Monday, March 24, 2008

I Want to Believe.

The powers that be have made their gambit to save the economy, and they have really put it on the line this time. The Fed, for example, is accepting collateral it has never before accepted, and when one looks closely at the deals they have engineered of late, i.e. Bear Stearns being sold to JPM, it is clear that the Fed are not so much loaning money as effectively giving it away. The stock market has responded to the the Fed's moves and talk of government purchases of distressed mortgages by moving furiously higher, and a substantial number now believe that happy days are just around the corner.

Perhaps, but recall that in order for the U.S. economy to thrive, consumers must spend. Will they? Can they? Will the drastic measures by the Fed to salvage the banking system translate into meaningful economic activity that will provide ballast for Joe and Jane consumer? Where will the jobs and income growth come from at this point to ease debt burdens and provide extra money to buy, buy, buy? Because that is what must happen going forward. American's willingness to borrow, let alone access to credit is not going to be restored to anything like what is was not so long ago, and that is what allowed, among other things, the present desperate situation to occur in the first place. Obviously we don't want to return to that state of affairs, which means a much more healthy set of conditions must emerge to pick up the slack.

I, for one, don't see what has transpired over the last few days and weeks as changing anything fundamentally for the consumer, and so this rally, spirited though it may seem, will be a gossamer affair. Make no mistake, I want to believe the happy talk crowd, but unfortunately I believe they are engaging in a heaping helping of wishful thinking.

Thursday, March 20, 2008

Less is More.

Barack Obama's presidential hopes have, at least to this viewer, entered the dustbin of history. Whether the voting public, who only nominally decide elections, have genuinely become disenchanted with Obama because they did not approve of Obama's response to his pastor's infamous sermon, or, if the outcome of the latest contretemps is nothing but a sort of self fulfilling prophecy caused by a chorus of pundits who have vehemently declared Obama finished, is quite beside the point. The latest poll numbers are clear, and they are decidely negative for Barack Obama' prospects going forward.

The unfortunate resolution is just one more bit of evidence that the election season is far too long. Besides the dreadful waste of money devoted to these seemingly endless and mostly empty campaigns, embarrassing and career destroying phenomenon come to dominate and overwhelm the proceedings. Great theatre if you like that sort of thing, but I prefer it on stage or at the cinema. The entire election process has been, for quite some time, for a whole host of reasons, somewhat bizarre, but now it bears a certain resemblance to a particularly bad day at a Nascar event where a multitude of drivers end up some combination of scorched, supine and semiconscious. We've already had several "accidents" occur in both the HRC and Obama camps, and had the Republican race lasted as long, or been anywhere nearly as closely contested, they too would have tarred and feathered each other to everyone's detriment.

I suspect the synergy of a far too lengthy nominating process coupled with the chronic necessity of the electronic media to find and stoke contentiousness, is what creates the perfect environment for personal debacles. And so, as fate would have it, this election season has ineluctably become nothing but a war of attrition, a case of who can best cope with the numerous and inevitable hand grenades that explode underfoot. The sort of treacherousness I describe is not altogether new, but now that election seasons are longer than ever, this central fact of U.S. presidential campaigns looms larger than before. As such, it is very difficult to not feel that where U.S. Presidential campaigns are concerned, less (much less) would be more. So, whatever one may think of Obama, and what I'll dub, for no reason other than the sake of identification, Pastorgate, the cannibilization of candidates that comes as a result of too much scrutiny over too long a period of time, serves no one except perhaps a rapacious media hungry for a certain sort of crass copy... and of course the audience that deems it worthwhile.

Monday, March 17, 2008

A Tale of Two Quotes.

"Now we are in the soup and we better get ourselves out of it before the consequences get drastic," Democratic presidential contender Hillary Rodham Clinton told reporters. Barack Obama said: "History will not judge President Bush kindly for his failure to act in a way that could've prevented or alleviated this economic crisis."

Before consequences get drastic? Ms. Clinton, you are obviously clueless. The situation passed drastic quite a while back. We are now well into a whole new realm of awfulness. Mr. Obama, your statement is a tad more on the ball regarding the Commander in Chief's lack of effective prophylactic attention to, what is now, as per my earlier comment, a fairly well established catastrophe. Unfortunately, both of your comments taken in the aggregate amount to little more than buck passing nonsense since the legislative branch of the U.S. government has had plenty of opportunity to arrest this epic mess before it went beyond drastic. So tell me, you two career politicians possessing overweening ambition but precious little else, what did either of you say or do to address the situation before it went totally pear shaped? Exactly! Now tell me again, why should I vote for either one of you? In the meantime, I can hardly wait for whatever pearl of wisdom John "Keating Five" McCain has to offer.

Tuesday, March 11, 2008

Five Alarm Fire....Squared

Today's announcement that the Federal Reserve will act in concert with several other central banks in unprecedented ways to address troubles in the credit markets provided the spark for a massive melt up in shares. Could today's action be the beginning of something more substantial than the proverbial one day wonder rally? Perhaps, but don't bet on it just yet. Without getting into too many specifics, the Fed is, among other moves, modifying its lending practices such that it will accept AAA rated mortgage securities sold by Fannie Mae and Freddie Mac in exchange for Treasuries for periods lasting up to 28 days, far in excess of the usual overnight lending period.

The Fed is, shall we say, expanding its role as lender of last resort in a fashion that has had, as one might expect, spectacular and salutary short term effect, but that runs the risk of causing unprecedented long term harm. After all, by their decision, the Fed is effectively allowing the rampant toxicity that has infected the entire financial system to directly pollute its own house. Why did they do this? In a word, desperation. The banking system is effectively insolvent and cascading bank failures were probably days if not hours away from occurring. The Fed's move is designed to avert a banking meltdown by giving the tapped out banks and broker dealers that deal directly with The Fed another supply of boodle with which to try and entice folks to borrow. Now that the Fed has put its you know what on the line by demonstrating a willingness to accept clearly dodgy collateral, the price of failure for our entire financial system has grown exponentially. Because, should the Fed's gambit fail and banks are unable to generate sufficient new borrowing, The Fed, the lender of last resort, will be dragged into the same vortex with all the banks and broker dealers that are now desperately trying to avoid the massive black hole they themselves created.