As I write, the bell is sounding at the New York Stock Exchange, officially ending the trading day on the floor. Electronic trading continues, and other trading floors in other time zones remain open.
What’s gonna blow up next?
Bear Stearns. IndyMac. A score of small and medium sized banks. Fannie and Freddie. Lehman Brothers. All gone.
The latest financial disaster was just yesterday: AIG was saved by a huge government loan that will leave the company almost 4/5 owned by the Feds. Elrod did a great job of outlining it, so I won’t linger too long. Remember, as an insurance company, AIG is obligated by state laws to have reserves to cover claims. This being the case, I actually have great confidence that the loans will be repaid. Oh, and the New Boss — Uncle Sam — is insisting that a bunch of things be sold off to make sure of it!
And that brings me to an interesting point: this is the second time in 2 weeks that we have heard a financial institution described as “too big to fail” — so big that allowing them to go out of business would have too big a negative impact on too many innocent people. The phrase was used in the Fannie/Freddie mess, and it’s back like bad lunchmeat.
Too big to fail should be the same thing as too big to exist. I mean it.
Once you discount people who have had far too much Kool-Aid, it is clear to just about everyone sane that our current economy sucks. Oil and gold are jumping again, stocks are plummeting. As a bit of a side-note, funny how fast oil slid back under $100 per barrel as Lehman collapsed! And frankly, as I read the chart, I would not be surprised by a slide under 10,000 points, perhaps to 8600. Add to that the fact that there are more than twice as many job-seekers as jobs for them, even assuming the jobs available matched the skills and needs of the people who need work.
In spite of all this, the Fed did not cut rates yesterday. They can’t! When the Fed looks at the prices we see at the pump and in the grocery store, they can’t pretend there is no inflation. And there may also be some realization that super-low rates, rates below some magic level nobody knows, only theoretically stimulate the economy. But they can’t say either of those things in public yet. Right now, they have to fall back on the idea that “if the problem with America’s financial institutions islack of liquidity, then making lending into a money-loser is not the answer.”
The deathwatch for WaMu is already underway. Remember, I expect Wells Fargo to be toast as well. I wonder if either of them is “too big to fail.”
In closing: Nihon no neko! Cute kittens, no translation required; pie chart of contributors to the budget deficit; it’s even expensive to apply to medical school; a really good item on the current state of political thinking; pro-choice is pro-life; vintage photos of geisha and maiko (apprentice geisha); someone else gives Howard Dean some love; for an American company, GM isn’t acting like it (granted, you can see Canada from their headquarters… Does that make them foriegn policy experts?); McCain blames his computer illiteracy on — wait for it! — he was a POW! If he can’t even comb his own hair, can he really run the country?; focus on the critical issues; and Happy Constitution Day.