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Saturday, January 15, 2011

A Look Back

I wrote and posted this article at the end of 2008.  It is interesting to look back at it as we enter 2011 - 2 years later - and see how far we have really come.  Remember, at the time we were still being told that we were not in a serious recession and that the outlook for 2009 was good. 

Economic Crisis Continues and Worsens 

As we close out 2008 and embark on our journey through 2009 we need to evaluate what has been and where we are headed.  A look at some recent economic news – while not positive – the knowledge may help us through our journey.  We know for a fact that this is the worst economic crisis to hit our country since the Great Depression and could perhaps be even worse.  We are all in a survival mode and to survive we need the facts.

The New York Times on January 14th reported, in an article written by Jack Healy,   Stocks Tumble on Retail Sales Slump”.  Here are some excerpts from this article.
The government reported on Wednesday that retail sales fell for a sixth consecutive month in December…..
Sales at department stores, restaurants, gas stations and a host of other retail businesses fell 2.7 percent last month — nearly double what economists had been expecting — and were 9.8 percent lower than sales last December, the Commerce Department reported.
The new retail numbers offered an epitaph for what economists and retailers called the worst holiday shopping season in decades:…
The article said consumers have “holstered” their credit cards implying that many prudently withheld purchases.  I believe the truth of the matter is that the credit card companies “holstered” their credit by freezing, lowering or closing consumer accounts of the average consumer.  However, there are those that still do have cash purchasing power that did prudently withhold purchasing.
“People hunkered down pretty dramatically,” said John Silvia, chief economist at Wachovia. “Yes, everybody celebrated the holidays, but there was far less spending than in prior years.”
Consumer spending, which accounts for more than two-thirds of the economy, has slowed sharply since mid-September as the problems on Wall Street began to spread. With the uncertainty of jobs weighing on consumers, economists do not expect a turnaround anytime soon.
If “more then two-thirds of the economy” is in consumer spending then it appears that the economists not expecting a turnaround anytime soon is accurate.  This being the case then we all need to prepare for the long haul.  It is going to be a rough ride.
The Fed’s beige book, a regular survey of businesses around the country that was released Wednesday, indicated that the economic slump worsened in December.

This is certainly an understatement.

“Overall economic activity continued to weaken across almost all of the Federal Reserve districts since the previous reporting period.” the report added.

And the months ahead will be difficult……

It is a valid warning to all of us.  This is the reality of our current economic crisis.  With so many other factors involved – it is prudent to be aware.

Links to other business headlines in the New York Times  

·                        Rescue of Banks Hints at Nationalization
·                        Stocks Fall Again After a Hopeful Start
·                        Prices Rose Just 0.1 Percent Last Year


By ERIC DASH - New York Times
Published: January 16, 2009

This headline comes as no surprise to me.  What is surprising however is that our initial bailout program along with almost $350 billion was to shore up our financial industry.  It was meant to “rescue” these behemoth banks and begin to restore our economy.  What it did instead was to allow banks like this to buy other failing financial institutions, a concept I never could grasp.  How does buying a failing business by another failing business serve to create a profitable one?  My grade school math taught me that two negatives never make a positive.  Obviously not the same math used by our government or the banks.  Math supposedly is a universal language but there must be another universe with an entirely different set of rules.

Let’s look at some of what the article had to say.  For the full story click the link above.

Citigroup capped a devastating 2008 with an $8.29 billion fourth-quarter loss on Friday, as the company comes under mounting pressure from regulators to rethink its financial supermarket model and shrink itself.

Skip to next paragraphWith nearly every part of the company suffering a huge blow,…..

Continuing losses being generated while the taxpayer continues to shovel money into institutions like Citigroup. You have to remember here that they got the TARP funds with additional funds to follow.  In addition, we are absorbing much of their loss.    

One good sign reported by Forbes.com, In the headlines this afternoon, the U.S. Federal Reserve has barred Citigroup from making new acquisitions until it cleans up its act”. 

The article further went on to say, “A slew of regulatory violations and scandals in the U.S. and abroad have mired the financial giant's reputation,…” .

You must wonder why we are supporting and funding billions of dollars to a company that has “a slew of regulatory violations and scandals….”.  Why are the taxpayers paying for these improprieties allowing the executives to continue earning “behemoth” incomes?

By LOUISE STORY, ERIC DASH and ANDREW ROSS SORKIN - New York Times
Published: January 16, 2009

Hours after receiving another government lifeline, Bank of America posted a fourth-quarter loss of $1.79 billion on Friday, down from net income of $268 million a year earlier, in a reversal caused largely by growing consumer loan losses.

Skip to next paragraph And bigger troubles came from Merrill Lynch, which Bank of America hastily snapped up in September for $50 billion. A fresh round of write-downs at Merrill pushed that firm into a $15.3 billion loss for the fourth quarter. That was the firm’s sixth troubled quarter since the credit crisis began. Merrill was among the most aggressive — and most harmed — by mortgage investments.

Merrill’s results for the fourth quarter are not a part of Bank of America’s. The merger of the two banks closed on Jan. 1….

“Hours after receiving another government lifeline”!  Not a good sign.  Not only does it bring into question our bailout program and the billions of dollars the tax payer will be paying back for generations, but it brings into question the solvency of our biggest financial institutions.  With all the money being thrown at them – they are still sinking – which indicates that our economy is still sinking, perhaps quicker and deeper then we think.

Now, listen to this as the article continues,

In a conference call Friday morning, analysts asked Kenneth D. Lewis, the bank’s chairman, whether he had regrets that he had agreed to purchase Merrill.

