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Rocky Monday
It’s another rocky day on Wall Street as investors woke up to discover two more financial firms had fallen. The AP reports:
Lehman Brothers, burdened by $60 billion in soured real-estate holdings, filed a Chapter 11 bankruptcy petition in U.S. Bankruptcy Court after attempts to rescue the 158-year-old firm failed. Bank of America Corp. said it is snapping up Merrill Lynch & Co. Inc. in a $50 billion all-stock transaction.
Meanwhile, American International Group Inc., the world’s largest insurance company, is restructuring, while a global consortium of banks is pooling $70 billion to lend to troubled financial companies. According to Christopher Whalen, managing director of Institutional Risk Analytics, for the first time in generations, consumers are starting to get nervous about the financial health of their banks. Are you?
back to top30 Comments to “Rocky Monday”
Looks like the free market is working!
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I heard the news today Oh boy.. poor Lehman Brothers. Does your mutual fund own any stock in Lehman? What is the per share price for paper from Fannie and Freddie??
Worldmag business finance reporter, phone your office!
So tell me, Perfessor, just how’d we land in this big magilla anyway, eh??
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I don’t have a suggestion for a better economic system than free enterprise, but I think to say the “free market is working” is like looking at a car that was in an auto wreck and saying, “When I turn on the engine, it still runs, even though the car is a mess.”
Also, my parents and their siblings grew up in the Depression of the 1930s, and were deeply scarred by it. For one thing, they were all pretty “liberal” politically.
As I reach my old age, I am wondering if the current, continuing, and accelerating economic turmoil in this country and throughout the world indicates we are finally reaching the long-awaited “Second Great Depression?” Seriously.
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It’s wonderful to spout free market language, but unregulated markets and unregulated businesses kill people.
Every day for the last 18 months I have had to deal with homeowners and their families who have, or are about to lose, their homes.
This has happened because 16 years of “free market” doctrine in DC deregulated financial markets, creating a vicious “boom and bust” cycle in home prices.
More importantly, the triumph of free market capitalism has, I think, destroyed America’s economic world leadership. We are a nation deeply in debt, and utterly devoid of leadership willing to buck the oil cos, investment banks, telcos and auto companies in order to provide long term prosperity.
I honestly don’t know if Obama has the chops to begin to deal with this mess. I do know that McCain, with his unbelievabe cadre of lobbyist and big business managers, does not.
He himself has said his economic background and knowedge is not sufficient, and as we have learned in the last few years, a President who can’t even send an email or use a browser is at the mercy of anyone close to him.
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I keep going back to the story of the hedge fund managers and the NYC teachers. When, as in 2005, 25 hedge fund managers can make more money than 72,000 unionized NYC teachers make in 3 years, and pay lower tax rates, commitment to the common good has evaporated, personal greed has triumphed and we are all at its mercy.
Somewhat unbelievably, McCain’s tax plan actually lowers the income tax rate on the wealthiest 0.1% of our plutocrats.
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Chart, by income percentile of effects of Obama tax plan.
http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=1972&DocTypeID=1
Same chart for McCain tax plan.
http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=1898&DocTypeID=1
So which taxpayers do you think are going to pay for the Fannie/Freddie bailouts?
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My wife just went in and announced, “Potter is buying up the savings and loan!” Apparently in reference to B of American and Merrill-Lynch
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One last post before I go out to deal with another short sale.
Look at the tax rates in the last column on the right. Remember that in 1961, following 15 years of steady, big, economic growth, the highest rate for those in the 95th through 100th percentile was 87.5%. And those wealthy people were doing just fine, thank you very much. I know, as my father was one of them. Today it is 28%.
If you wonder which of our two candidates will certainly continue that trend until the country is bankrupt, google the terms McCain and Follieri.
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Thanks for your comments, Arcadia. I knew you were in this business, so I’ve been paying attention to your posts.
It has seemed to us for a long time that the foxes have been in the hen house, but it’s difficult to know how to react other than to shun the hen house. But how do you avoid banks?
We have a college fund CD coming up for renewal soon and for the first time ever, examined the financial state of the bank. And for the first time ever, it looks like I’ll open a CD at Bank of America.
What troubles me, is how long can the US taxpayers bail out insolvent, foolish money managers? And why aren’t the leaders of those industries at least getting their lavish pay docked?
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Looks like the free market is working!
Two observations.
As Random points out, if this is what you consider “working”, I’d hate so see what you consider “malfunctioning.”
The idea that Wall Street is anything like a “free market” is ludicrous. It’s one of the most heavily regulated sectors of the economy. In fact, much of the carnage we’re seeing this year is due directly to government interference in the marketplace. This is almost all due to the housing crisis, which came about in large part because the feds pushed lenders to make mortgage loans to unqualified borrowers or risk being fined out of existence for “racist” lending practices.
