This post may read like 'The Bad News', and in some ways it is. I think I'm on the far side of negative about the economy because this one seems personal to me. You see, I never had a knowledgeable adult who could sit down and explain business to me. That isn't a pity plea, but rather just by way of explanation that what fiscal sense I have I gained from books, and experience later in life than a lot of people, and the more I read about it, the more apparent this particular moment in history seemed inevitable. Except anyone I talked to about it acted like I was crazy and had no idea what I was talking about. Fair enough, I probably didn't.
Now that it's happening I have this bizarre sense of vindication. I twisted part of me wants to sit back and say 'there, see I was right'. Which is, of course, just petty.
So, all that to say please excuse the negative, somewhat alarmist tone with which I write. I really don't *want* the economy to fail, but also want us as a nation to exit the other end of this situation with perspective and appropriate humility.
Ok, down to brass tacks, so it's looking like my previous bad feeling wasn't all that unfounded. The market plunged Friday, and stayed that way till about 3:15. At 3:15 Bank of America, JP Morgan, and Citigroup all jumped to precisely +10%, causing the DOW to have a late day jump.
Does this seem odd to anyone else? The DOW is an index composed of 30 of the biggest corporations in America and somebody decided to buy enough of three banks to jump their stock price to exactly +10% than it had been at the start of the day. This isn't meant to be phrased as a conspiracy theory, but it seems remarkable to me that no one in the media has addressed the cause of the late day rise. A buried quote as it was happening in the NY Times said:
However, strength appears to be concentrated among those stocks exerting the greatest influence on their index; advance-decline numbers on the NYSE show that most stocks are actually lower today
The government is negotiating the details of injecting raw cash into the markets in return for equity stake. Europe has already arrived at a plan that will do just this.
If you don't read Robert Peston's blog, start. http://www.bbc.co.uk/blogs/thereporters/robertpeston/ He's more or less the man leading up the reporting of these event's in Britain.
Whether I agree with him or not, it is relevant that some of the lines the media is feeding to the people in the UK sound like this:
It's the biggest fund-raising exercise that's ever taken place in the UK.
What it demonstrates is the weakness of Britain's banks.
And the banks that feel most humiliated by the debacle are - of course - Royal Bank of Scotland and HBOS.
But its embarrassing even for Barclays. It didn't want to raise more than £3bn but it has has been pressurised by the Treasury, Bank of England and FSA to raise nearer £7bn.
This is history in the making.
Right. Its embarrassing and humiliating, in England. Where is this tenor in America? Who is apologizing to the American people for the most devastating fiscal situation in a generation!. I just want SOMEBODY to say that they are sorry. That this is indeed, not everyone's fault. It is the fault of a repeated failure of our legislature to introduce and pass regulatory bills that a five year old could see were needed. It is similarly the fault of the Banking institution that not only saw the fragility of credit default swaps, it exploited it for short term gain. There is blame to be had, and it lies at the feet of the people whose job it was to prevent this, and not at the feet of people being sold sub prime mortgages.
Yes. I said it. The people who were victims of sub prime mortgages are idiots, but by and large they are ignorant idiots. The people who sold them those mortgages were looking for an easy mark. The question in this evaluation is intent.
Also from Peston:
By the way, there's also been something of a breakthrough in Paris, at the meeting of the eurozone heads of government hastily arranged by President Sarkozy. If financial institutions aren't reassured by their pledge to guarantee interbank lending for five years, well then we're in the kind of mess that's simply not amenable to government solutions.
Whoa! What the hell was that last sentence?!? Let's look closer at that:
If financial institutions aren't reassured by their pledge to guarantee interbank lending for five years, well then we're in the kind of mess that's simply not amenable to government solutions.
This is the first I've seen someone raise the very real possibility that we all may be screwed. I can say I've been wondering when someone would. Here's an interesting interactive graphic from the NY Times http://www.nytimes.com/interactive/2008/10/11/business/20081011_BEAR_MAR...
By comparison things have dropped further, faster than any other bear market in history. At this point the only question is how long it persists. If things go well then Monday morning markets raise across Europe with the cash injection and this thing bellies out. If that doesn't happen we are looking at a situation the governments realy can't control, with any amount of money.
Cheerful.
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