My Last Name Means Money

Last Friday the House of Representatives went against my advice and not only did they pass a bank bailout bill, they did so from a trickle down perspective, which has been proven over and over to be a faulty money distribution system. Instead of providing homeowners relief from the massive tide of foreclosures, the federal government instead chose to hand over hundreds of billions of taxpayer dollars to the very banks responsible for causing this credit freeze.

Do not worry though, faithful taxpayer. President Bush reassured everyone that the bailout will work, though it will take time to re-grease the gears of the economy, going so far as to emphasize “that the program must be effectively designed and not rushed into action.” Keep in mind, this is the same President Bush who just last week urged swift action to push the bailout through. Apparently, we now have more time.

Meanwhile Barney Frank, head comrade in charge of the bailout bill, continues the double speak of comrade Bush and rails against the free market. He believes the free market is to blame, unfortunately for Frank, that is only half true. Sure, the greed of the market helped create this credit crisis, however the marketplace was enabled by the government’s push for homeownership, and the lax eye of the SEC and its loosening of existing regulations. If anything, Frank should be lambasting the SEC for allowing firms to provide oversight on themselves. If left to their own devices, of course firms will take ever exceedingly dangerous risks to pursue profit, it is literally their life goal to do so. To blame firms for pursuing profit is like blaming a child for going after candy. It is irresponsible and shows Frank’s poor understanding of our economy.

Increasingly, Mr Money believes the global credit crisis is being purposely manipulated by the government to decrease bank values in order to allow the federal government cheaper acquisition prices and make consolidating economic power under the federal government easier. The Boston Globe reports:

The Treasury Department is considering taking ownership stakes in many United States banks after emergency interest rate cuts by the Federal Reserve and central banks around the world yesterday failed to end a global panic in financial markets.

Pretty soon the U.S. economy will resemble the one in Iceland, where every bank is now under government control. The unfortunate truth is that more banks will fail. Despite the bailout, or perhaps more correctly put, inspired by the bailout more banks will fail next year. We’ve created an economy where banks are rewarded for failing and we should thus expect more banks to fail. The bailout simply delays failure and magnifies its effect on the economy via hyper-inflation. Mr. Money can’t wait until President Obama is blaming the huge crisis to come on Bush and company, even though Obama was at the same table as Bush and McCain and promoted this bailout as much as any other corrupt politician.

Allison describes the Federal Reserve as the Third Bank of the United States, however unlike previous central banks, this one does not use sound money to back its currency, thus leading to our over-inflated and under capitalized economy. The first step of righting this ship is to promote sound monetary policy and to reign in the excess of our current fiat currency. The refusal of Bush, Obama, McCain and their comrades in congress to end the Federal Reserve and set our country’s currency right shows their true colors.

We have not seen the credit markets become unclogged, as the politicians promised they would, rather banks continue to hoard cash and assets as they’re still afraid of market valuations. The Federal Reserve is now sending out $900 billion in loans to the petrified banks in an attempt to open up the credit lines. Our consumer credit based economy is literally fading away as the credit dries up. Why the government does not simply begin sidestepping the banks and loaning out money on its own is anyone’s guess. Perhaps it’s just too logical of a move for this cowboy government.

Faithful readers of my personal blog will know I’m no fan of President Bush and his unique brand of economics, but I’m optimistic that there is hope yet for this economy. Why is that? Well, the very corporations who so desperately needed a bailout to stay afloat are now having second thoughts. That’s right, the corrupt corporations may save us all from the corrupt congressmen, for once. Apparently, many bank CEOs are scared to accept the newly approved bailout because they do not want to forego their massive bonuses and restrict their salaries. James Doran of The Observer writes:

Sources close to Goldman Sachs and Merrill Lynch indicated the banks might choose not to participate in the bail-out as there is a growing view on Wall Street that the market may be bottoming out.

Two weeks ago we were on the brink of economic apocalypse but everything is OK now! Mr. Money does not like these shenanigans and considers it further proof that CEOs should never earn as much as they do, for they simply cannot have a big enough positive impact on their firms to justify their extravagant salaries. Popular sentiment amongst Fortune 500 CEO’s might ride against Mr. Money, but academia and common sense is on his side. Most of the time, removing leaders from the equation will only serve to strengthen the group and improve the quality of work!

