Wednesday, September 17, 2008

Whistling In The Dark

My wife works for a hair salon, the kind where a haircut costs $40 and up. It's a great place to work, her boss is wonderful (she gets full benefits working 20 hours a week), and it's relatively low stress for her because she's the receptionist and can spend time surfing the 'Net or helping out when things aren't too busy.

You would think that in a time of economic downturn, luxuries like expensive hair care would be one of the first things to go in a budget. Yet their business has been going like gangbusters for the past few months. Almost to a point where it may be the owner's best year ever. 

This week, two major investment houses either went under or were snapped up at bargain rates by other companies. The Fed rescued a major insurer yesterday (AIG) to the tune of $85 billion. Yes, billion. I cannot tell you how much money that is because I can't fathom it. I can't say that their reasoning was faulty, because had they not rescued AIG the ripple effects would have almost certainly led to economic conditions that would rival if not exceed the Great Depression of the 20's and 30's. On the other hand, the message that is clearly sent to American business, which has screamed that we should be allowing the markets to police themselves, are going to have a safety net the size of Texas, and everyone who pays taxes in the US will pay for it. 

Congratulations, you are now the proud owner of a failed insurer. Don't expect any dividend checks soon.

When I once said that the three biggest problems with this country were insurers, litigation, and mutual funds, I didn't think insurers were the biggest. Now I do.

$85 billion. $85,000,000,000. It looks a lot bigger when you write it out, doesn't it? 8.5 x 10 to the 10th power. My God, that's a lot of money.

I'm pretty sure we didn't have $85 billion just laying around. You know, in case Jenna's college recreation fund ran out earlier in the month than expected. This is California tipping in the ocean relief money. This is as much money as George HW Bush wanted to spend on Stealth bombers, for a 123 plane fleet that had lost it's purpose when the Cold War ended. This is combat operations in Iraq for more time than GWB has in office. This is to save *one* company. One. I sure hope that in the long run, the number of companies that it saves besides this one (and there is no guarantee that it will) makes it all worth it. 

I've been convinced that the reason people are spending money (except for gas, because, you know, that's *expensive* at $4 a gallon, and there are no billions in that sentence), is because they know, deep down, that the shit is going to hit the fan in a way that for most of them has never happened in their lifetimes (people old enough to remember the Great Depression are in their late 70's now), and things are going to be tough no matter what they spend their money on now. So it's a great time to buy that plasma TV, so long as it's not on credit because no one will come take the TV back when you can't make the payments any more. 

The *only* good news that I can see from all of this is that the odds of a Republican, *any* Republican, getting elected in the coming election has dropped to levels that should make them wonder if wasting any more money on their efforts is in vain. And that's good news only in a relative sense, as I have little hope that the Democrats, or Superman for that matter, stands a snowball's chance in hell of doing any more than stopping the bleeding. I don't know that there's enough plasma in the Red Cross to help at this point. 

Because AIG isn't the end of it. The Feds know this. AIG was not the only financial insurer out there, and all of them are now saddled with such a huge amount of debt that to bail them all out will bankrupt the federal government to a point where it will be completely unable to function. I'm fully aware that there are people out there who will see this as a good thing, at least right up to the point where services that affect them start breaking down (such as their bank accounts being insured - how long do you think *that* will survive as banks start failing? - the Freddie/Fannie debacle took out something like 10-15% of the funds for account insurance, who knows how much more AIG took out). 

For those of you who feel that the markets can regulate themselves, that greed is good, that the Bush tax breaks were a good idea, you are seeing why people can't be trusted to manage their own money well, much less someone else's. You are seeing why liberals feel that regulation is a good thing when done well. Depending upon how bad the damage ends up being (and I suspect that it will be very, very bad), you may be seeing the end of the Republican Party as a major force in American politics. Depending upon whether or not the Democrats can even begin to turn things around (and I'm not sure anyone will, at least not in four years), you may well be seeing the end of that party as well. 

As the Great Depression heralded the end of the era of the Great Powers of Europe, we are now seeing a financial meltdown that will herald the end of the American Century. China and India are next in line to become the leaders of the world, in what appears to be the first time that a great civilization came back around after a couple of thousand years to regain their dominance. Of course, now they will dominate the planet rather than their region. Time to learn Mandarin and Hindi. It's also a good time to speak with people who live or have emigrated from the UK, because where they are now we will be (if we are very very lucky) in about ten years. 

For those of you still whistling in the dark, let's see if things look the slightest bit better in six months. I'm hope hope hoping they do, and certainly we'll have a different executive trying desperately to get his or her (God help us if it's a "her" because you know how I feel about this particular "her", although I suppose it could be Pelosi, and I'm not sure that would be any better) hands on the situation. 

So go get those expensive haircuts. You're keeping my wife in a part time job. Plus, if you pretend a major financial collapse isn't on your doorstep, maybe it will just go away. One thing is sure - the morons who lined their pockets and those of their friends *will* be going away, including the worst president this country has ever had. I guess that focusing on God, Guns, and Gays just didn't quite cover enough ground to keep the country from avoiding the end of it's era of dominance. 

1 comment:

Matthew said...

But just think of how much better off we'd all be if Bush had succeeded in privatizing social security, putting it into the hands of these roulette-wheel dizzy Wall Street investment managers?

It's been fun to watch the market forces crowd's sputting rationalizations for the Feds to essentially nationalize 80% of AIG. I think they should have let it go. Sure the market would have dropped a thousand points, but the problem is that there is so much bad debt lined up behind that failure and there are no transparency strings attached to this loan (nor the Bear Stearns, Fannie and Freddie bailouts) that might prevent this from just happening again. We're on the hook for 85 billion dollars - debt that will never be repaid because there is no significant capital backing it up, and the government cannot begin to comprehend the toxic risks it's taking on.

Paulsen has locked in the next president to further Wall Street bailouts making it impossible to write down the debts of the millions of homeowners who are going default over the next year as interest rates rise. The '99 repeal of Glass-Steagall and the continual merger of traditional commerical bank properties with hugely complicated and speculative loan products is going to make it impossible to sort this out anywhere inside of five years. The Fed is an increasingly giant hedge fund with tax payer money and future debt.

I'm worried about BoA. They're not any more transparent or regulated and they've just taken on Merrill Lynch which is saddled with Countywide. Talk about an incestuous cluster****.

Waiting for the rest of the shoe closet to tumble out and feeling sorry for the next president...