Wednesday, March 26, 2008

The Townsfolk Gather

Last week, I suggested that the next big investment theme might be pitchfork futures. Is it starting?

I think the Bear Stearns episode was a watershed moment that put the Fed as an institution on dangerous ground. Remember the big picture here: in the teeth of a recession, a handful of unelected officials and faceless corporate executives used the public's money to support two firms that have made an unfathomable amount of money in recent years. It happened in the middle of the night, Congress wasn't consulted, and it's my impression the deal was simply presented to President Bush as "done." Now I'm not disputing that the Fed's intervention was necessary to prevent more serious problems. Purely in that sense it "worked" and it might even have been wise. And remember, we should all hope that policymakers get things right during this period and ultimately succeed. But I think the Bear deal opened up a fault line under this country -- one of those things that passes from the headlines after a few days, but stays in the back of people's minds as a point of reference for their own lives. Depending on what happens next with the economy (and of course any more Bear-like interventions or outright bailouts) that fault line could either stay quiet or rip wide open.

If the latter, eventually those protesters might wonder why they're picketing in the lobbies of investment banks instead of outside Federal Reserve buildings. But the Fed isn't exactly a hot stop on the tour bus map, and that's perfectly fine with Ben Bernanke. More on that soon.

15 Comments:

Anonymous Anonymous said...

watershed moment...you're right on that. it illustrated in bright white klieg lights that we're the peasants, they are the royalty.
that simple. our cash is to be used -- and forget any screaming about it, they'll just steal another election -- our cash is to be used and abused in service of the royalty.
Note that the protestors at Bear today did not get any air time whatsoever tonight on the Nightly News. None. Zippo. The media is co-opted. We're the peasants. Where's my cake?

3/26/2008 8:23 PM  
Anonymous Anonymous said...

One story that should have sprouted legs and run is Clinton's suggestion that Greenspan should be the genius to come up with the solution to the problem. Excuse me, but weren't his Fed policies part of what caused it? And when people tried to alert him to the situation, he did nothing. http://www.nytimes.com/2007/12/18/business/18subprime.html?fta=y
In contrast, Obama warned of the impending crisis a year ago, and proposed some better-late-than-never measures to help mitigate it. Which candidate Gets It, and who seems totally inexperienced?

3/26/2008 10:58 PM  
Anonymous Anonymous said...

...in the teeth of a recession, a handful of unelected officials and faceless corporate executives used the public's money to support two firms that have made an unfathomable amount of money in recent years. It happened in the middle of the night, Congress wasn't consulted,... , boy, that is a slap in the face of every citizen who believes in Democracy.

For years we have heard why derivatives and hedge funds should not be regulated. The anti-regulation folks were very forceful and mean. Allowing Bear Stearns to fail and take with it multiple hedge funds might have been a good thing. Now they try to sweep it under the rug. The only way we fix things in our country unfortunately is when there is enough pain. Our system is broken and needs critical repairs before anyone can have confidence. So when do the Congressional hearings begin? Or is Congress too busy with baseball steriod usage. :-(

Well, if you can trust someone associated with the oil industry, John Hofmeister, President of Shell Oil, was on Charlie Rose, and he thinks that we have reached some sort of boiling point. He talked about visiting leaders all over the country and they are expressing that the poor are quite frustrated (comparing the mood in LA to that of the riot days) with being ignored and the cost of food and fuel.

3/26/2008 11:44 PM  
Anonymous Anonymous said...

Why, I believe that you are perpetrating class warfare, you communist!

3/27/2008 10:42 AM  
Anonymous goldhorder said...

We're the peasants. Where's my cake?

Yes...you get it

Why we suppport these parasites is beyond me. Just another reason to own gold and rifles.

3/27/2008 10:58 AM  
Anonymous Thomas Daulton said...

I'm not disputing that the Fed's intervention was necessary to prevent more serious problems. Purely in that sense it "worked" and it might even have been wise.