In other Federal Reserve news, the pseudo government agency is now planning on buying up unsecured short-term debt in order to prod companies into lending commercial paper again. Mr. Money mentioned last week that the bailout bill was a slippery slope and we’re already tumbling down that slope as the Fed tries to buy anything and everything in sight in order to squeeze a little bit of credit out of the economy. Again, why not supply the credit directly?

Many economists now think we’re already in a recession or will be in one by year end. Mr. Money is on the side that believes we’re already in a recession, as he’s seen steady decreases in consumer confidence and spending over the past months, which is bad news for a U.S. economy heavily dependent on consumption. Even amongst my friends and family, the tightening wallets are in plain sight. Overall, a decrease in consumption, if accompanied by an increase in savings (which is not certain due to the risk of hyper-inflation), will lead to a stronger economy than the one we’re presently mucking about in.

Speaking of getting stronger, it seems the American public is now taking matters into their own hands. Numerous sources are reporting that former Lehman Brothers CEO Richard Fuld was punched in the face while working out at a Lehman Brothers gym after the bankruptcy news broke. Apparently Fuld was on a treadmill when an individual put down his weights, walked over and knocked Fuld out cold.

Speaking of getting knocked out (are you loving these segues?), over the weekend our national debt grew to such epic proportions that the national debt clock in New York City could no longer handle the massive number. Two digits are being added to the clock to accommodate the ever expanding federal debt.

As I said Friday, bailouts beget bailouts and AIG is racing to prove me correct, as it already spent $61 billion of its $85 billion federal loan, without selling a single distressed asset. AIG will no doubt soon be back before the federal government asking for another dose of taxpayer funded handouts.

While we’re talking about AIG, did you hear top executives at the failing firm went on a week long company paid retreat. The Business Sheet tries to justify the luxurious paid vacation by pointing out these executives need a break from their bruised and battered business.

Worse yet, AIG plans another getaway at a $400 a night hotel and instead of cutting back on spending actually considered running an ad campaign to explain why they were having these lavish retreats. No, I’m not kidding, AZcentral writes:

AIG considered buying advertisements to explain its position, only to be told by its public-relations consultant, George Sard, that it would be “a really bad idea.”

See how incompetent some of these top executives are and why their companies would run smoother without them? The idea of Michael from the TV show The Office immediately springs to mind. The good news is that AIG decided to cancel the second retreat, though only through fear of the huge public outlash that would have occurred, not because it made financial sense (which it did).

In completely unrelated news, it’s time to “tone things down”, according to the Boston Globe. For financial executives who are used to casually shopping for “$18,000 watches and $90,000 BMWs”, a return to conservative money practices will be needed. Let’s all feel bad for the super-rich for just a moment.

Moving on.

The Boston Globe also reports businesses are spending less and saying no to new purchases. Mr Money believes it’s about time everyone, consumers and businesses took a look at their spending habits and realized that credit consumption is dangerous. Unfortunately, we live in a debt based economy, where saving is not rewarded either.

CNN reports that 80% of Americans are reporting stress due to the economy. Who would have known that economic apocalypse could be so stressful? Oddly enough that leaves 20% of Americans who are not stressed out. I imagine these are the top and bottom 10% in terms of income. If you’re already at rock bottom, nothing seems worse than your current spot, and if you’re literally swimming in dollars, you probably could care less that hyper-inflation is right around the corner.

Perhaps we should stop stressing and learn to embrace these gloomy economic times, as the New York Times found out that our health actually improves during economic downturns. Apparently, as economies decline more and more citizens spend time doing healthy things like cooking their own food, exercising, and taking their kids to the doctor instead of working and eating out.

So not working so hard can be good for your health and Ron Paul argues, Congress doing nothing would have been great for our economy too. In his weekly column, Dr. Paul, states that:

Sometimes doing nothing is much better than thrashing about aimlessly. When one is caught in quicksand, for example, or when one doesn’t understand economics and finds oneself in the position Congress was in for the past two weeks, with decades of irresponsible monetary policy coming to a head. Why should we trust the same people who said just a few months ago that the economy was perfectly sound?

