And There Goes the Money

You know shit is about to get worse when rich folks are losing their money.

In case you didn’t notice — Monday the Dow Jones dropped by more than 500 points.

In the scheme of how the markets fluctuate regularly, the affects of this probably won’t resonate with most of us, but the overall volatility of the markets in 2008 should be of our concern.

While some may not care if a bunch of hedge fund managers bite the big one, seeing 100 years plus institutions like Lehman Brothers file for chapter 11 and seeing the Death Star of banking, Bank of America Corp.*, swoop in to buy the relics Merrill Lynch & Co. and Countrywide makes you a tad concerned.

Everyone on CNBC (with the exception of that screaming dude with the sound effects, Jim Cramer) is telling folks to stay calm. CNN’s finance people are telling you to stay calm. The Federal Reserve Chairman Ben Bernanke and President Bush are telling you to be calm. But pardon moi, I don’t feel calm.

When you look at the long list of other banks and investment houses in disarray you do the math and realize, The Evil Banking Empire of Bank of America can’t and won’t buy all these people out and take on their massive debt. Secondly, the government can’t bail all of them out. If Washington Mutual and Citigroup don’t find ways to raise cash or be absorbed by a larger institution they’ll be going down hard too.

Then there was the government swooping in to save Fannie Mae and Freddie Mac. While I found the government saving the quickly crashing Bear Sterns to be suspect, if Fannie and Freddie were allowed to fail it would be catastrophic due to the sheer number of mortgages they are sitting on.

Anyone want the value of their house to drop like a rock? Let Fannie and Freddie collapse under their massive debt. Enjoy the insta-housing depression leading to a possible, actual depression.

And now there’s the fate of American International Group, Inc. — better known as AIG — today’s financial enfant terrible.

NEW YORK (AP) — Stocks fluctuated Tuesday following a report that the government is considering extending aid to troubled insurer American International Group Inc. – the latest in a string of companies that investors worry could be undone by a shortage of cash.

A partial recovery in several other financial companies helped the sector show signs of life a day after leading Wall Street to its worst session in years. Investors also grew hopeful about a Federal Reserve interest rate cut.

Worries about AIG’s well-being intensified Monday and early Tuesday after several ratings agencies downgraded the company. Lower ratings can add to the amount of money the already cash-strapped company has to set aside. Investors fear that a failure by the world’s largest insurer would touch off a wave of financial turmoil.

Crazy Jim Cramer has proclaimed that AIG “is too big fail.”

Cramer urged both the company and Washington to take the actions necessary to save the firm.

“This would be a tragedy if they just let this company fail,” he said.

“I would radically have to change my view about where the market’s going to go if AIG failed,” Cramer continued, “because it’s so unquantifiable what they have.”

The rest of the story isn’t much prettier.

(A) CNBC report said the government is at least discussing extending a financial lifeline to the company; it cautioned that an agreement is far from certain and also that the company isn’t likely to find help from the private sector. AIG fell $2.07, or 43 percent, to $2.69 after being down nearly 75 percent in earlier trading.

Add to that to Goldman Sachs Group Inc., the largest independent investment bank on Wall Street posting its biggest slash in earnings since becoming a publicly traded company in 1999. Their quarterly earnings fell to 70 percent from last year. Dell is having its own slowdown and money woes. Hewlett-Packard is laying off eight percent of its work force, 24,600 people.

Being a journalist I felt the great media holocaust of print reporters two years ago when numerous newspapers began round after round of buy-outs and lay-offs. Old friends of mine who’ve worked as reporters and editors for years are starting over from scratch. I wonder if my old newspaper, The Bakersfield Californian, will be able to stay a locally-owned, family-owned newspaper in this environment. For years larger newspaper conglomerates have wanted to purchase it but it’s still owned by family matriarch, Virginia “Ginger” Moorhouse.

Nice woman. Had the uncanny ability to remember everyone’s names even if you just started that day.

But with the lay-offs, the banks collapsing and Bank of America becoming ever corpulent, I think the only good thing that came out of the Dow drop was it got everyone to stop talking about Republican vice presidential candidate Sarah Palin. It was like she never existed. Other than short pieces on Tina Fey’s marvelous portrayal of her on Saturday Night Life, and a brief discussion of her campaigning without the Mac man, CNN was packed with “Holy shit! What’s happening to the economy?” and footage of the devastation Hurricane Ike left behind in a destroyed Galveston and the flooding it has caused in Missouri because Ike remnants decided to dump a surprisingly large amount of rain on us, giving more meaning to the term when it rains it pours.

Car plants have slowed down and shut down in the greater St. Louis area. My own inability to land a job — any job — despite my abilities is bordering on tragic. But at least the media is talking about the economy again. Not lipstick on pigs or personality cults. They’re finally examining and discussing the economic policies of both candidates and I welcome that debate. I want to know what they think about free markets and protectionist policies, fairness for workers, jobs going overseas, the global economy and the weakening dollar, about regulation and what the government can and cannot do to solve this crisis.