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On a rocky Monday (or *day), remember this: It’s What Disciples Do
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John McCain’s man says everything is peachy.
“Things today just aren’t that bad. Sure, there are trouble spots in the economy, as the government takeover of mortgage giants Fannie Mae and Freddie Mac, and jitters about Wall Street firm Lehman Brothers, amply demonstrate. And unemployment figures are up a bit, too. None of this, however, is cause for depression — or exaggerated Depression comparisons.” Donald Luskin
There you go, my friends. If you can be as out of touch as the McSamers, you don’t have to be depressed.
John McCain was a POW.
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Very nice, Mark. Thanks.
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It’s all in our heads, because we’re a nation of whiners.
I heard that somewhere, but can’t remember exactly where…
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Well, the market IS working.
If you eat a lot of fat, you shouldn’t be surprised when you end up having a quadruple bypass! There were mortgage lenders who didn’t need much of a push. And the people who sent them out there, the Lehmans, etc., are now reaping what they sowed. They wanted profits, and they stupidly got caught up with all the profits they made during the boom. Greed will do that to you.
This hard and painful correction to the market is directly related to the joyful craziness of a few years ago. It’s a hard correction, but it’s not a depression, and it is unfair for anyone to characerize it as such. Greenspan is right that it is a once in a century thing — there will be new regs proscribing no doc loans, and as soon as buyers and sellers get it together, hit that magic point together, it will improve, and it will improve relatively quickly.
I think it is unfair to say that these were “racist” loans unless you can show that the overwhelming number of foreclosures is against people of color. You need proof for that.
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I think it is unfair to say that these were “racist” loans unless you can show that the overwhelming number of foreclosures is against people of color. You need proof for that.
What are you talking about?
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Who said these were “racist” loans?
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If I make bad financial decisions and can’t pay my bills I go bankrupt. No one is saying that is a GOOD thing, nor is anyone happy about it. However, that is how capitalism works.
Millions of people were given loans who couldn’t pay them back. They knew that. The banks knew that too. But good ole Uncle Sam is always there to bail them out. This time they aren’t being bailed out, which is a good thing.
I am sorry for all the people who signed up for loans they could not pay. That is a horrible thing. But who is responsible for that?!!
Greedy Lehman Bros. and Merrill Lynch have made horrible financial decisions. I prefer that the market correct them rather than having the government step in and bail them out.
We are not deeply in debt because of free market capitalism. We are deeply in debt because the government spends money like a drunken sailor and there is no end in sight. So is the solution then to give more power to government? You’ve got to be kidding!!
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#6 Arcadia,
As always, the rich will pay for Freddie and Fannie, like they have paid for everything else good or bad in this country since it was formed.
The lowest 50% of Americans, 67 million households, pay $50 a year in income taxes for a total of $30.5 Billion. But, the top 1% of American households, 1.36 million, pay $408 billion in income taxes. The majority of Americans pay virtually nothing at $450 a year while the richest 1% pay $300,800 each. The lowest 50% of Americans only pay 3% of all income taxes paid but the richest 1% pay 22% of all income taxes paid. The top 25% of all Americans pay 86.17% of all income taxes paid.
Since the Bush tax cuts the rich have shouldered even more of the tax burden than ever before showing that the Bush tax cuts were for the poor not he rich as the left continually lies about.
Also, since over 44 million American households pay zero in taxes and 50% pay little, the idea that Obama will cut their taxes is a stretch to say the least. Plus he says that 95% of American will get a tax cut is also bunk as well. This is a flat out lie.
So it is obvious that the rich pay the freight monetarily in this county and more so today than before Bush became president but this had always been the case and always will be.
50% of Americans have put their labor into America because they had little money to give. Now they don’t want to work either. They are counting on Marxists to steal money from the rich for them instead. This might work for awhile but eventually it will blow up like all socialist schemes do.
Don’t believe me. Social Security and Medicare are bankrupt pieces of toast and I hope that you are not counting on them to bail you out in your old age. Hopefully you kknow that you will ahve to learn to take care of yourself. The latest result of socialism gone bad is another lefty New Deal, whack job, idea from 1938 – Fannie Mae and later Freddy Mac. Socialist governments cannot do anything right when it comes to goods and services since they are insane.
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Should I be afraid? I don’t even know what all of this means. Our family is already holding on by a thread, and we cannot survive a job loss or financial disaster. Should we be worried about all this? I see my retirement funds getting smaller, but I have lots of time to get it back. Although, I supposed if our entire world economy collapses, it won’t much matter. Have we hit bottom, or do we have farther to fall??
