In a Time of Ennui, Laugh at Wall Street's Expense

I'm usually not one to post a list of stupid jokes, but this is a golden exception. Here is a list (in the comments) of some pretty funny jokes at Wall Street's expense. Enjoy!

The Ben Franklin Report: Strains in the Economy

With the latest manufacturing data from the United States showing even more signs of contraction, one of the few thigns that can be said for certain about the overall situation, is that what might have been limited to the financial sector is clearly affecting the very basic sectors of the economy. Also, those were predicting that this affair was going to be a minor correction that would pass in a quarter or at most two, have been revealed as having played a guessing game, as the crisis is instead shaping up to be the worst economic crisis in almost a century. 

Manifestations of the problems are appearing in sales reports of the auto industry, where all of the manufacturers were hit with double-digit drops in sales, especially trucks. On Wall Street, too, there are signs as Circuit City has received a delisting notification from the New York Stock Exchange, and plans to close 155 stores as its death spiral continues to get tighter and tighter. 

Part of the misdirection that was at the heart of the financial crisis is coming unwound, as investors who bought notes from the now defunct Lehman Brothers that were promised to be sound investments worth of inclusion in retirement investment portfolios are now revealed to be worth only pennies on the dollar. Regulators are going to investgiate, but unfortunately, due to the counter-terrorism priorities of the Bush Administration, the FBI has been left critically short-handed as they try to investigate the myriad economic crimes and financial fraud. School districts in Wisconsin were caught up in their own form of financial mismanagement. Buying supposedly safe investments, the now infamous C.D.O.s, school boards all over the state are facing the prospect of cutting services in order to meet financial obligations from the defaults of various corporations.

Strains are also being seen on the macro scale, as the primary contributor to American GDP, the Federal Government, has announced plans to finance the largest budget deficit in history. The government itself won't put a number on how much the deficit will be exactly, but estimated that the total amount of bonds issued would be approximately $550 Billion for the October-December period, including $300 Billion for Federal Reserve liquidity operations. Analysts in the field estimate that the government's borrowing needs for the next fiscal year, which began in August, will total up to $2.1 Trillion. This number stems from funding the $850 Billion deficit projected in the Federal Budget, and approximately $500 Billion to further reinforce the Fed's liquidity operations of the amalgram soup, and the remainder going to roll over securities from state and local governments which are expected to see a significant drop in demand over the next year. The budget deficit is so large partly in thanks to deteriorating economic conditions and the $700 Billion bailout package passed by Congress against almost every economist's better judgment, but doesn't factor in whatever additional stimulus proposal will be passed by the Congress during the lame duck period following the election. 

On the micro scale, individual homeowners and families are also showing severe signs of strain. Throughout the country, but particularly in areas that are hardest hit by the mortgage crisis, more nad more homes are going 'underwater' to use the industry phrase. That is to say, about 1 in 5 of all homes in American are worth less than the balance of the mortgage the homeowner is paying. Families are also having a harder time making ends meet with their utility bills, also. As further evidence, about 44% of families are living paycheck to paycheck, and about 48% have less than $5,000 in liquid assets. So, in the event of a family emergency, medical or otherwise, very few would have any options, especially with bank lending still not an option, despite the Treasury's and Federal Reserve's efforts.

There is no shortage of people who are ready to criticize the Treasury and the Federal Reserve for their management of this crisis and their willingness to bail out institutions that were threatening to go bankrupt. A Nobel Prize-winning economist Robert J. Aumann predicts that more banks and insurance companies will go under because of moral hazard and the lack of consequence. Others say that deflation is the order of the day, also brought about by the various interventions in the free market. My question has been, since this crisis started, where were those in the position to do something about this problem when it started becoming apparent? Why weren't more authorities, for lack of a better word, willing to stand up and make warnings? Unfortunately, someone who is such a position is also at a loss for why pronouncements against the general consensus come in whispers, rather than shouts. 

I'll leave off with the latest scary charts from the Federal Resreve of St. Louis. Good night and good luck.

Click on the charts to see them at full size.

The Ben Franklin Report: The Bailout Settles In

Just in case you need a reference point to how much the bailout was, consider the number to the right, the cost of the War in Iraq thus far. Yes, the bailout that was passed last week surpasses the amount of money spent on that mistake by leaps and bounds. So, when history is written, how should this period be judged? Where were our priorities? Did we ensure that every child in America had access to primary health care? Were we more concerned about finding a cure for cancer, or spending money on making sure that phone calls and emails didn't contain terrorist-related content?



The bailout and its effects in the market place, in a nut shell. Apparently, today the chaos continues as the first market to open after Bush's signature, the Israeli Tel Aviv Stock Exchange tumbled like a rock going down a sheer slope. 

