Obama is a lousy socialist

By Mustang Bobby

Via The New York Times:

The Dow Jones industrial average, which measures the performance of 30 blue-chip companies, closed with a gain of more than 125 points Tuesday, surpassing its previous record close of 14,164.53, which it achieved nearly five and a half years ago, as well as its record intraday high, set around the same time, of 14,198.10.

[...]

Since a low point in March 2009, the Dow Jones index has more than doubled, stunning even the most seasoned stock market watchers. It closed at 14,253.77 Tuesday.

I blame Obama. He sucks as a socialist.

Stock markets surge, thwarting Obama's anti-capitalist agenda

By Michael J.W. Stickings

Via twitter:

Dow closes at 4-year high; Nasdaq hits 11-year high. http://t.co/0RZUhtSv

-- CNN Breaking News (@cnnbrk)

How is this possible? I thought Obama had made it his personal socialist mission, learned from his Islamic Kenyan anti-imperialist father, to destroy American business, bleed "job creators" to death, and crush the 1%.

Has he failed?

Mitt, you're getting richer and richer, what say you?

Sucker bets

By Carl 

Don't be fooled by this story. 

The markets didn't tank because of Kim's death. Markets never tank because of bad or even good news like the death of a tyrant. They tank on uncertainty as investors pull their money out of riskier investments and into more stable ones.

Kim's death created next to zero uncertainty. Yes, his son, the Great Successor, is an unknown quantity, but ask yourself this: could he be any worse for the world than his father? Could he be any worse for his own people than Kim Jong-Il?

No.

Markets also tank when market makers decide it's time to manipulate the market, usually under the guise of a story like this. Remember, the smart money is much smarter than the market, barring an absolute calamity like 9/11 (and even then, the mystery of put calls on American and United airline stocks has never been fully vetted*).

Smart money has already sussed out the obvious weaknesses in the current market and is now focusing on upcoming weaknesses. The age of instantaneous information has made the markets grossly unfair to the average investor unless they can afford access to people with the special talent and/or technology to read it.

Of course, those people are running hedge funds (although even there, the hoi polloi have infested and polluted the pure stream of profit).

My guess? There's some bad news on the retail side of things, a guess that will be reinforced today if the markets continue a drift downward. Last Saturday was the last full Saturday ahead of the Christmas holiday, a day that traditionally sees shoppers out in droves. 

They simply weren't there. While sales were up for the week, the season itself has had fits and starts in bricks-and-mortar stores. That's still a major factor in retail, but its also a major factor in commercial real estate, restaurant business, local gasoline sales, and other businesses dependent on that damned shopping mall.

It's Tuesday. Markets don't like Tuesdays.

(Cross-posted to Simply Left Behind.) 

* I know the article says the trades were investigated and cleared, but here's the thing: why those stocks, why that day, and why haven't similar articles created similar spikes in options trading?

Your call has been disconnected

By Carl 

Well, this is good news, right?

Fewer Americans filed applications for unemployment benefits last week, a sign the labor market is firming heading into the second quarter.

Jobless claims fell by 6,000 to 388,000 in the week ended March 26, Labor Department figures showed today in Washington. The government also issued its annual revisions to the seasonal- adjustment factors, which caused a “mild upward shift” in the number of applications, an agency spokesman said as the figures were released to reporters.

A slowdown in firings and growing payrolls may bolster further gains in consumer spending, which accounts for about 70 percent of the world’s largest economy. Companies added 210,000 jobs in March, while the unemployment rate held at 8.9 percent, economists project a Labor Department report to show tomorrow. 

A sidenote: there is some reason for concern for the Obama camp, in that high unemployment is usually a harbinger of defeat in an election. The latest number, 8.9%, is notably down from the near-10% of this time last year, but more has to be done. Fortunately, these things have a way of gaining momentum.

Employment is like Sisyphus' boulder: once it starts up the hill, it becomes easier and faster, but when it falls, it plummets.

Americans getting jobs. Sounds like a sign of a healthy economy. 

You'd think.

