Marion Brothers

Marion Brothers

Thursday, September 18, 2008

Economy Collapses: Every Man for Himself

By Eddie Griffin

Thursday, September 18, 2008

What in the world is going on? It’s anarchy!

Robber Barons stick up the federal piggy bank. Homeowners are being thrown out on the streets, houses being foreclosed on by mortgage companies, and mortgage companies are going bankrupt. It is a mad cycle of looting.

And, what do we do?

The government turns around and gives AIG $85 billion dollars to keep the financial markets from totally collapsing. With that same money, the government could have saved thousands of homeowners and stabilized the economy.

But no! That would have been too much like socialism. Bailing out poor homeowners would have been an unwarranted federal infringement upon the Free Market system.

So, what do we call the nationalization of AIG, Fannie Mae, and Freddie Mac?

I tell you what to call it. Call it ANARCHY.

The economy is fundamentally sound. Who said that? If the economy were fundamentally sound on yesterday, how did it suddenly become an overnight crisis? Obviously, somebody didn’t know what they were talking about.

One day chicken, next day feathers and I am supposed to believe that all was well on yesterday.

I watched at homeowners boarded up their houses and fled Hurricane Ike, hoping their homes would be safe against the storm. And, I remember some homeowners in New Orleans standing by their windows, ready to shoot any looter that came along and threatened their property. But when the mortgage companies and banker come along with eviction papers, it’s a different story. We will protect our homes to the death, but when the Robber Barons send out the constable out to do their dirty work, we capitulate like a helpless baby.

Wall Street got drunk? Who said that?

Wall Street got drunk only because King George II opened up the winery. This is what happen when drinking with friends, and the friend lets drunkard take control of the wheel.

But they also have erred through wine, and through strong drink are out of the way; the priest and the prophet have erred through strong drink, they are swallowed up of wine, they are out of the way through strong drink; they err in vision, they stumble in judgment. For all tables are full of vomit and filthiness, so that there is no place clean. (Isaiah 28:7-8)

All Tables are Full of Vomit

"All investors know they are taking a chance when buying stocks or mutual funds, but now one money market -- the safest of all stock investments -- has done something once unthinkable and actually lost money… The Reserve Fund's Primary Fund, the very first money market mutual fund ever established, had its value fall below $1 this week, thanks to investments in now-bankrupt Lehman Brothers… Falling below $1 is called “breaking the buck." ("First Stocks, Now Money Markets?" by Scott Mayerowitz, ABC NEWS Business Unit)

Drunk and Delusional

“The fundamental structure of money market funds remains sound. These funds are subject to strict regulation governing credit quality, liquidity, diversification and transparency,” the Investment Company Institute, the industry's trade association, said Wednesday.

Fundamentally sound? Where have I heard that song before? The same drunkards gulping from the keg are the same at the till.

And, that little nest egg we set aside for our retirement, or send a child to college, or weather economic hard times now has a crack in it, and the yoke of our investment is seeping out.

All I can say is: Every man for himself. In the meantime, I am locking my doors, boarding up my windows, and standing watch with my shotgun, ready for the first invader who tries to come in and take my stuff. I’m putting a sign out for the constable that says, “Warning: Bad Dog”.

UPDATE from AP Business Writers Patrick Rizzo and Jeannine Aversa

NEW YORK – Wall Street's biggest crisis since the Great Depression forced the Federal Reserve and central banks in other countries to pump billions of dollars into the world's banking system in an urgent bid to stop further damage.

The Fed plowed as much as $180 billion into money markets overseas. At home, the New York Federal Reserve acted to ease a spike in overnight lending rates by injecting $55 billion into the banking system.

Wall Street initially rallied, but it shed the gains and traded mostly lower by midday. Treasury securities and gold soared as investors fled to their relative safety.

Worries about even the safest investments intensified as Putnam Investments suddenly closed a $15 billion money-market fund after institutional investors quickly pulled out cash.

And the two remaining major Wall Street investment banks — Goldman Sachs Group Inc. and Morgan Stanley — were under siege.

President Bush canceled an out-of-town trip to stay in Washington and to huddle with Treasury Secretary Henry Paulson. Bush pledged to do all that was necessary to stem the crisis, whose fallout threatens the already fragile economy.

"The American people can be sure we will continue to act to strengthen and stabilize our financial markets and improve investor confidence," Bush said.

Republican presidential candidate John McCain said that if he were president, he would fire Securities and Exchange Commission Chairman Christopher Cox.

The move by the Fed and its overseas counterparts was aimed at boosting waning confidence and getting banks around the world to open their ever-tightening purse strings. Banks have been increasingly reluctant to lend to each other as distrust spread throughout the financial system.

A sharp rise in borrowing costs has worsened as bad bets on dodgy mortgage-backed securities claimed more Wall Street giants. The total amount of commercial paper fell by $52.1 billion for the week that ended Wednesday, as banks cut back the short-term loans companies from small garment factories to General Electric Co. depend on for their daily operations. At the same time, the interest rate on those short-term loans more than doubled, with rates for seven-day paper jumping to 4.5 percent from 2.5 percent.

Asian stocks closed lower. European shares rose, but struggled to maintain the gains.

Russia closed its stock exchanges for a second day Thursday as President Dmitry Medvedev pledged a 500 billion ruble ($20 billion) injection into financial markets to stem a dizzying plummet in share prices — and quash fears of a repeat of the country's 1998 financial collapse.

