutting off our credit!
I'm from the government and I'm here to help. - Reagan
Nor do I. But I have an idea. Because I make my kids work in a soup kitchen once a month. We bring food and clothes to people who need them. And while I've seen attendance rising at the particular kitchen I work, let's be honest and say that it does tend to fluctuate quite a bit over the years. I know some kitchens are seeing higher levels of attendance than expected and have run into monetary issues. But how is this really related to what's going on with Wall Street?
It isn't. I haven't seen any former mortgage bankers or anyone like that walking in. I haven't seen any former subprime borrowers, either. I have seen alot of people who are down on their luck and almost all have been down for some time. The increases I've seen have mostly been immigrants (illegal or otherwise) who are clearly having difficulty finding work. That's a sub subset of what's going on, but not directly related, either.
Let's take it a step further. What do we propose as a means to PREVENT what happened from occurring again? Seems to me most remedies of prevention would be far more ANTI CAPITALISTIC than anything we're currently seeing. To prevent people from having the right to borrow if they fit a particular profile is very non-capitalistic.
The only submission I can clearly come up with is better enforcement of audits, balance sheet management, and related valuations. Allowing firms to keep holdings off balance sheet or allowing them to price them at purchase value in a falling market is anti-capitalistic, so having regulations and regular audits to prevent this would keep items such as this to a minimum and limit massive bubbles.
But having the government firm a corporation to deal with the mess isn't necessarily anti-capitalistic. Hong Kong did this and did it quite profitably. And Hong Kong is far more free economically than the US. I do agree the current short selling ban is horrid and unconscionable. Is it necessary? Doubtful. Is it useful? From a short term standpoint, possibly. But it's not good, ideologically, to mess with the rules.
Now, down here in middle class land where I live (house, 2 kids, dog, suburbia, etc.) I'd say things remain tight, but no worse than they were a year ago when all this began. In fact, if anything the recent run up in oil caused people to tighten the reins, start saving and recycling goods, and with the current downdraft in prices we're starting to feel a little bit less in the noose. Of course, a noose can always tighten, too.
But it was a good experience and one that should remain in the forefront of most peoples' minds for some time to come - frugality is its own reward at times. We have begun using a user group on Yahoo known as Freecycle - we take goods which we no longer need or use and recycle them to people who can use them. My sons' Heelies (only used for 2 months)? 2 kids were ecstatic to receive them from dad for their birthday....for free. That paint we had left over from painting the living room? Someone painting their living room has it now.
These kinds of things don't help the economy grow. But they do help it survive and diminish the mild reverse Malthusian situation which we face. Maintaining and expanding these behaviors will eventually lead to a point where people will begin spending again, because they will have some free cash and others (like me) will always have kids who need something. If I declutter enough, even my wife will want to start spending again (she is making noise about a new flat screen tv...).
I remain cautiously optimistic. Always prepared for the worst and expecting the best. It's easy to live this way when you get to see the people I do at the kitchen.
Let us not forget, as I have pounded on the table in this forum these past months, that these men are NOT fools, nor are they idiots. You think you get to be head of Golden Slacks for being a dummy? Let alone, Secretary of the Treasury? Did a professor from MIT suddenly get really, really dumbed down? Or did he get a job as the Chairman of the Federal open Market Committee?
The events of the past few weeks have only compounded my sincere belief that these boys are up to something quite sinister, on an unprecedented scale of immense and world-altering proportion. Call me a Conspiracy Theorist if you must. Call me a Conspiracy Theorist because I am.
Let us not shake our heads in disbelief. Let us keep our eyes wide, wide, wide, wide open.
This, ladies and gentlemen, is getting very scary.
.. From this point on, there's no comparison of 'new' indices to indices before today... they WON'T JIVE... they DON'T mean the same thing... more SMOKE & MIRRORS from the White House... The NYSE looking more like the crooked NASDAQ...
But it's worse than it seems if they truly have become stupid.
If they DON'T have something up their sleeve by now, then we really are freakin' doomed because there are not enough resources on this and 6 other planets to build a big enough economy for the government to tax it and pay off its promises.
I am merely looking at the technical issues of physics, education, media influence, government representatives' behaviors, military actions and secret organizations, mind you....not everything.
Either way, they are getting their man, so that is not the issue.
No, I mean sinister in such a way that, looking at it now, seems unfathomable to us mere mortals. What I mean is that the United States Government has planned all along to debase the $USD, sell US Treasuries to the Chinese to shore up all that massive spending overhang we have had thanks to the real-world playa Alan Greenspan, and then yank the football out from in front of them like Lucy does to Charlie Brown.
The Chinese stock market has taken such a dive that the Chinese government has lifted the TAXES it takes to buy equities there! The Chi-Comms have eliminated the tax on a purely capitalistic item! The Chinese are now forced to subsidise their own stock market, paying for it by- you guessed it- selling the massive amounts of US Treasuries they hold.
I can hear Hammerin' Hank and Uncle Ben now:
"Rookies," says Paulson.
"Heh, heh. Yeah, rookies," replies Ben.