As  I write this, the markets have just opened for the day. Mind you, nearly every index is up for the year at or near record paces not seen since the tech bubble of 1998, but today, when finally it looks good for an American middle class worker, the toilet lid flies up and the markets sink. The Dow is off 13 points, and S&P 500 and NASDAQ are both struggling to stay even.

What is it with corporate America that they can't sync up with Main Street Americans?

In a nutshell, there is no more Corporate America any more than there are American cars. So many companies have become multinational conglomerates that their fortunes no longer rise or fall along with those of you and I here in the USA.

It used to be "what was good for GM was good for America," but that's no longer the case. GM got bailed out. Americans got HAMPered, the plug having been pulled on the only sensible bailout program in the recession, the one that helped Americans keep their homes.

But I forgot. That program wasn't going to turn a profit for the US. Or a bigger one for the banks. My error.

Just like full employment means the banks can't hold your feet to the fire in interest and late payment charges.

(Cross-posted to Simply Left Behind.)

Why the right is to blame for the Dow's decline

By Michael J.W. Stickings

Predictably, the right has been blaming the decline of the Dow, as well as of the markets generally, on Obama and his supposedly "socialist" policies.

As usual, the right is dumbfoundingly wrong. Here's Robert Reich at Salon:

The argument that Obama is somehow responsible for the collapse of Wall Street is absurd. First, every major policy that led to this collapse occurred under George W.'s watch (or, more accurately, his failure to watch). The housing and financial bubbles were created under Bush and exploded under Bush. The stock market began to collapse under Bush.

Second, it's inevitable that stocks, led by the bloated financial sector, would lose their remaining hot air as the new administration begins "stress-testing" the big banks, many of which are technically insolvent. After all, their share prices were built on a tissue of lies and dreams. Other sectors whose values were similarly distorted and distended by years of financial deception and regulatory disregard, such as housing and insurance, will also have to return to the real world before they can recover. Which could mean more stock losses.

Finally, none of the financial wizards who are now charging Obama with leading America into the abyss have offered an alternative plan for getting us out of the mess that, not incidentally, many of these same wizards happily led us into. For years, the Wall Street Journal editorial page and the financial gurus of cable news cheered as Wall Street leveraged its way into oblivion.

Exactly.

**********

If you haven't seen it already, make sure to watch Jon Stewart's awesome takedown of CNBC from the other night. Creature posted it here.

Howie, Howie, Howie...

By Carl

Why do you write stuff like this?

I'm not an economist, but when Tim Geithner unveils his long-awaited bailout plan and the Dow plunges nearly 400 points, that's probably not a good sign.

You're right, Howard Kurtz. You're not an economist.

Anybody who's spent even the past three months watching the market can tell you the Dow Jones Industrial Average bears about as much resemblance to good economics as Alex Rodriguez does to clean living: none!

When Obama was inaugurated, and a president who wasn't warming the chair of the Oval waiting for the moving van took charge, did the market leap skyward, aware that finally the problems in the economy would be looked at as more than a band-aid-able scratch?

Nope. Dropped 300 points. Why?

Who knows?

On the other hand, Howie, you almost get it right here. Or rather, Obama does:

The president told ABC's Terry Moran that Wall Street wants a magic bullet, a painless solution. That may be right, and it ain't gonna happen. Too many financial institutions made too many bad decisions and are in too deep a hole. You can't print enough dollars to make up all the losses.

I assume your little editorial comment after the indirect quote is an acknowledgement that this problem isn't going away soon, but here's what you missed, and why the Dow dropped yesterday:

It's not about the uncertainty of the plan, or the pain involved. It's that Wall Street realized the cushy little ride they've taken on the backs of Americans is not as safe and stable as they thought it had been, and that their days of automatic profits are over.

Let's face facts: The easiest job in America is moving money around, whether you are a broker or a banker or an investor. All it takes is luck. It's a glorified lottery that involves an MBA and a fairly expensive suit to play.

That's all it is. It ain't brain surgery and nobody dies if you screw up. There's no heavy lifting involved, and you get not only a nice salary, but a handsome bonus at the end of the year, plus an expense account you can run up with your buddies at Scores because, hey, one day they may have a few bucks laying around and suddenly you're a rainmaker!