The fundamental source of the entire financial crisis has been the opaque nature of the books of the biggest financial institutions. The fact that they refused to value assets which, if shown in the light of day, would be revealed to have little revenue potential, will probably end up costing the companies billions in dollars is only being papered over by the bill that the various branches of the federal government approved on Friday. This is further reinforced by new rules from the Securities and Exchange Commission stating that corporations no longer have to price these assets on a 'mark-to-market' basis. That is to say, they no longer have to value them at the price they would likely fetch in a free and open market, but rather can just pencil in whatever they want and use these assets as capital, or as collateral for the various short-term lending programs offered by the Federal Reserve. However, the hanging $55 trillion question in the air is what happens when the Credit Default Swaps start becoming unbundled. For instance, you may remember A.I.G. which met its fate and an $85 billion bailout from the Federal Treasury because of these insurance policies, but has yet to sell a single asset, despite blowing through $61 billion of the money provided in the bailout. Yet their executives party like Nero in Rome. Party on, Wayne. Why worry when none of those responsible for the lending practices will ever be prosecuted? 

So, with some banks saying that they won't even participate in the No Bank Left Behind program and banks that will still fail regardless of their participation, what are we left with? A budget problem that will hamstring the domestic and foreign policies of the next President, whoever it may be, an IRS with undercover investigative powers which will be on the prowl to make sure that every dollar Uncle Sam has coming is brought to the Treasury, and good, old-fashioned rage almost everywhere other than Wall Street. 

Victory for the American People

It hasn't been often in the last 7 plus years of the Bush Administration when one could truly say that the power of people defeated the people of power. When special interests took a back seat to those who really run the country, Mr. and Ms. Average. Since the bailout was originally announced, there have been numerous campaigns to stop it, academic disputes, and even the rarest of the rare, a public battle among the normally tightly disciplined Republican party. But, in the end, those who have to face up to the voters on November 4th realized that voting yes was potentially one of the biggest threats to their political careers, regardless of party. If you look at the list of how people voted in this historic vote, those on the 'yes' side will probably have a rough time of it, if not lose their seats to those who chose not to approve the still horrible re-negotiated version of the bailout proposal. In particular, I'm sure Dennis Kucinich (OH-10th) is feeling a little smug, knowing that he predicted the outcome of the vote.

On a slightly different note, I'm not sure why everyone in the world of pundits is characterizing this rejection of the bailout proposal a failure of governance. In common parlance, bills are said to have failed, but that is almost a bureaucratic term. In real terms, this bailout was an ideological battle between those who are in favor of and those who are against nationalization and similar bailouts in the United States. Moreover, this is not a vacuum of leadership in which the U.S. government is flying down a country road like a  '62 Corsair without a driver., as that has been happening for the last 7 years. 

Of course, in a vacuum, comes the punditry. Perhaps the most offensive piece I've read thus far about the political process that brought about this conclusion comes from Rupert Cornwell from the U.K.'s Independent. My favorite metaphor in the article compares the mechanisms of American democracy to Alice Through the Looking Glass. Putting that aside, though, the author clearly doesn't understand the huge popular backlash against the bailout. Sure, in the U.K. and other parliamentary democracies, the Prime Minister isn't approved by the people at large, but in the U.S. the leaders need to be especially accountable. And to say that the bill died in partisan sniveling is obviously disregarding what was essentially a bipartisan effort to keep the American people from having to shovel out $700 Billion or more on a plan that was only designed to correct the dangerous excesses of the richest segments of society. Perhaps, too, the American people have become wary of those who warn about apocalyptic disaster and offer a solution that meets a certain biased politican agenda. 

Kevin Connolly from the BBC, in looking at the reasons behind the bailouts defeat in the House of Representatives, expresses a strange sentiment, that after this bill's defeat and the sense of crisis that it engenders will offer a way out for the bailout proposal, that Main Street hasn't suffered yet. Unfortunately, the people of the United States have been suffering, which is the underlying cause for this economic crisis. With the inflationary impact of cheap money, combined with tepid job growth, primarily in the services sector since the recession of 2001, people were forced to choose between living and surviving, which meant that the mortgage had to go unpaid. Thus, in a trickle up fashion, the banks and other financial institutions, who were holders of arcane financial securities into which these poorly written mortgages were conglomerated, began to suffer the counsequences of their poor lending practices. I think Mr. Connolly underestimates the intelligence of Mr. and Ms. Average and their understanding of this situation, as Mr. or Ms. Average are probably already unemployed, underemployed, or facing the prospect of losing their job in the failing economy. 

From the campaign trail in Iowa, Sen. John McCain who, infamously, suspended his campaign to not show up in Washington for negotiations, has called upon Congress to return to the drawing board and to get back to work right away. Sen. Barack Obama, from a rally outside of Denver, called for calm, saying that things in Congress are never smooth, and instead of imploring or demanding that his colleagues work on the proposal to shore up the wealth of the financial sector, he used a baseball metaphor.  

So panic thus gripped the financial markets, and the Dow Jones suffered its worst lost ever in terms of points. But, have no fear for liquidity, because Helicopter Ben Bernanke has come to the rescue, increasing the amount of dollars in the global financial system by a whopping $630 Billion dollars. To show you a frightening graph that indicates inflation, perhaps even hyperinflation, is just around the corner, here is the Adjusted Monetary Base, courtesy of the St. Louis Federal Reserve. The highlight of a series of moves in the banking industry, Citigroup has purchased Wachovia, after the stock lost more than 80% in trading on Monday.