The Dow Jones industrials slipped about 25 points in whipsaw trading by early afternoon Thursday after dropping 450 points Wednesday when a Fed bailout of American International Group Inc., one of the world's largest insurers, failed to settle the markets' frayed nerves. About $700 billion in investments vanished and trading volumes set new records Wednesday.

Investors were dumping their money into 3-month Treasury bills, considered one of the safest investments around. Gold prices spiked to nearly $900 an ounce, up $45.

Demand for super-safe Treasuries surged Wednesday, sending the yield on the 3-month Treasury bill briefly into negative territory for the first time since 1940. That meant investors were willing to pay more for certain Treasury securities than they expected to get back when the investments matured, a rare event.

Putnam Investments said its board voted to close the Putnam Prime Money Market Fund effective at the close of business Wednesday. Putnam will distribute all fund assets to institutional clients. The fund had required a minimum $10 million initial investment.

Putnam says the closure is not linked to the credit quality of the fund's holdings, but is a reaction to "marketwide liquidity issues." The money manager said investors pulled out money en masse Wednesday, even though the fund has maintained a safety benchmark of holding at $1 in assets for each dollar invested.

Putnam says the fund has no exposure to the financial firms Lehman Brothers, Washington Mutual or AIG.

Worries that other financial companies could fail cast a pall on the central banks' step, however.

Morgan Stanley's stock price plunged again Thursday as the investment bank scrambled to strike a major deal or raise more cash that will reassure investors and prevent more damage to its free-falling shares.

John Mack, CEO of the bank — now one of only two large standalone investment banks — reached out to China's Citic Group overnight about a possible investment, according to a person familiar with the talks. Morgan Stanley is also considering a combination with retail bank Wachovia Corp. and an investment from Singapore Investment Corp., one of the world's biggest sovereign wealth funds, said the person, who spoke on the condition of anonymity because the discussions were still ongoing.

Goldman's stock was down nearly 15 percent to $98.40 in afternoon trading, having lost nearly 70 percent of its value in two weeks.

In Washington, the president was to meet with economic advisers, including Paulson, over much of the day. "Our financial markets continue to deal with serious challenges," Bush said. "As our recent actions demonstrate, my administration is focused on meeting these challenges."

Administration officials refused to attend a closed-door briefing with House Republicans Thursday morning, said Rep. John A. Boehner of Ohio, the GOP leader, leaving their congressional allies in the dark about recent actions to prop up insurer American International Group Inc. and whether further bailouts might be on the horizon.

Sen. Chris Dodd, D-Conn., the Banking Committee chairman, was peeved when Paulson twice canceled appearances he was to have made before the panel this week. Senators will have to wait until Tuesday to hear from the Treasury secretary and Bernanke on the financial meltdown.

A group of House GOP conservatives circulated a letter to Paulson and Bernanke calling on them to "refrain from conducting any additional government-financed bailouts for large financial firms.

Asked by lawmakers Tuesday if they could promise there would be no more government rescues of major financial institutions in the wake of the bailout for AIG, Paulson and Bernanke refused to commit, said several sources familiar with the conversation. They spoke on condition of anonymity because the meeting was private.

The Fed said it had authorized the expansion of swap lines, or reciprocal currency arrangements, with the other central banks, including amounts up to $110 billion by the ECB and up to $27 billion by the Swiss National Bank.

The Fed also said new swap facilities had been authorized with the Bank of Japan for as much as $60 billion; $40 billion for the Bank of England and $10 billion for the Bank of Canada.

All told, Fed action increased lines of cash to central banks by $180 billion to $247 billion.

For more than a year, investors around the world have watched with growing alarm as the U.S. economy, the world's largest, has struggled to right itself before being tipped over the edge by massive foreclosures, shrinking consumer spending and rising inflation.

The turmoil has swallowed some of the most storied names on Wall Street. Three of its five major investment banks — Bear Stearns, Lehman Brothers and Merrill Lynch — have either gone out of business or been driven into the arms of another bank.
After the government bailed out the insurer AIG and a money fund "broke the buck," investors were worried about the riskiness of most assets.

It was the fourth consecutive day of extraordinary turmoil for the American financial system, beginning with news on Sunday that Lehman Brothers, would be forced to file for bankruptcy.

The 4 percent drop Wednesday in the Dow reflected the stock market's first chance to digest the Fed's decision to rescue AIG with an $85 billion taxpayer loan that effectively gives it a majority stake in the company. AIG is important because it has essentially become a primary source of insurance for the entire financial industry.


  1. This is having more than a rippl effect on other economies, rather like big waves. The Russian stock market is in trouble, and Swedish economists predict a slow down here with recovery 10 years in the making.

  2. Adrianne, The magic trick now is to hide the hand that caused the house of cards to fall. I heard that one of the Brits leading financial institutions had to be purchased before it collapsed. Also notice the terms of the bailout.

    Had they helped the people whose homes went into foreclosure, the banks, insurance, and finance companies would still be solvent.

    GREED: Having your cake and eating it too.

    But Wall Street couldn't have it both ways. You can't foreclose and collect the mortgage at the same time. Missing in the thinking of all these financial geniuses was the impact of glutting the market with foreclosed properties. They expected to foreclose and re-sell, not foreclose and hold forever.

  3. This has been coming for some time, the writing has been on the wall of our economy for some time now.
    I think its a bit selfish for tax payers money to be used to bail out this mess. I personally have no stocks, bonds, or investments so why will I be put in the position to have to bail out this mess...