Not so much, anymore! Now Wall Street can expect to be scrutinized and observed and dissected carefully by an SEC that for the past eight years has been so woefully lacking in oversight that it missed two, count 'em, two stock bubbles! No other administration in the history of America has presided over the collapse of two stock market bubbles, until George W. Bush (the burst of Clinton's dot-com bubble and now the mortgage-derivative bubble)

And if not scrutinized by the SEC, then their own shareholders are going to scream bloody murder if expenses aren't brought into line again, and deals aren't more carefully examined, and the board of directors isn't committed to its primary fiduciary duty of actually overseeing management.

This is why Wall Street is down, althoigh I believe it has hit bottom, barring a real screw up globally. They'll actually have to work for a living now. That would depress anyone.

(Cross-posted at Simply Left Behind.)

A new beginning

By Carl

Barack Obama has taken a couple of days from campaigning to attend to family matters. We here at The Reaction offer our prayers and hopes for Granny Obama's swift recovery.

As I stood in the shower with little to do except rinse, I pondered American history, and it occured to me that we have reached yet another crossroads for our nation.

It seems to happen every three generations or so, roughly every hundred years, and I'm not sure that it's a coincidence that it happens near the turn of a century.

Events in this decade will echo until the next century, in other words. The pattern is pretty immistakable: an attack on the American economy, followed by a blunderous decision to go to war, followed by a mad scramble to rectify the troubles we've created, followed by a mid-century conflagration the likes of which we hope never to see again.

A brief look back: In 1807, the American frigate Chesapeake was boarded with nary a fight by sailors from the British warship Leopard, on the pretext of searching for deserters. Four were found, only one of which was actually British: three Americans, two black and one white, were also seized.

Ironically, the event itself turned out fairly well for the Americans: only the British sailor was actually tried and hung, while the Americans were eventually returned to America, and Britain offered to pay reparations for damages to Chesapeake

However, this incident did force the passage of the Embargo Actof 1807, which led directly to the War of 1812. The Embargo Act was a pretty dumb idea (conceived by arguably one of the smartest men in history, Thomas Jefferson). America had tried to remain neutral in the French-English conflicts then brewing, and had this act not been passed, likely could have avoided the War of 1812 altogether.

That war saw Americans attacked directly in their own homeland, something that would not happen again until September 11, 2001.

The war begat the era of expansionism, the Monroe Doctrine (buhbye Native Americans), manifest destiny, and an overall sense of hubris and domination on the part of all American citizens, which culminated of course in the Civil War, one of the most humbling experiences any nation can confront.

Skip ahead a few decades to the 1900s, and the Great Panic of 1907. This is an interesting crossroads in history, because some much of what we know today of the Federal Government -- The Federal Reserve, the Interstate Commerce Commission, the Federal income tax -- finds its roots in this crisis.

In a nutshell, the United States nearly went bankrupt because of the greed of two men: Otto Heinze and Charles Morse, who cornered the market first in ice, and then attempted to corner the market in copper by forcing his brother Augustus to abandon his company.

The mechanics of the scheme are complex (altho it does involve short selling, which is an underpinning of the current crisis), and suffice it to say, Otto failed. Miserably. Instead of driving the price of Auggie's company up, it dropped precipitously.

Otto Heinze's brokerage collapsed under the weight of its debts, money borrowed to finance this sceheme using shares of the copper company as collateral.

Worse, many banks that owned stock in the copper company as collateral also collapsed, the flip side of these transactions, as the price dropped.

Banks affiliated with those banks, so-called correspondent banks, like Mercantile Bank of New York, began to suffer under the weight of the outstanding loans they had made to the banks that held these worthless shares as collateral.

Sounding familiar? Like banks that owned the derivatives of worthless mortgages that weighed on the books of the banks that lent the money to shareholders today?

There was a run on Mercantile, which led to a run on all the money center banks, and banks were running out of money. Banks were reluctant to lend to other banks so that those banks could lend to customers, and as a result, the stock markets collapsed.

