Tuesday, September 09, 2008

That Sound You Hear

....could be Paulson and Bernanke figuring out how to explain that Lehman Brothers, down over 40% today, is "too big to fail."

I'm casual acquaintances with a couple of Lehman guys (and I was a guest in one's not-so-humble abode recently). To say they've lived the high life during the past few years would be an understatement. The notion that taxpayer money might be used to buy them anything more than an off-peak bus ticket to the Hamptons is sickening. Unfortunately, there are three things at work right now. One, an election year in which all stops have been pulled out to keep the financial markets as stable as possible, future consequences be damned. Two, a short-timer Treasury topper who came from Wall Street, has a vested interest in it and its culture, and knows many of these executives personally. Three, a Fed chairman who will probably be back in the private sector within the next year or so, drawing fat checks a la Greenspan from the same firms whose profits and survival depend on decisions he's making right now (when will Congress close this outrageous post-Fed employment loophole?).

This is starting to look like a not-so-gradual descent into a sort of bizarre latter-day economic feudalism, overseen by a small coterie of unelected and unaccountable statists who have a standing order with the local locksmith for duplicate keys to the national coffers. But the precedent has been set, and every Wall Street CEO has a big red phone on his desk that, when picked up, automatically dials Washington with a pre-recorded message: "Where's ours?"

As I said, sickening.

27 Comments:

Anonymous Anonymous said...

In 132 days, Secy Paulson and Chairman Bernanke will be out of work.

Certainly some far sighted companies have approached them, directly or indirectly, with employment "proposals".

Wouldn't that be a fair question to ask each of them as the countdown clock ticks away?

9/09/2008 5:40 PM  
Anonymous Anonymous said...

I have to wonder if they are all going to actually push the issue now that the ultimate moral hazard has been breached. I mean why not, we have demonstrated that we will open up the tax payers wallet at the drop of a hat so what gives any shareholder any incentive to purchase or keep stocks of financial companies. I really don't know why anyone would not short sell all financial stocks since there is widespread belief that they will be bailed out and there is literally no risk giving the politics of it.

That's the problem, the players can now play the politics of it to thier advantage in affect using the political situation. They know that a financial crash is likely to wipe out the republicans at the ballot box this year and they will do anything and everything in order to avoid it. I mean seriously the moral hazard is complete here.

It really is amazing that nowadays a trillion plus dollar backstop of the taxpayer wallet only gives us one days rally. The last card has been played, there are no more plans that the FED and the treasury can come up with in order to placate the markets.

9/09/2008 5:43 PM  
Anonymous Anonymous said...

Also adding to the moral hazard post above. Perhaps wou could tell me why any investment firm could raise capital outside of the freddie and fannie taxpayer guaranteed side of the house.

Haven't we just pretty much shut that down, why would a foreign central bank or any other investor buy any debt now that is not guaranteed by the American taxpayer?

9/09/2008 6:02 PM  
Blogger J. said...

Dear CR,

I hear you. Before he died five years ago, my father was an SMD at Bear Stearns. I inherited his Bear Stearns stock, and sold much of it over the years, but couldn't bring myself to sell it off completely. However, when things started going south last year, I started asking around, if everything was OK. I was told not to panic, and held on. Then, just days before the Bear collapse, I had lunch with some current and former BSC employees, pretty high level guys. One guy, who got out, told me he had sold all of his stock last August. The guy who still worked there said to hold on, the boss said all was well. Like an idiot, I believed him.

That said, I had very mixed feelings about the Bear bailout -- and when I heard about Lehman soon after, thought uh oh, domino time.

Now we have the government bailing out Fannie and Freddie and soon come Lehman. Where the eff are they getting the money?! We both know: us, the taxpayers. And it's only a matter time before, like you wrote, more institutions fall or fail and ask for theirs.

Where's the personal responsibility?

As you said, sickening.

9/09/2008 7:07 PM  
Anonymous Anonymous said...

Lehman will be the exception.

9/09/2008 7:57 PM  
Anonymous Anonymous said...

I have posted here in the past, generally taking issue with TCRs political positions. But, there's nothing to dispute in this post, it is sickening.

And we are all going to pay for it. Literally.