Paulson will have to get companies to buy their stock or something because the mutual funds are getting redemptions and Joe Q. ain't gonna buy if he has half a brain.
I'm not on the short side but wonder what country will have to move to since we aren't getting out of this any time soon.
Does this mean that I can toss my $155.000.00 loss from the 87 market crash into the Troubled Asset Releif Program and recap my money? I was my own banker. That would restore my liquidity! I would be whole again! HOT DAmm this is a two fifther. I gonna get defragged tonight! LOL
JPM
1. You lobbied & got rid of the uptick rule
2. You can naked short anything they want and kill companies
3. You don't pay taxes like everyone else.
If there was ever a old boys club. This is it. Lets see. A bunch of the rich guys running the country sit around to figure out how they can not only continue to be rich but how they might actually funnel more of the countries financial resources into therr own pockets and become more powerful. Politicians are easy to buy. Mostly poor power hungry folk who could use some kickbacks and sweet heart deals. Or rich elite themselves who only went into government to protect their personal assets. You help me, I help you and we end up with 100 million a year payouts on rigged games. I loved David Fabers gig on the new super rich.. My take away was simply how much can I steal from the economy and put in my pocket?
Cheers boys, I hope you lost your butts over the last two days and I will smile as I see how many of you are now bankrupt.
I wonder how some people can pull up the siding on a house and see it is infested with termites and think nothing is wrong. I guess the house is still standing just like it was last year. Maybe it could use a coat of paint or maybe we should ban housing inspectors (i.e. short sellers) from looking at the house but otherwise everything seems to be just fine. Yes, the house is mortgaged up to the hilt, priced way too high and there are way too many such houses for the number of people that could buy them but my house is okay. At least I think its okay unless say I lose my job or if I decide to move and try to sell it, then...well let's not talk about that.
I bet if I were to work in a soup kitchen once a month or give my old junk to Goodwill that the 700 billion in termite infested homes the government is buying with our grand kids money really woudn't matter. I mean, if we all just pull the blankets over our head and ignore what's happening maybe it will end up that its all just a bad dream. It has to be because everything is just hunky dory in my neighborhood.
It has to be because otherwise everything I believe in is a lie.
I feel like I now have two things I could tell my children:
1. Be greedy SOB's and chase after the gold ring with no regard for your fellow human beings.
2. Join the collective and do as you are told and you might have a warm meal and have a roof over your head.
It seems the idea of being free, self-sufficient, yet voluntarily aiding your fellow human being and society is dead.
Am I being responsible so the government can tax me to death to pay for others greed or laziness? It appears so.
At some point I will have to choose joining the collective or taking up arms.
"Too big to fail"...what a crock.
This is like the Parents rescuing the drug addict child by bailing them out of prison, bringing them home to a pantry full of food and booze and a line of credit at the bank. Then the Parents tell themselves "we'll have someone to help around the house and when they get better they'll take care of us in our old age."
Can you say "DYSFUNCTIONAL"?
Calculated Risk has the text of the proposal up. See Section 8 - it gives Paulson carte blanche without oversight to do as he sees fit. Section 3 explicitly places banks before the tax payer.
It may not amount to much, but please email your Senator and Congressperson before Monday to register either your opposition to the plan, or at least to ask they include oversight language.
Please consider the language - NO OVERSIGHT. For a $700 billion program, and a lift of the debt ceiling by $1.8 Trillion.
Stealth? This is out in the open - a power grab by the executive branch, all in the interest of "saving the system". What system would that be, exactly? Democracy? Um, not exactly. Follow the money - it leads back to WS. Of course, just in time to save the last two elephants standing - GS and MS.
Good luck out there... and thanks, Kevin, for the gallows humor.
If you want less government, buy less stuff. Do people really want money, or do they want to be valuable? Do you want to live in fear of losing everything, or have neighbors you know and trust? These ideas aren't new, and they don't come from regulations.
I didn't make a killing on hedging bad mortgage debt or sign up for a loan I couldn't afford. I went to work and paid my bills and taxes. In return for being responsible I and my children get a tax burden in perpetuity. Indentured servitude all over again.
I hear people like Barney Frank say "It's money that will be made back when the positions improve." Oh right, like a toll road is paid off or like Social Security is fully funded. Ugh.
Ironic that AIG went belly up because insurance has become a shadow tax on the responsible. Now the same taxpayers have to rescue the insurer that built their empire with overpriced premiums and denied claims.
Loss of property rights is next; it's already started with local governments using Eminent Domain to simply improve tax revenues.
We have the worst of capitalism and the worst of socialism shaking hands over the grave of liberty, period.
you are hitting another plateau KD, i dig it. keep channeling the muse.
puts an interesting perspective on our current situation
thanks!
"Indentured servitude all over again...the worst of capitalism and the worst of socialism shaking hands over the grave of liberty...."
thank you much
I agree with the fact that house prices are going to drop further. Now the money supply for FNM and FRE to write more mortgages going to be even tighter house prices will drop and overshoot to the down side.
Most banks will be worth about 60% less and about one third will be gone in about six months.
Gold is the place to be in the coming hyperinflation and I also own SKF .