Boy, this really DOES sound familiar!

And so on. In 1912, as a result of this crisis, President Woodrow Wilson established the Federal Reserve, thus ceding the printing and issuance of American currency to a quasi-private enterprise composed of many of the large money center bankers (the precise list of board members is unknown).

Wilson's trade policies were at the center of America's entry into World War I. He was a free trader, lowering tariffs wherever possible and trying to remain strictly neutral in the European conflict, using the central bank to keep money flowing freely.

Both Germany, by attacking American shipping including the Lusitania, and England, by embargoing Germany, tested American neutrality. Wilson managed to avoid going to war on either side, of course, until his second term when Germany tried to recruit Mexico as an ally.

And World War I begat American global influence with the Fourteen Points, the League Of Nations and our participation in the Treaty of Versailles, which begat World War II and so on...

And then there was September 11. Which begat the Bush attacks on American governance and oversight, filling the Federal government with the hubris that the markets could police themselves while we attempted to engage in a dual homeland security/ego-driven war policy overseas.

Which begat our current financial pickle.

History comforts us with the knowledge that somehow, things work out for the short term better, and that it doesn't particularly matter whether the President in office is particularly intelligent, like Jefferson, or particularly principled, like Wilson. Somehow, things work out.

That's not the most comforting thought imaginable, but what's past is prologue and it is a new hope for us all.

(Cross-posted to Simply Left Behind.)

BREAKING NEWS: House rejects bailout bill

By Michael J.W. Stickings

The House of Representatives a short while ago voted 228 to 205 against the bailout compromise worked out over the weekend. (It needed 218 votes to pass.). As CNN is reporting, "[a]bout 60% of Democrats voted for the measure, but less than a third of Republicans backed it."

Quick notes:

-- Kucinich was right.

-- Bush is apparently "very disappointed" with the result. Presumably much of his disappointment is directed at the renegades in his own party.

-- Boehner: "If I didn't think we were on the brink of an economic disaster it would be the easiest thing to say no to this."

-- Frank: "If we defeat this bill today, it will be a very bad day for the financial sector of the American economy and the people who will feel the pain are not the top bankers and top corporate executives but average Americans."

-- It's certainly a bad day for the markets. As of 2:55 pm, the Dow is down 552.68 (or 4.95%) and the Nasdaq is down 144.08 (or 6.70%).

-- I still think a bailout bill in some form -- if not this one, after some arm-twisting, then this one with some alterations to appease both sides and to make Congress appear to be more united than it really is -- will be passed sooner rather than later. The leadership of both parties is behind it -- the Democratic leaders more than their Republican counterparts -- and there will be increasing pressure on Congress to do something. (And, right now, this bill is all they've got.) Not least because the markets are tumbling.

-- And tumbling... It's now 3:00 pm. The Dow is down 552.04, the Nasdaq 147.73. At 3:02 pm, the S&P 500 is down 76.26 (or 6.29%).

-- Up here in Toronto, at 3:03 pm, our leading index, the TSX Composite, is down 853.38 (or 7.04%).

Stay tuned.

I got an uncle lives in taxes

By Carl

It's not often that a "fact check" gets it wrong, but here's an example of a partisan fact check:

McCain has proposed to end one of the largest tax breaks in the entire economy. Some 60 million Americans buy health insurance thru employers tax-free, and McCain would indeed begin to tax the value of the benefit.

However McCain also proposes to give the money back as a tax credit, $2,500 for individuals, $5,000 for families.

"Let's give them a $5,000 refundable tax credit to go out and get the health insurance of their choice," McCain said.

Riiiiiiiiiiiight.

Because a tax credit is money in your pocket?

Is it?

What is a tax refund? A tax refund is what's left over after your tax liability has been figured out. It is, in essence, an interest free loan to Uncle Sam.

(Side note: In an Actor212 NotPresidency, I would insist the rules be changed that you receive interest at the Applicable Federal Rate on any refund you obtain. But I digress...)

A tax credit merely lowers that tax liability: in effect, it is a dollar for dollar reduction in your taxes, which you've already paid into the pot.