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ARCADIA,
Exxon pays more in income taxes in one quarter than 64 million Americans do in a year. Even though its taxes are 3 times its profits, that is 3 times its profits in case you missed it, it is worth way more in income to the lefties that control the purse strings of this country than their entire electoral base
By the way they are spending $500 Billion more, half a trillion dollars than they will take in next year on top of this years huge deficit they created. But they tell you they are going to cut your taxes and you believe them?
Don’t be surprised if they give tax breaks to Exxon and tax you more. It would only be fair for both Exxon and America.
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The basic facts are that the U.S. has a highly interdependent economy and due to the desire of the politicians and government employees to secure their “little empires”, the scope of the financial challenges transcend any one man, political party or interest group.
With the emergence of the competitive economies of China, Russia and India and the OPEC domination of energy resources, the U.S. and Europe can no longer dictate world economic policies.
Interestingly enough, the American consumer – particularly in the housing sector- has chosen to be oblivious to these realities. In short, we must now face a reality that our homes are not credit cards, our vehicles are not pleasure cruisers and a myriad of other realities that will cause us to “tighten our belts” and save rather than spend.
However, we still will remain the freest, most upwardly mobile society the world has ever seen and a beacon of freedom – political, economic and religious for the entire world.
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#9 Michelle
But how do you avoid banks?
I am not an anti-bank fanatic. Of the two dwellings we have owned, all have been financed and re-financed by banks, including at one time or another, Wamu, Wells Fargo, and now a small regional bank which actually answers the phone with a live person when we call. We had no huge problems. At times when we needed to contact somebody (except for the last, small bank), it was surprisingly difficult and irritating, but nothing that wasn’t solved.
However, for the last 30 years or so I have only used credit unions for my “retail” banking. Sure there are bad credit unions (just as there are bad ministers and bad Republican congressman like Duke what’s his name, but most are probably fine) and on the whole I have found credit unions immensely more responsible, more attentive to customer service, and generally better to deal with than banks.
Something to think about.
Hey, there’s even Evangelical Christian Credit Union
Evangelical Christian Credit Union (ECCU)
What could be more wholesome and constructive than that?
Coming next year: the World Magazine Pro Life Credit Union
Open an account and they will adopt a baby for you.
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https://www.eccu.org/
Messed up my link. It’s in Anaheim. Nothing to do with Disneyland or Knotts Berry Farm, I presume.
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My portfolio is down 5% today. The only security that went up today was the VICE Fund. Good to know what you can depend on when it comes to human nature.
Probably everybody knows by now, but just in case someone this this is a joke, this is a real mutual fund that invests in companies involved in alcohol, gambling, tobacco, and armaments. I also have holdings in dirty energy.
Although I try to buy responsibly, I see no point to so called “socially responsible investing.” It’s not my only principle (or lack of one), but I try to invest in evil. I’ve still need to figure out ways to invest in illegal drugs, sex (especially homosexuality), and abortion products. I figure I’ll then have a portfolio capable of weathering anything but the Rapture.
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It is a well known fact Random that in hard times, whiskey and cigarettes do very well. Invest wisely!
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“Very nice, Mark. Thanks.”
Thank you, Klasko, and you’re welcome.
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I’m wondering something. Perhaps one of you financial wizards can shed some light on things, and give me some advice…
Ever since I’ve had a retirement account seven years ago, I’ve put money in, but there seems to be very little return… I’m about to get hacked off with these goobers and put the money into saving instead. At least I’d have some interest on the investment.
What to do?
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gov’ts design rules from which the markets operate. When rules are designed intelligently such as the post WWII agreements economies despite some ups and downs work well. When rules are poorly designed, an after thought or just plain ignored then economies tend to suffer. The dismantling of the postWWII rules by Nixon for short term gain turned the international market into a global casino returning us to the 19thC boom and bust cycle.
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So what happened on Monday?
Last night on MSNBC, Robert Reich said,
“In the latter years of the Clinton administration — when I was not there any longer, I should add — there was an attempt by Alan Greenspan and Bob Rubin and a few others to deregulate financial markets, and they did.
They split commercial banking off from investment banking. And many people say, “Well, that was the beginning of the problem,” and then, of course, in 2003-2004, Alan Greenspan reduced short-term interest rates to the point where every single bank wanted to lend money.
I mean, if you could stand up straight you could get a bank loan because there was so much pressure to get that money out the door. Money was so cheap. So, yes, there is some responsibility on Democrats, some responsibility on Alan Greenspan and the Fed.”
All that pressure has to do with the catch phrase “Affordable Housing” which really meant Free Housing for minorities who could not pay in the form of a hidden tax on those who could.
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