Tuesday, September 30, 2008

Let's not lose our sense of humor....

Thanks to Fiona for the this rather humorous explanation of the economic situation from Australia. Sorry, it wouldn't embed, so click the link and enjoy!

Monday, September 29, 2008

Black Monday

Black Monday......That's what your kids will be calling today in future history classes....that is if there are still schools in the future.

Maybe a better word for it would be "Financial 9/11", as Congress just committed an act of terrorism on the world economy. It will be far more damaging to the country than 9/11 (except for the fact that 9/11 probably got w re-elected, which was also a tragedy), but this time we were done in by a self-centered, leaderless Congress, a Congress that showed America whose jobs they really care about.....THEIR OWN!!!! This attack was preventable by it's perpetrators.

Frightened of losing their jobs because most Americans think that Congress was voting on a big handout to rich traders, Congress voted to do the easy thing instead of show leadership and have the courage to explain to voters why today's bill was important to them. And what will they do next week when the same voters they were pandering are unemployed because their employer lost access to credit? Pander again, no doubt. Blame Wall Street. Blame the other party. But vote for me, because I listen to the stupidest people in my district!

NO, you won't see any leadership from the "no" voters, no attempt to be rational. Just pandering to the lowest emotions. These guys are now just as culpable in the upcoming economic disaster as the scumbags who created the problem.

I had the same feeling watching the events of today that I had just a bit over 7 years ago as I watched the Towers fall: this is so bad that it is going to change everything for the worse. Unfortunately, I was right then. I sure hope I'm wrong this time.

That party on Wall Street

A couple months ago Bush was caught on video off-the-record saying Wall Street had a party and now they have a hangover. Last week one of my students asked why we had to suffer the hangover. My reply was that while w's analogy (would w understand that word?) was apt when he made it, now it is more like they had a party and puked all over the house we all live in, and we have the choice of cleaning it up or living in vomit.

This morning it strikes me that it is more like Wall Street came to a party at our house, puked all over, and set the house on fire.....and we damn well better get the fire out fast!

On a brighter note, the weather here in CO has been fantastic this September, the leaves are changing and it is beautiful, the Buffalo Bills are 4-0, the Yankees and Mets both missed the playoffs, the Cowboys lost at home yesterday..........heck, other than the destruction of the world economy, it's been a great month!!!

By the way, yesterday I was watching the Bills at The Lazy Dog, a sports bar managed by a Bills fan. During half-time there was a drawing for prizes. First prize was a Budwiser T-shirt. Second prize was an investment bank.

Sunday, September 28, 2008

Thoughts for today

With the financial turmoil apparently resulting in a deal this morning in Congress, maybe it's time to enjoy this short column by Tom Wolfe, author of the fantastic book "Bonfire of the Vanities", about the current status of the Masters of the Universe.

On a sadder note, I will be watching "Slap Shot" this evening, in tribute to the late great Paul Newman. Newman, Russert, Carlin.....it's been a bad year for great and classy guys. I guess all of us no-talent scumbags can feel safe.

Friday, September 26, 2008

Why we need action.....

The headline of the NYT story is the main reason Congress needs to make a deal today! Without credit, our economy will stop working!

The Faith Based Economy

The story in the WSJ about WAMU's takeover states that the bank had lost $16.7B in deposits in recent weeks. Most of that money was likely not at risk because of the FDIC, but depositors lost faith and took out their money anyway. This is why Congress needs to act now to pass a program that makes sense to Joe Public. Loss of faith in the financial system is what made the Great Depression great, a mistake we can't afford to repeat. That is why the FDIC and the SEC were invented in the 30's, to restore faith in the system and allow credit markets to work again.

Thursday, September 25, 2008

The Bailout....choosing the lesser of 2 evils.

One of my students asked yesterday what "we" would get out of this bailout. A good question. And I think the problem many people are having is understanding how the pain in doing nothing may be worse than the pain of that huge $700B price tag, and that it is not just a gift to the rich.

We are stuck in a situation where we have to choose between and expensive bailout, or running the risk of another depression. Most of us don't like the idea of bailing out a Wall Street that got high on risk and leverage, and now is making us clean up its mess. However, I think many fail to see how important the financial markets are to the whole economy, in other words, our jobs, homes, student loans. The availability of credit is vital to all of these things.

Certainly, the original package that was proposed was seriously flawed. First, it was a classic of the Bush Admin...."give us all the power and trust us". It included a clause that the Sec. of Treasury would have absolute power and no oversight. We've seen how well giving the Bushies this kind of power has worked out, how they squandered out money in Iraq and after Katrina on no-bid contracts with cronies who had no idea or experience doing the job. So there has to be some checks and balances on what is going on.