Now, would your taxes go down? Yes, that's a given, particularly since the tax on the health insurance premium plus the insurance premium itself would be less than the $14,000 maximum premium you'd be credited for.

But...you're still paying for the premium, and you're still paying for the tax.

After all, the average annual premium for an individual in the US is about $4,500. But, the average annual premium for a family of four is, ready for this? $12,500 give or take!

So the benefit to a family of four of a tax credit of $5,000, assuming they pay the top tax rate of 35% ($5,000/0.35) would cover a $14,000 premium.

In other words, you're saving maybe $1500 a year or $525 in taxes!

And look what would happen once this new tax was insituted: insurance companies would now be forced to report to the government the premiums paid by employee (as a check to the payroll reports individual employers now provide to the IRS, such as your W2 form).

Who pays for that administrative cost? You do.

This is another example of the mindless, piecemeal, irrational economic approach of what was supposedly the more financially savvy of the two major parties: you know, they made the money to BE Republicans, so they must know how to pass that knowledge on to us, right?

Eight years of a Bush presidency, which included six years of a Republican Congress, has proved the fallacy of that notion. Next to no job creation (as opposed to Clinton, who created more jobs than anyone else in history, unless you count the global war machine galvanized against Adolf Hitler), an S&P 500 & Dow Jones 35 that has actually lost ground, mortgage foreclosures at all-time record levels, an unemployment rate higher than any seen in a Democratic administration since the 1940s (save for Clinton's first year in office), personal income declines, and now the tanking of the banking and insurance sectors.

Is this any way to run the greatest nation ever to appear on the face of the planet?????

(Cross-posted to Simply Left Behind.)

The world we know

By Carl

You get the impression that there is a distinct disconnect between the real world, the world of people living in the reality of life, and what goes on in the news.

You wouldn't be far off. Exhibit A is this item from the Associated Press:

NEW YORK (AP) -- A rise in jobless claims and a drop in a key forecasting gauge provided the latest evidence that the U.S. economy is faltering and may be slipping into recession.

The Conference Board, a business-backed research group, said Thursday that its index of leading economic indicators fell in February for the fifth consecutive month. The index, which is designed to forecast where the nation's economy is headed in the next three to six months, dipped 0.3 percent to 135.0 in February after slumping 0.4 percent the month before.

In Washington, meanwhile, the Labor Department said that applications for unemployment benefits totaled 378,000 last week. That was an increase of 22,000 from the previous week and the highest level in nearly two months.

The four-week average for new claims rose to 365,250, which was the highest level since a flood of claims caused by the 2005 Gulf Coast hurricanes.

That's pretty sucky news, to be sure. Those are leading economic indicators, "leading" in this instance, meaning "forecasting".

The stock market is generally a lagging indicator, or one that confirms what we've all known all along about the economy:

In afternoon trading, the Dow Jones industrial average climbed 158.02, or 1.3 percent, to 12,257.68. Other indexes also were up.

Admittedly, this week the market has been up and down more times than a cheap date in a poolroom bar.

And despite the recent anomaly of Bear Stearns, investment banks have been losing money less rapidly than analysts expected, which has buoyed the market.

Yes, losing money is considered a positive on the Street. It doesn't matter that you've lost money. What matters is that you beat the analysts at their own game.

Kinda silly. It's a lot like the Jets losing to New England by two touchdowns, but hey, the spread was three touchdowns, so hurrah!

And there's the clue: money lives in a different world than you or I do. Money, like power, live in lofty regions that if we're lucky, we'll glimpse.

See, this is why even the debate over race v. gender, Republican v. Democrat, black v. white, even to a large degree, poor v. rich pales in my mind. None of this matters.

Indeed, about the only way it matters is that these divisions can be used by a certain stratum of society that wants us to keep fighting amongst ourselves. Maybe not every single member of that stratum -- indeed, many of these folks work for the good of the planet -- but there is a general momentum towards keeping the lid on things.

Think about this for a moment: Bill Gates has more in common with Bono of U2 than he does with Bob, the guy who mows his lawn.