Thank you congressmen Paul for being a voice of reason during this chaotic time. If only our government listened to the great economic mind we have working for us we’d be multitudes better off than we are now.

On the other side of the spectrum, we have the bumbling, clue-less Barney Frank running around coercing his fellow congressmen into the fleecing of America. Not satisfied with throwing $810 billion at the banks in an attempt to coerce them to lend money, Frank looks forward to see if there are any other places he can throw billions of dollars and tons of regulations in an attempt to fix problems. At issue here is that the federal government encouraged banks to violate sound business practice and lend money to risky people. Of course a lot of those loans were going to fail, and regulations actually created the issue. Sure, regulations could be used in other parts of the industry to ensure we are not over leveraging assets, as we currently are but regulations and money are not the catch all solutions that Frank believes they are.

Though home prices are dropping in nearly all parts of the United States of America, here in Boston they’re still sky high and don’t seem to be dropping anytime soon. Boston is slightly unique though, in that it is a tiny city physically with a large population and very well educated workforce. Our specialties in technology, health care, and education seem well primed to ride the city through most economic downturns, though a severe depression would obviously impact everyone negatively. Ira Jackson of the Boston Globe sums up this notion nicely:

Or maybe Boston is best explained as motive combined with opportunity: the need to constantly innovate, invent, and reinvent has long been tied in Boston to resources (both intellectual and financial) and a community that exists largely to nurture and protect that powerful combination.

Peter Drucker, the father of modern management, was the first to understand that we live in a knowledge economy. Drucker might have seen Boston today as the equivalent of a factory of the future, where smart people use their minds, fueled by investors who match ideas with market needs, producing green, clean, and sustainable products for the world.

Hopefully Boston can lead the way into an economy of the future, where we rely on local, environmentally friendly energy to power our homes, cites and transportation.

Now, after passing an $810 billion bailout bill, Congress decides to hold hearings on the financial crisis. It seems odd for Congress to even waste time holding these hearings, after already passing the bill. Perhaps they’ll decide that the overwhelming majority of Americans are right after all and this bill should be rescinded. Doubtful put certainly possible.

As the mainstream media continues to be outed for their sheer incompetence by those they once mocked, take a look at this article by The Register, in which Cade Metz writes about Overstock.com CEO Patrick Byrne who we repeatedly tried to warn us that naked short selling, amongst other over-leveraged stock schemes would lead us to economic ruin.

As I’ve written about on my personal blog, AIG is a corrupt corporation. Congress is now looking into AIG’s part in the the global credit crisis. It truly boggles the rational non-conspiracy focused mind as to why we’re holding these hearings and investigations after lending these corporations billions of taxpayer dollars.

A great article on how the federal government essentially encouraged the current credit crisis to occur. Essentially the government forced Fannie Mae and Freddie Mac to give out ever increasing percentages of their mortgages to low income individuals with doubtful payment potential. As Fannie Mae and Freddie Mac pawned these mortgages off on other banks, we ended up in our current crisis where a ton of banks hold liabilities with little chance of payment.

Next up on the crisis plate will be overwhelming energy demand taxing our aging infrastructure. It’d be great if our government invested in reducing our demand on foreign energy while taking the heat of the environment, but instead we throw the big banks a bone. As the BBC writes, our environment and the heavy damage it is taking right now makes this economic crisis seems insignificant. According to a study paid for by the European Union, the loss of forests worldwide is costing us between $2 to $5 trillion a year. The number is derived via economists who studied how much it would cost to implement the good benefits of forests on our own. The number is startling and further shows why we need to stop wasting money supporting failing businesses.

At least the bailout bill did take a small step towards righting our economy and environment, by including a $20 monthly tax credit for employers per each employee who rides a bicycle to work. It’s not a big credit, and it certainly isn’t going to motivate employees nor employers to switch their whole workforce to bicycle transportation, but it’s a step in the right direction. We need to snap our oil dependence and find new or, as is the case here, old ways of moving ourselves that does not involve fossil fuels.

Next week we’ll discuss a few tips on what items to buy now before hyper-inflation sets in. Enjoy the weekend everyone and please do not panic, Mr. Money will help you ride out these tough economic times so remember to subscribe to the Money feed to stay updated.