9/09/2008 8:05 PM  
Anonymous Hairhead said...

I'm a Canadian, and I've gone beyond horror and disgust, and I'm now just sorry for all of you Americans (the middle-class and the poor) who are going to take it up the ass in the next few years.

Remember, There are four months until mid-January, nearly 120 days for other failed businesses to be given billions and trillions (never thought I'd use that word) of taxpayer dollars. And with the Dems completely unwilling to enforce even a shadow of the rule of law, the current office-holders have no fear and therefore no restrictions on what they will do, and what they will take with them on their way out the door.

Oh, and if McCain & Palin win, I think you'll go straight to a complete police state, as with the rule of law gone, the only hold on the public will be naked force.

Like I said, I'm sorry for you guys right now; no matter what happens, you're in for some bad times, and money may not necessarily insulate you.

9/10/2008 1:12 AM  
Blogger njdoc said...

Cunning Realist:

I believe you nailed it as to what is happening vis-a-vis the Wall Street Elites. These "bare knuckles" financiers with Ivy League pedigree, in reality, don't know how to run a business. But the system has been gamed to such a degree that no other outcome is possible. Everybody will get bailed out on the taxpayers tab! There is no outrage because they keep framing the debate in terms of "systemic risk" and "keeping mortgage rates low", but in reality it's about the oligarchs not losing money and power. There are only political solutions to this madness, but I am afraid that both parties are in absolute collusion with Wall Street to such a degree that this type of reform cannot take place. Only total collapse of the Anglo-Saxon debt-based finance system will FORCE change. Please don't hold your breath or allow your blood pressure to rise, these are just the facts on the ground. Our feudal lords just keep doubling up on their bets!

9/10/2008 7:50 AM  
Blogger Spider said...

I really wish the nightly network news shows would cover this in a way simple enough for the average American to understand. Basically they'd just have to say,

"So your taxes, which the politicians say can't go to funding schools and infrastructure or programs to help you get out of the 'hood, all went to bailing out the really rich investors of Wall Street, who make more in a year than you can dream about in a lifetime.

Hope you just enjoyed taking it up the ass without the common courtesy of a reach around!"


Stuff like this should be fodder for violent revolution. Too bad the masses are to ignorant to understand how bad they're being screwed. And if people like us tried to explain it to them we'd be met with blank stares of "Huh?"

9/10/2008 8:06 AM  
Anonymous Kilfarsnar said...

I have said it before and I'll say it again, there are no free-marketers in foxholes. When the music stops everyone wants a chair.

Spider, I agree, it would be great if the nightly news were actually informative. But they won't be because of the point you make at the end of your comment. The people must be ignorant if this shell game is to continue.

Honestly, that's what makes me fear the most for our society. Without honest news, how are people supposed to make informed decisions? All we hear are the stories that powerful people want told. If it weren't for the internet and sites like this one, I would not come across other viewpoints and information. And I still don't quite know what to believe. I don't see how this ends well.

9/10/2008 10:30 AM  
Anonymous Anonymous said...

speaking of "sites like this one" what are some sites like this one? I read it daily, and when there isn't a new post, I check back a few times throughout the day, but I'm looking for more information sources for an economic illiterate like myself. I also read calculated risk on a regular basis.

9/10/2008 11:15 AM  
Blogger Dave S. said...

Dumb question: don't Fed chairs serve for fixed terms irrespective of presidential elections? That would leave Bernanke in place after January.

That may not be the best outcome, of course...

9/10/2008 12:15 PM  
Anonymous Anonymous said...

Anonymous

Check out the The Automatic Earth a great source of daily information that provides a lot to absorb, very well sourced information that leads to a lot of econimic/financial blogs and outlets that will fill up your entire day if so desired...

9/10/2008 3:13 PM  
Anonymous goldhorder said...

sites not owned by the corporate media?

www.lewrockwell.com
www.mises.org
www.antiwar.com
www.commondreams.org
www.counterpunch.org
www.amconmag.com
www.csmonitor.com

financial sites

http://www.gold-eagle.com/research/lairdndx.html

http://www.dailyreckoning.com/Writers/MogamboGuru.html

Bill Bonner is good...also at the Daily reckoning.

http://articles.moneycentral.msn.com/Commentary/ByAuthor/BillFleckenstein.aspx

Just my two cents.