Bob and he live in the same neighborhood. Bob and he breathe the same air, drive the same roads, see the same sun each day.

But who can call Gates at the drop of a hat?

I specifically used Gates and Bono, because, folks, these are the good guys! Now imagine, if Gates has so little in common with the lawn guy, what would we expect from, say, Dick Cheney?

I was tempted to use George Bush, but this elite "social order" tends to be pretty choosy as to whom they make long-term members. My suspicion is, once he's left the White House, there will be no more deals except for whatever crumbs his daddy can bestow upon him and I'm not sure Poppy is much for that anymore.

I say all this, because I wanted to make a larger point: the Internet.

See, you have more in common, right now, with someone sitting at his computer in Lahore, Pakistan or Birmingham, England, or Vladivostok, Russia, than you do with your Senator, possibly even your Congresscritter.

Re-read that. You have more in common with someone sitting at his computer in a hovel in Pakistan than you do with the guy who's supposedly voting your interests in Washington, DC.

(This dynamic is also why I firmly believe Hillary will win the nomination, since it has to go to the superdelegates: more skin in the game for her.)

And this, too, is partly why stock markets don't really feel your pain. They would rather support the guy who's firing you and paying them a higher dividend, than mourn with you.

Truthfully, looking down the road, I don't see a whole lot that we can do to turn this thing around, short of blood in the streets. We could, I suppose, start interacting with people across the ponds. That would be a good thing, of course, Information should be traded, and this would help others as well as ourselves.

Maybe in so doing, we can start to wake up to the fact that the earth and everything in it is ultimately a zero sum game. There's only one earth with limited-if-substantive resources, which means that as one person gains, another must by definition lose, or more correctly, one person, plus the earth and its resources.

David Suzuki likes to tell a story about a bacterium, placed in a beaker with all the food it could possibly want. The bacterium begins to reproduce, doubling it's population every second, so that after 60 seconds, it will have used up all its resources and the entire colony will die off.

After 59 seconds, the beaker would only be half full. At fifty eight seconds, a quarter full, and so on.

If, at fifty five seconds, one of the colony spoke up and said "Hey, we're going to die in five seconds!" the other would have laughed him off.

"How can you say that? We still have 98% of the beaker left to go!"

When we speak upwards, truth to power, we have to overcome the numbnuts in our midsts who would say something like "98%!" back to us. What we need to do is to foment the belief amongst ourselves and our peers that we have to stop this, from the ground up.

By "this", I mean the segregation of people along strata and class lines delineated by power. It's not enough that we dismantle the power structure in America anymore, the Eisenhower "military-industrial complex" is too simplistic to describe a world where the President of the United States and the head of Al Qaeda, as well as a B-list shlub blogger in New York City, all profit from the same investment firm's trough.

A fundamental change in society, and I'm not just talking political change and I'm not just talking America, is on the horizon.

A "New World Order" was a good idea, in theory, until you start to realize that the people who are putting it together are more beholden to the megacorporate entities that foot their campaigns political and military than they are to the people who they chew up and spit out in those campaigns.

Change from the bottom up, like democracy, cannot be forced on people. It has to be coaxed in order for it to be effective and it has to start with one voice, speaking to another voice. There's precious little time left, so we have to start now.

(Cross-posted to Simply Left Behind.)

As is so often true....

By Carl

...whenever there is a windfall, we can expect the parasitic maggots to dig in as deeply as possible and try to find new ways to make even more money:

The FBI is investigating Countrywide Financial, the nation's largest mortgage lender, for possible securities fraud, said a person familiar with the probe.

Investigators are focusing on whether Countrywide officials misrepresented the firm's financial position and the quality of its loans in securities filings, said the person, who declined to be identified because he wasn't authorized to speak about the inquiry. He described the inquiry as preliminary.

Countrywide is among at least 14 companies the FBI is checking for possible accounting violations related to the subprime lending crisis, including mortgage lenders, housing developers and Wall Street firms that package loans as securities.

Granted, it's a preliminary investigation and granted, there's no conclusive evidence of securities fraud.

Past history, however, is rife with instances where, when markets are booming, someone will try to grab even more of the windfall in profits and money raining down than is necessary.

