Five Things You Need to Know: The Holy Grail of Macroeconomics
Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:
Heinous September for Knife Catchers... Monopoly Man Wields a 15-Inch Blade... Fed Stands Pat... We Are Now Men of Letters... The Holy Grail of Macroecononics
September is always a heinous and dangerous time to be involved in financial markets. On a cool September day it's not uncommon to slide onto a bar stool in a pub on Nassau St. or William St. in Manhattan's Financial District and find the guy next to you sobbing quietly and pawing at a pint glass with bloody stumps for hands.
In the trade, they call these people Knife Catchers, a vicious misnomer and cruel insult. These are hardworking people, like you and me, only with no sense of timing. Sometimes it can be as simple as a genetic defect, like the shady impulse that causes some people to laugh at inappropriate times or walk around Times Square without clothes on. These days it's more likely to be the result of catching the business end of some corporate chess master's unraveling Ponzi scheme. Just ask Lehman Brothers (LEH) and Hank Paulson.
Hank Paulson is not a Knife Catcher. But you do not get to be chairman and chief executive of Goldman Sachs (GS) without an intimate knowledge of knives. Or Treasury Secretary for that matter. Take John Snow. No one with a railroad background AND the identical physical characteristics of the old man in the Parker Brothers Monopoly Game could make it to the Treasury without knowing his way around a 15-inch stiletto knife. It's just not possible. That would be a sick joke, and under those circumstances only the threat of a large German-made knife could prevent a seething mass of people from showing up at the White House and demanding $250 for passing Go.
The very act of typing that last sentence will force me to be looking over my shoulder in constant paranoia and fear now, but so what? It is, after all, September, and some of us can't live properly without that fine-point prickly charge running up and down the spine.
But wait, here comes the Fed decision:
"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent."
And the statement...
Board of Governors of the Federal Reserve System, For immediate release:
Good Day To You My Friend.
It is understandable that you might be a little bit apprehensive because you do not know me but I have a lucrative business proposal of mutual interest to share with you. I got your reference in my search for someone who suits my proposed business relationship.
I am 54 years old and happily married with children, and I have an obscured business suggestion for you. I will need you to assist me in executing a business project from Hong Kong to your country. It involves the transfer of a large sum of money. Everything concerning this transaction shall be legally done without hitch. Please endeavor to observe utmost discretion in all matters concerning this issue.
Once the funds have been successfully transferred into your account, we shall share in the ratio to be agreed by both of us.
I will prefer you reach me on my private email address below (xxxxxxxxx@yahoo.com.hk) and finally after that I shall furnish you with more information's about this operation. Should you be interested, please forward the following to me urgently:
1. Full names
2. Occupation
3. Private phone number
4. Current contact address
Please if you are not interested delete this email and do not hunt me because I am putting my career and the life of my family at stake with this venture. Although nothing ventured is nothing gained.
Your earliest response to this letter will be appreciated.
Kind Regards,
Ben S. Bernanke
That's a bold statement, to be sure. But it's just the kind of surreal bailout plan we can all stand behind. Nothing ventured is nothing gained. Indeed.
There are about 230 million adults in the U.S. If everyone in America sent just one of these Federal Reserve letters to someone in France or Greece or Hong Kong and one in 500 responded, a miserable direct mail response rate of just 0.002%, we could bail out American International (AIG), General Motors (GM) and anyone else lacking two nickels to rub together. It is an admittedly unorthodox plan. Some might even say illegal. But we are goodly men (and women) of letters. Literally.
And apparently those letters are A - I - G.
BREAKING NEWS: FED RECONSIDERS STANCE ON HELPING AIG, MAY GET LOAN PACKAGE FROM FEDERAL RESERVE
That breaking news explains two things. One, the lack of movement on rates today, and two, the unorthodox decision to go with the Nigerian Scam Letter as Fed statement. I must admit, I did not see the AIG move coming, but having read Ben S. Bernanke's book, "Essays on the Great Depression," I had a strange inkling that the Nigerian Scam Lettter business was about to go down. The whole thing is beginning to coalesce into a fistful of twisted logic: we will will paper the world with our Federal Reserve-backed Nigerian Scam Letters and rest easy while we wait for the hapless citizens of Not America to fund our next massive bubble.
Or not. It's a risky venture either way, fraught with dangerous speculation and hidden trapdoors. One man's Get-Rich-Quick scheme is another man's falling knife. But there is one thing, above all else, that we do know for sure and that is this: The Great Depression is the Holy Grail of Macroeconomics.
I didn't make that up. Oh no. Not me, friend. That is the first line from Bernanke's book. He is correct of course. The Great Depression is the Holy Grail of Macroeconomics. And, by God, we have found it. What that means is we will be extending even more of the Fed's balance sheet to weak companies and, in a sense, clutching the knife desperately with both hands, swinging it around wildly, oblivious to the fact we're gripping the end that does the cutting. The pain will come tomorrow, always tomorrow, after the shock wears off.
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Anyway, if the promised AIG loan doesn't come through, tomorrow is going to make Monday look tame. And if it does come through I hope both Obama and McCain add a "fire Ben Bernanke" plank to their respective platforms.
I thought I would add some ray of hope.
A real tangible product with innovation made in America! That and Tesla motors tells me the country still can produce something of value. It should be on hit market in 2010. Around the time oil is done dropping?
The really fun part about this car is it uses very little energy.
Too bad we are probably amost once again going to destroy the American auto industry, before we actually produce something of value.
Who is this car for? People who can afford 30-40 thousand dollar cars don't need to worry about the price of gas and most of them are more concerned with presenting the image of properity than 'doing the right thing'.
For this car to be a success it would need to sell for around 10 grand and not cost an arm and a leg to maintain and repair.
The Volt is just a story to tell the bankers, shareholders and government in an effort to buy more time for a miracle and I'm not sure anyone even knows what the 'miracle' would look like.
"Kind Regards,
Ben S. Bernanke"
SNORT!!
Thanks. It was almost as funny as reading about AIG. Anyone here read Al Martin's book, "The Conspirators"?
As for the Volt: I've got a 1980 Comuta-Car which was a heck of a lot cheaper. It may not have the cupholders, but it's got wheels and doors.
You're right - things are worse than they would let on, candidates included (assuming they "have a cllue")
Will this be the Greater Depression?
man, i have no idea where the day's event (AIG) leaves us taxpayers or the markets but I do indeed love your commentary. Thanks.
The reason they let Lehman fail, is that most of its derivative paper was in mortgages most of which will get settled in the Fanny-Freddy workout. The credit event already happened.
AIG is a different story. Sure, it has a lot of mortgage paper that it lost its shorts on... It also has tens of billions in Credit Default Swaps on all sorts of other businesses. If AIG goes belly-up, other banks and businesses lose the counter-party to their insurance policy on cash flow... Credit ratings for all sorts of securities will deteriorate, forcing interest rate increases or loan covenent violation. It will further weaken the already shakey $700 Trillion derivitive market.
Like all fools, Bernanke and Paulson will deal with the problem tactically (bail out or merge AIG), rather than strategically by letting it and all the downstream deadwood go belly-up... Bankruptcy is the only solution, because the REAL LOSSES have to be recognized before the economy can recover and grow again. America is tapped-out with $54 Trillion in debt and unfunded liabilities. Adding several trillion in additional debt bailing out the shadow banking system does not solve the problem.
knife catchers with bloody hands... i almost spit out my coffee when i read that... fantastic stuff