The Fed is rushing $70 billion in cash into the markets as a stop-gap, anything to stop or slow this slide into financial meltdown. But how many times can the government do this? And where is the money coming from with our many entitlement programs, two wars and other obligations?

A debt is going to come calling someday, demanding to be paid. I don’t know who’s going to pick up that bill, but whoever gets stuck with it is going to be none-too-pleased.

10 thoughts on “And There Goes the Money

  1. Maybe just maybe this will be the necessary wake up call folks need to start asking tough questions and engage in critical think.

  2. This is my second economic catastrophe. I survived Black Monday 1987 and was then working in the financial industry at an S&L. (Yeah, I remember McCain's role in the Keating 5 fondly.) Anyway, I lost a bundle then, and am, of course losing a bundle now. Only different is back then I was young and single. Now I'm middle-aged and have a young son. When Bear went down it terrified me. I remember how huge they were even twenty years ago. Now knowing that both Lehman Merrill are gone is like my worst nightmare. It's inconceivable that such a tiny percentage of the mortgage market (sub-primes), a market that barely existed a decade ago can have such catastrophic impact. I'm scared to death because I know how bad this can be. I never thought I'd see it again, but I guess I should know by now that history always repeats itself.

  3. This is too much to deal with. I’ve watched my portfolio get shot to pieces. Of course, I’ve had some stock that is still doing well. People are still consuming junk food and cigarettes and I’m proud of my investment in those areas.I’m with you on the attention of the media. It’s about time we focus on what matters to most people, the money that is sitting in my pocket and how I’m going to pay my bills tomorrow.If only their SAS will allow them to focus long enough to give us an idea of their solutions and plans for our economic future.

  4. Your blog is great!BTW, drilling my 10th grader on yesterday for her first Western Civilization test of the school year (this particular test focusing on the rise and fall of Rome), I think I see parallels. Barbarians looting the treasury, corruption among the upper class and by the emperor, failed currency, blah, blah, blah. We’re living through the fall of an empire, the US empire. Pretty scarey stuff.

  5. mcbush says the fundamentals of our economy are strong…and he promises “we will never put america in this position again”…so we should be ok…i’m not laughing….

  6. Hey, at least McCain has a plan to help us out of our misery. We can all become millionaires selling stuff on eBay!In other words, be prepared to pawn everything you own in order to pay your bills.

  7. This is the real cluster f@#$ of all times. What you are looking at is deline in the value of all your assets and an increase in the cost of your debt(this is what is happening to financial institutions). In order for your bill not to be bigger is for you to pay down all your debt. To save money(choice of vehicles is yours) use any qualified money program you can. IRA’s, Sep-IRA’s or self employed accts if you don’t have a 401k or you are self employed(self employed let’s you put away a lot). Qualified money is money that you deduct from your income so you do not currently pay taxes on in the current year. The money builds up. You pay the taxes on it after age 59 1/2(tax penalty of 10% if you take it before that age). You can do the same thing for higher education(you do not have to go to college or send your child to college; you do need an accredited educational institution).

  8. This is almost like the “dotcom” bubble bursting. Housing prices were too over inflated and a lot of bad mortgages were written that help a lot of greedy people “get rich quick.” But now we all will pay the price. Do you realize the one area that is doing great are the oil companies with their billions of dollars in profit. It just so happens that the current administration is run by a couple “oil men.” Hmmmm…My 401k is down 13.5% for the past 12 year period. (Hey, I should just get used to the idea of working until I’m 80 anyway. How elitist of me to think that I could dream of retirement.)If this is not the writing on the wall, I don’t know what is.

  9. Yeah–I think we could call the govt. stepping in here another case of borrowing from Peter to bail out Paul… Like you said, wonder how that’s all going to pan out down the road…I wonder where all of these companies’ risk-management folks were during the buildup to all of this–heads in the sand…blindfolds on…partying too hardily too? It’s mind-boggling to imagine being driven to such dire straits by nothing but pure-t-greed. The thought of more govt. bail-outs just really makes me flaming mad.I’m still in shock this has all gotten to this point and that issues of accountability are but a mere whisper.

  10. Well, call me a navel-gazer, but I see metaphysical things happening here, like rapid climate change, widespread disasters, financial markets going berserk, etc. I said it before and I’ll say it again, we’re on some kind of countdown. Although our planet may not end up as a burning cinder, it won’t be a nice place to live. I may be wrong, but I doubt it. Yikes, I sound like the Palin crowd (one of the driving forces!). I guess there’s a little truth in everything. BTW, I worked in financial sector during the crash of 1987. This is worst because it looks bad on all fronts. Although I’m going to vote for Obama, he can’t save us. Anyway, it’s all groovy because everything will work out in the end. We’re all spiritual beings and we can always move on to another form of reality. That’s why I don’t worry. Didn’t Christ say when you see the signs, don’t worry because it only means that it’s pointing to his return? Peace always

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