Secondly, we have to make sure that there is an upside for our risk, that these bad debts are not bought at a too generous price. The taxpayers either need to get equity, as with the AIG bailouts, or make sure these securities are priced where there is an upside. Also, the guys in charge of making this mess have to lose their jobs, and without giant severance packages. It looks like something is going to be done in that regard, as even Bush has now agreed to limits on executive pay.

Finally, financial regulation needs to be modernized. This problem is not in the regular banking industry, which is regulated in the risks it takes. If other institutions are able to put us in a situation where we HAVE to save them, then we need to have oversight on this institutions. And that regulation should include stiff penalties for those who violate the rules.....I'm talking about jail time for anyone who runs an organization that needs government help!

I told the student that what he will get is the likelihood there will be jobs for him when he graduates, mortgage money when he wants to buy a house, or money to borrow if he wants to start a business. Without working credit markets, and faith in our financial system restored, all that is threatened.

Sure, we all hate the guys who caused this, and that includes the people who were supposed to be watching the store. As part of this deal, all the big time execs on Wall Street, and the regulators who didn't regulate, should be put in stockades and pelted with rotten tomatoes....that would make me feel better. But to do nothing and let the economy collapse would cause us way more pain in the long run.

Sunday, September 21, 2008

The Big Picture

One of the best services a blog can provide to readers ( or in the case of The Tall Thin Guy, reader) is to point out good places to find info. Thus the various links on the right. So, in these bizarro economic times, may I introduce you to The Big Picture.

Manchester United......AMERICA'S TEAM!!!!

Like all good American sports fans, I was watching the Manchester United-Chelsea football match this morning on Fox Soccer Channel, and I noticed who Man U's big sponsor is: AIG. Since we American taxpayers are now the owners of AIG, I say GO MAN U!!!!

Thursday, September 18, 2008

Problems explained

For an excellent explanation of what the current mess is about, visit the Freakonomics blog and look for today's posting.

I'm really popular at school this week....

Suddenly, being the Economics teacher makes me the popular guy at school! Yesterday, I left the house with 1 hour left in the trading day and the Dow down less than 200. When I got to school an hour later ( I ride my bike 16 miles to get there!) turned on the computer, my cry of "Holy Shit!" turned some heads. Next thing you know, I'm late for my class because everyone wants to ask me if the end of the world is coming (I don't think it is, but we are going to have a rough couple of years).

Clearly, a credit crisis threatens our whole economy, which is why the Fed and Treasury are trying to shore it up. The dilemma is that the people who screwed this up should surely be made to pay, but we may have to bail them out to keep the rest of the economy from collapsing. Better a couple hundred billion in bailouts now than another Great Depression.

That is the other question people are asking me: are we headed for another depression. First, many who ask have no idea how dire things were then. Unemployment of 25% (6.1% not), a 25% drop in real GDP from 1929 to 1933 (We aren't even technically in a recession yet!), 25% drop in CPI (we just had a slight drop in august) caused by the Fed allowing the money supply to shrink ( no way Helicopter Ben, student of the Depression, is going to allow that). Also, back then there were none of the safety mechanisms, like the FDIC, that exist today, most of which were started as a result of the Depression. So, NO, we are not going to slide that far.

But, if we didn't have those "faith keeping" institutions like the FDIC, we could. During the Depression, when real estate values plummeted, folks walked away from the from, stuck the bank with the property, which took down the bank and all it's depositors, which caused a run on the banks and a lack of any money for capital expansion. This time, the damage so far is mostly on Wall Street, where there has been a bit of a run on the investment banks, which is what has closed them, but ordinary people are not lining up to get their money out of the bank before it goes under.

I think we are headed for a few bad years as this works it's way through the economy. But remember, we got whacked double this year: The financial crisis, and a big leap in fuel prices, and most of us are still working and driving around. The world economy will slow for a while, but you can't sustain the type of growth the world has undergone for the past 10 years without a pullback.

Thursday, September 4, 2008

Can someone explain to me.....

.....what the hell the Microsoft commercial with Jerry Seinfeld that I just saw is about? I don't get it at all. I thought they were selling shoes.

No wonder Google is kicking their ass!

Tuesday, September 2, 2008

The market v the pollsters

Most of the polls had Obama and McCain in almost a dead heat before the DNC, with Obama getting a bounce from the convention that McCain should get back from the RNC (unless his ridiculous pick of Sarah Palin blows up in his face). However, it is fun to check out what the traders at Intrade think. This is a site where traders trade futures on events. You can currently trade on things like how hard the next hurricane hits and where, whether Palin makes it through the week as VP nominee, whether the US will attack Iran, and a whole bunch of other stuff, including the presidential race.

The traders still have Obama at a 61% chance of winning, with not much movement from the convention, or from the Palin choice. In fact, he is at about the average of where he has been all of August.

This doesn't mean that he will win for sure, but it seems to conflict a bit with numbers the pollsters are putting up.