The junk bond scandals of the 80s would, you'd think, have alerted investigators overseeing other market bubbles, since in that scandal, several of the biggest names involved in the marketing of sub-prime (there's that word again!) corporate debt were eventually convicted of securities fraud: names like Ivan Boesky and Michael Milken stand out in the convictions from those heady days of Reganomics.

Yes, change the world, indeed!

During the dot-com bubble, we saw corporations like Merrill Lynch and Citigroup cited and fined by the SEC for fraudulently humping stocks of companies like WorldCom, JDS Uniphase, Global Crossing, Cisco, and Lucent, all of whom eventually had to answer for some of their own greed.

I personally recall wondering how Cisco Systems could continually make precisely one penny more per share than analysts' estimates each quarter and then realizing there had to be fraud involved. You can't get a much clearer sign than that.

So it's not surprising that, in this latest bubble, there would be fraud going on. Shady mortgages, shady repackaging of those mortgages to shed the risks of the shady mortgages, those stick out as the most obvious strategies a nefarious executive could do in order to squeeze the undeserved buck out of investors and mortgagors.

There's probably more. These things don't happen in a vacuum. I would expect some allegations to be made regarding at least collusion if not conspiracy to commit fraud amongst lenders like Countrywide, DiTech, and other mortgage brokerages and lenders.

Hey, it was practically free money that was lying there for the taking! Who among us wouldn't scoop a little up if we saw a pile of cash in our driveways?

On top of this news, comes some other distressing financial developments, courtesy of Southern Atlantis, we see that the "D" word might have to be used soon:

During the Depression in the 1930's, banks suffered or shut down because their cash amounts and revenues through loans could not meet the balances of their depositors. The Federal Reserve at that time countered the need for cash that remaining banks had through special loans to those institutions. The term auctions the Fed is holding now serve the same purpose, though the interested or borrowing member banks are not mentioned. That, of course, works in the banks' favor: their stock prices don't take a hit, or, at worst, there's no run on the institutions.

OK, so what evidence do we have for this happening now?

Just these:

1) Citi sees $9 bln writedowns at U.S. investment banks.

2) Goldman says can't rule out Fed emergency rate cut.

The combination of lowered interest rates as well as writedowns of that magnitude will create a deep uncertainty amongst bank account holders. Can you say "run on the bank"?

Too, inflation is already roused, and the rate cut will not help that. Add now the economic slow down we've been experiencing, and you're talking about stagflation, something I've warned about since November of last year.

Another piece of this very complex and ugly puzzle is our foreign relations stances will not be helping us this go-round. Most other developed and -ing nations seem to be doing fine or at least hanging on (there's some trouble in Japan, but growth continues in China and India and Europe).

Normally, we might browbeat some of our allies and trade partners, but I fear that Bush's hubris and naïveté has cost us that potential tool in limiting the damage from a depression that could be as deep as the Great Depression of the late 20s and 30s of the last century.

The real scary part about all this for me is, I can't see the end game to this dip. There's not much good news laying about, no uptick in productivity, no surge in hiring, no growth sector that can't be attributed to inflation or exports.

2008 will not be fun.

(Cross-posted to Simply Left Behind.)

What was left on the cutting room floor

By Carl

I'm struggling with how to characterize the jitters of the market and the surprising (if feeble) news out of the Federal Reserve this morning.

On the one hand, I can't recall a moment in history when the US had this much warning of a total meltdown in what many of the uninformed take to be the economy: the New York (and other) Stock Exchange. Stock exchanges tend to be lagging indicators of the economy, tho, so the steep drops we've been experiencing are echoes of what's really going on in the commercial sector of the country.

On the other, I can't recall such a feeble response: a stimulus package that actually might harm the economy longer term, as well as a pissant rate cut of a three-quarters* of a percent in the prime rate.

The tax cut and rebate package on the face of things sounds like a pretty good deal: put money immediately back in the hands of taxpayers, while giving businesses a break on their earnings.

The administration doesn't seem to get it. This is not a temporary economic correction, this is a full-blown recession that's teetering (if not already fallen) on the brink of depression.