9/10/2008 3:35 PM  
Anonymous Anonymous said...

Agree.

Since there are so few reasonable business people speaking up, an investing public can only conclude that the rot in our business/financial structure is deep, and politicians are happy to oblige. We do a perfectly good job destroying our own business and financial markets. Who needs outsiders/foreigners. This is WS "code red".

My trust and admiration is with Buffett:
Warren Buffett No Longer Trusts Banks More Than The FDIC Does

Charlie Rose ought to be interesting tonight. He is going to have Larry Summers and Robert Rubin on. But the other night he had a group on, and what we found out was Wall Street and financial institutions have screwed us royally, and it ain't over by no means. Charlie's discussion with Friedman about leadership was pretty interesting. Lot's of alarms going off, but there is no real debate by our politicians on these subjects. What will our media do? Hmmm...

How are folks' retirements doing? Baby boomers without a traditional pension, will Wall Street leave them anything to survive on for 10 or 20+ years? Since our government is on a bailout roll, will they bailout retirees, which will also feed Wall Street. Boy, Wall Street can't lose.

9/10/2008 4:42 PM  
Anonymous Anonymous said...

"average American to understand" - Agree. But I think many reporters are as ignorant. They may have a journalism degree, but know nothing about economics, finances, or public policy, etc. They can write or repeat a story that someone else gives them, but they can't put it into context. PBS News Hour and Nightly Business Report is pretty good. The Republicans haven't totally ruined PBS... yet. But I'm sure they are trying.

"Dems completely unwilling" - The only thing, Republicans have done a lot of damage over the course of 20+ years. And even today, they hold enough to block.

9/10/2008 4:54 PM  
Anonymous Anonymous said...

I say lower taxes on us high earners so we can trickle down more money on our illegal alien housekeepers and gardeners. The trickle down effect has really worked wonders for this nation in the last eight years.....

9/10/2008 11:58 PM  
Anonymous Anonymous said...

Privatize the profits, socialize the losses.

9/11/2008 2:24 PM  
Anonymous Kilfarsnar said...

"I say lower taxes on us high earners so we can trickle down more money on our illegal alien housekeepers and gardeners. The trickle down effect has really worked wonders for this nation in the last eight years....."

"Trickle Down" economics has always been absurd on it's face. Yeah, yeah, I know, you let rich folks keep more money so they can invest it, grow their businesses, and thus employ more people. Sounds nice. Except, it turns out that they already had more than enough money to do that. So they just end up keeping it. Gosh, it's almost like that was the plan all along!

9/11/2008 3:10 PM  
Anonymous Kilfarsnar said...

"I say lower taxes on us high earners so we can trickle down more money on our illegal alien housekeepers and gardeners. The trickle down effect has really worked wonders for this nation in the last eight years....."

"Trickle Down" economics has always been absurd on it's face. Yeah, yeah, I know, you let rich folks keep more money so they can invest it, grow their businesses, and thus employ more people. Sounds nice. Except, it turns out that they already had more than enough money to do that. So they just end up keeping it. Gosh, it's almost like that was the plan all along!

9/11/2008 3:10 PM  
Anonymous Kilfarsnar said...

Sorry about the double post!

9/11/2008 3:11 PM  
Anonymous Anonymous said...

"Without honest news, how are people supposed to make informed decisions?"

Don't you get the feeling sometimes that, that is the point. It goes against our Democracy/way of life, but keeping the people uninformed, ignorant, and fighting (divide and conquer), is probably servings someone's image of what the world should look like.

We have lots of tools/technolgy, lots of smart people, with lots of money, if someone wanted our Democracy to be sustainable, we could have some really interesting conversations on really important issues, and educate the populace.
Maybe digital TV will be the stimulus ;-)

9/11/2008 3:17 PM  
Anonymous Anonymous said...

Interesting food for thought: Lawrence Summers on Charlie Rose, "basically we have had a financial crisis every 3 years since the 80's. How do we maintain the financial flexibility but eliminate these crises.".

9/11/2008 4:37 PM  
Anonymous Anonymous said...

Told you lehman would be the exception.

9/12/2008 9:09 AM  
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