I think TCR and all the above commentators "get" this point but I'll mention it anyway: even if bailing out Bear Stearns was the "right" move, to prevent more serious problems for example, it was only "right" in the context of smoothly maintaining a larger system which protects the elite and shafts the average Joe. (In this particular instance I am not trying to refer to Capitalism itself as exploitative; only the comfortable isolation of Wall Street from its consequences on Main Street.) It was only "right" if your ultimate, long-term goal is for financial oligarchs and those "in the know" to manage the economy according to their personal subjective judgment while keeping their hands 'invisible'... as opposed to having an actual, quasi-'free' market system in which everybody accepts their own consequences and creates their own destiny based on their own hard work and merits. If you think the average Joe is not smart enough to understand what's good for his own economic future... if you think a financial oligarchy is a benign thing -- in the long-term, mind you, regardless whether you think good or ill of the current players -- then it was a perfectly wise move. But I don't think that's how most of the nation's economic participants view it.

The quote about "you can fool some of the people all of the time" springs to mind... maybe, just maybe, the nation is waking up. Thirty years of being fed constant free-market dogma has perhaps produced an electorate who understand the essential simplicity of Capitalism better than the governing class: free markets have consequences, and if one group is shielded from bad consequences (while still reaping such great profits), then we don't really live in the free market that politicians have been paying lip service to for decades.

That's the larger, uglier truth that perhaps the Bear-Sterns incident has illuminated, whether or not the actual bailout made sense on paper.

3/27/2008 2:00 PM  
Anonymous Anonymous said...

How much were the 2006 year-end bonus pay outs on Wall Street? I believe it was north of $30 billion. Now we're finding out where all that money came from.

I think they should be forced to give it all back before they come asking the taxpayers for a hand out.

3/27/2008 10:30 PM  
Blogger njdoc said...

Excessive debt is insidious in it's evil. But you don't have to look far back in the history books to see how it has had dramatic and sometimes catastrophic effects. From European debtor prisons to indentured servitude. Many of our Colonists came here to escape debt. As we have deindustrialized as a nation, we have turned to financial engineering and leveraging in lieu of real engineering and savings. This catch is that it was all based on a huge debt pyramid that was leveraged to asset (home) prices. I mean, what the hell do they do in England? I don't remember buying one of their products. As the debt pyramid inflated, those closest to the department of financial engineering became exceedingly wealthy, and thus there began an enormous disparity of wealth distribution in this country. Furthermore, all possible enticements were made for people to spend money, even money they didn't have. So now we are possibly at an inflection point in our history. Forget pitchforks, how many Timothy Mcveighs are out there?

3/27/2008 10:57 PM  
Anonymous Anonymous said...

It should be noted the protesters appeared to be protesting that they weren't getting bailed out too. They appear to be saying they want a piece of the pie too.

Sadly there is no pie left. The Treasury cam to the market this week for $59 billion in Cash Management Bills. This is borrowing against future tax receipts, think tax day, and was not anticipated only 7 weeks ago by the Treasuries borrowing committe. They did a larger amount two weeks ago. The governments revenue stream is collapsing and with it the deficit is exploding.

I anticipate a trillion dollar deficit is possible in 09/10. Don't be looking for any handouts people. There will be none. In fact there will be hand backs in the form of many reductions no matter who is president.

3/28/2008 6:45 AM  
Anonymous Mr. Hedley Bowes said...

"Forget pitchforks, how many Timothy Mcveighs are out there?"

Timothy Mcveigh was a product of many things but most significantly was a veteran of Operation Desert Storm. Do the math.

3/28/2008 7:40 AM  
Anonymous goldhorder said...

Great post Mr. Daulton

3/28/2008 2:21 PM  
Anonymous goldhorder said...

It should be noted the protesters appeared to be protesting that they weren't getting bailed out too.

Exactly...as he said..."Where's my cake?"

3/28/2008 2:24 PM  
Anonymous George said...

Thomas Daulton wrote: If you think the average Joe is not smart enough to understand what's good for his own economic future...

That is exactly what I think. I hate to think that a financial oligarchy that is picking our pockets via currency debasement is the next best alternative.

3/29/2008 2:14 AM  
Anonymous atlasapple said...

As far as class warfare, I'll just quote the richest man in the world, Warren Buffett:

“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

3/30/2008 2:26 PM  
Anonymous Anonymous said...

suing ucsc euros inoperative industrys jury underused isnt schwalbe overcome oldindex
servimundos melifermuly

1/25/2010 3:57 PM  

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