Tuesday, February 16, 2010

The phantom stock market recovery - all that glitters is not gold

The2009/2010 stock market recovery – addiction to flashy ideas and shiny profits and how the Wall Street tycoons are getting ready to drive us over the cliff all over again.

The Dow Jones Index is over 10,000 again. Everyone is hailing the return of the stock market. Profits are up on Wall Street, bonuses are rewarding them one and all. The government points to it as signs of a strong economy, and the media tells us “all is well, go forth and shop”.

Well, pardon me but I think a piece of sky just fell in my lap. I will not make this post long and complicated because I want people to try and understand the danger we are in. I will not pepper it with my heartfelt believe that the men and women who run our nation’s finances are a bunch of uneducated, inbred idiots with talent no greater than the average car salesman. In fact, I would say that is an insult to car salesmen – these people are carnies. Whoops – seems I did slip just a little diatribe in – had to for medical reasons.

Ok, so straight to the point. When the US taxpayer, (that would be you and I, since 72% of corporations pay zero taxes), bailed out Goldman Sax and the rest of the financial “industry” we placed no meaningful conditions on the funds. We all have seen how much of the money was used to keep their absurd bonuses in place and then to fund the largest lobbying year in history. Let us take that as given. You can ignore that obscenity for now. Nor did we place any restrictions on their conduct, nor reduce their size so they could afford to fail on their own next time. (Remember this happens about every 10 years, derivatives in 2009, savings and loans in the 80s, international loans in the 60s – we used to send the marines in like when we occupied Haiti for Citicorp, but now we simply bail the banks out 100 pennies to the dollar with extra thrown in for bonuses.) No let all these giant omissions lay and assume the position for the next bailout – because it is coming and it will be caused by the very same derivatives that created the first one.

Yes, exactly, the same derivatives- note, bond and bundled nonsense. For among the numerous things we did not do is to require those firms to write off the bad debts and phony investments. We simply handed them enough money to cover all their investments and then some. They were not required to liquidate any of the fake wealth they had on their books – they simple wrote it down to a penny here a dollar there. Same thing you say, writing down the poison to pennies when it was once labeled in the thousands would seem to be the same thing. Perhaps it would, if we were a thoughtful people and they were honest managers. Neither is true of course. The truth is we are as careless as crows, blinded by the gaudiest, shiniest, piece of trash in the yard and fighting each other for the chance to pick it up – and as to bankers being honest, blog policy, common decency and my mom would prohibit me from uttering a word on that topic.

The Government did not require the banks to burn the trash and now we as a nation are gleefully picking the same rubbish up that we just so recently dropped. One cannot say exactly, but indications are a great amount of the very same financial instruments that led to the collapse are being rebundled and sold in exactly the same way as before. The first stock market collapse was created by the financial industry but it carried all firms down with it. However, during the crash, not all stocks suffered the same level of decline the overwhelming bulk of the loss was in the financial sector. Strong profitable companies with cash in the bank like Wal-Mart and Exxon suffered only minor blips, McDonalds stock actually went up. The anchors dragging the market down were the financial corporations. They suffered anywhere from 50 percent declines to total collapse. So finance led the crash, well guess who is leading the recovery?

These very same banks and pseudo banks run by the very same people who drug us into financial meltdown. Moreover, how are their stocks rising? The market is rising because the very same companies, run by the very same people, are doing business the very same way, selling the very same crap. They are repackaging the “best” of the derivatives and selling them as conservative investments. Not that they are writing off the worst of their garbage. No, no, the greatest inflow of money has been into junk bonds and hedge funds.

Have they at least learned anything? No, all the firms still owe much more than they would be worth if liquidated. Several, like Chase are back to 32 to 1 debt ratios. That would be like earning $34,000 a year and owing over a million – make sense to you? Have they reduced the dependence on tricky hocus pocus finances? No, the latest derivative Wall Street is offering is based on the finance of individual movies – want to bet the nursing home on the latest CGI blockbuster – only to discover that Nichole Kidman has been cast as the lead?

This should be funny, but I find it hard to laugh. Are we this stupid? It can be argued that the bankers are geniuses, simply concluding “hey we were too big to fail before and now we are even bigger”. It seems that banking crises always come along to siphon off any wealth the middle class may have accumulated and these crises seem to be coming closer apart so perhaps they think 2 years is enough time before coming to us for another bailout. Anything seems possible after this. We can claim some secret intelligence for them – but what is our excuse? We are walking the very same path to ruin we followed before and all we can think is “hey hey lookee there shiny! SHINY!”

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