Mr. Lewis said that as Merrill’s fourth-quarter losses mounted, he did re-evaluate whether he should close the deal and whether he could renegotiate the price for Merrill. But, he said, regulators implored him to complete the transaction and said they would provide support.

“The government was firmly of the view that terminating or delaying the closing of the transaction could lead to significant concerns and could result in significant systemic concerns,” Mr. Lewis said. “We did think we were doing the right thing for the country.”

It is shocking to hear that “regulators”, our government, “implored him” to complete the transaction.  It is even more shocking and disturbing to hear that “they”, the government –us the taxpayer – would provide support

I am outraged by this.  Bank of America, who loans money and made mortgages to illegal aliens – the only lender to do so – and has credit card interest rates well in the thirty plus percent range, preying on the American public but being supported by, funded by, enlarged by and sustained by the Federal Government.  There should be a public outcry over this as THIS JUST IS NOT RIGHT!

But that’s not all; listen to what Mr. Lewis says:

“This company will generate huge amounts of profit when we get a normal economic environment, not even a great one but a normal one, and so it’s almost directly related to how fast you think the economy will come back,”  

In other words, as long as we continue to support him and keep his bank in business, eventually the company will eventually become profitable – meaning just that much more money in terms of income and bonuses for him.  Why should we be supporting two failing companies, funding their losses, just to keep them in business?  I JUST DON’T GET IT!

But it gets even more outrageous;

In the conference call, Bank of America executives also discussed the government assistance that was announced overnight to help them complete the merger with Merrill.

Two weeks after closing its purchase of Merrill Lynch at the urging of federal regulators, the government cemented a deal at midnight Thursday  to supply Bank of America with a fresh $20 billion capital injection and absorb as much as $98.2 billion in losses on toxic assets, according to people involved in the transaction.

More midnight – after hours – deal making by our government, or shall I say midnight robberies of the public.

It gets even more upsetting when the article continues;

The bank had been pressing the government for help after it was surprised to learn that Merrill would be taking a fourth-quarter write-down of $15 billion to $20 billion, according to two people who have been briefed on the situation, in addition to Bank of America’s rising consumer loan losses.

The second lifeline brings the government’s total stake in Bank of America to $45 billion and makes it the bank’s largest shareholder, with a stake of about 6 percent.

Federal regulators – and I would like to know who they are, their names and positions in our government – were quoted as saying;

“The U.S. government will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks,”  

Imagine if all of us could play high stakes poker and corporate monopoly with virtually unlimited funds – we would all be rich and the economic crisis would be over.  It doesn’t matter how long you lose, eventually with a bottomless pot of money you will begin to win.  So it appears that our government is funding one of the biggest gambling games ever. 

Mr. Lewis had earned a reputation for taking big bets that helped transform NationsBank, a small lender, into a consumer powerhouse with bicoastal branches — and was often accused of overpaying. It snapped up Bank of America and took on its name, then followed with flashy deals for FleetBoston Financial in 2003 and then the credit card giant MBNA in 2006. That was followed by US Trust and LaSalle Bank of Chicago a year later.

Last year, Mr. Lewis’s bank also bought Countrywide Financial Corporation, the troubled mortgage giant that has come to symbolize many of the excesses of the subprime mortgage era. That made Bank of America the biggest player in every major financial service but wealth advice.

Failing companies buying other failing companies – again, the math and logic does not work or maybe it does.  Add one failing company to another you get a bigger failing company.  Add to that yet another failing company and you get and even bigger failed company.  Do that enough times and the government says you are now to big to fail so we will support you with debt that our grandchildren’s children can not repay.  All this for the financial benefit of a very few with no benefit to the public at large.  No Mr. Lewis, you are not doing this for “the country”, you are very definitely doing this for yourself with the help of “the country”.  By the way, that’s me – the public - and I object!

After Bank of America told regulators in December that it might walk away from Merrill because of mounting losses at the brokerage, government officials said they decided they needed to take immediate action to avert a systemic risk.

The systemic risk is allowing mismanaged corporations led by greedy, headstrong and obviously incompetent people to continue this debacle.

Still, the Merrill deal has not been any easy deal for Mr. Lewis to digest. “He made a bet,” said Brad Hintz, an analyst with Sanford C. Bernstein & Company.

He made a bet with our money and the blessing of our government - which seems to only work for the few and continues to worsen this crisis.
Let’s not forget that Merrill Lynch, the failed Wall Street firm was one of the root causes of this crisis.  They were at the forefront of the mortgage meltdown.  They were the innovators, creators and dealers of all the toxic mortgage loan programs and securities that made them billions of dollars.  Question is, where did all that money go if they are on the verge of bankruptcy?    Not even the government has asked that question nor investigated their books.  Hmmmm.

Yes, the betting and gambling all are being done with “our” money which the Fed can print at will.  For every dollar they print, it is another dollar plus interest that we owe to this “other Private Company”.  If gambling with our money is truly the case, and it appears as it is, then is it not a safer bet for that money to be given or made available to you and me and our neighbors?  Would not that money on the street immediately turn the crisis around and put the economy on solid footing?  Of course it would. 

What is missing in this crisis is “money on the street”, not more credit or debt but actual cash – that same cash that comes out of thin air for Citigroup, Bank of America, J. P. Morgan Chase, Merrill Lynch, Bear Stearns and all of their respective executives (sorry Lehman Brothers, you obviously made someone angry so they threw you out of the game).

We are continuing steadily on a road to total economic destruction.  There are no signs of improvement.  The Federal financial experiment is failing as we, real people, are having our lives destroyed.

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