If we take Paulson's words at face value, and assume he's just talking things up to avoid panic, well, a) he's not succeeding too well, based on the futures market as of 9:15 this morning, and b) we'd like to think that behind the scenes, there's some furious activity to fix things quickly.

There's some evidence of that, but it's easy to infer there are some major obstacles to creating an effective response.

Rumours on the European markets are that the Federal Reserve cut is the first of a series of central bank rate cuts, primarily in Europe, to be announced. Could be. As I said, I can't recall any emergency rate cuts in my lifetime. It would be indicative of a collaborative effort to announce the US rate cut before the others are announced.

The problem for Europe, however, is they've actually been raising their central bank rates in order to stem inflationary pressures. A cut now would send a very mixed message to their markets.

The Fed's three-quarter-point rate cut serves only to aggravate the markets here. They will open down about 300 points, and investors were expecting (funny how yesterday, there wasn't even the merest hint of a rumour of a rate cut, and now suddenly, they were "expecting"?) a half a point cut.

Not that any of this will really make a difference, of course. While credit markets are tight, it's not because interest rates are high, it's because the markets are terrified of the outcome of the mortgage default crisis. You could lower the discount rate to zero (a prime rate of 3%), and banks still wouldn't lend.

Asia is in total meltdown already, which means that China is experiencing its first market crash. There's no way of telling what response Beijing will make. This side note is a way of saying, "Gee, I sure hope they don't start calling in their chits on the American economy!"

The Bush legacy seems to be even further in the hole. His Hail Mary pass of a Middle East settlement is in disarray, and his one hope for any positive news was four years of relative economic strength. Not Clintonian, but Bush would have been able to point to positive growth, especially if you look at the last five years of his administration only.

Alas, even that slim margin of growth has been squandered, along with several hundreds of billions of dollars in Iraq and trillions domestically. Had we not had tax cuts of the severity that Bush insisted and the Republican Congress lapped at like Tommy Lee on Pamela Anderson, we might have some programs in place already to deal with the problems ahead.

Instead, we squandered like a drunk sailor on shore leave with a stolen credit card. Hey, the rich sure as hell won't ever have to pay these bills back, why should they care?

* The Fed sent out a press release correcting the initial announcement.

(h/t to Karyn Mannix for the graphic)

(Cross-posted to Simply Left Behind.)

Please be aware...

By Carl

The stock markets tomorrow are going to tank, big time.

That is all.

Does anybody have the paddle?

By Capt. Fogg

No sir, the economy is healthy, "financial markets are strong and solid," and Bush is optimistic. I'm glad the US markets are closed today, because the rest of the world is taking Bush's words to mean the end is nigh. Stocks plunged in Germany, Hong Kong, India and Brazil today and the European Dow Jones Stoxx 600 Index fell the most since Sept. 11, 2001. Commodities are falling on the perception that a recession will reduce demand.

The slide began last week while President Bush was unveiling his inchoate plan to fix everything with a small handout to the peasantry and a cheerful dose of oblivious optimism. The worst week for US stocks in five years followed apace. The rest of the world has caught on that their US investments are only as sound as the withering Dollar and nothing Bush is capable of doing will do anything to postpone or lessen the coming crisis. The Bank of China alone may have to write down 17.5 billion yuan ($2.4 billion) for the fourth quarter of 2007, and another $2.4 billion this year because of the mortgage crisis, says Bloomberg today and the rest of the world seems to be just as far up the creek.

"It's the worst I've ever seen,''

said Johan Stein, who helps manage the equivalent of about $14 billion at Nordea Asset Management in Stockholm.

"The financial system is in terrible shape, and no one knows where this will end.''

No one knows when either but my guess is that it won't end soon or nicely, nor will I be buying that new boat this year.

"We're confident that the global economy will continue to grow, and that the U.S. economy will return to stronger growth,''

said White House spokesman Tony Fratto today. If there's anything that typifies the Bush Bunch's reliance on belief rather than competence to change reality, he just expressed it.

(Cross-posted from Human Voices.)