Why the Stimulus Will/Has Fail(ed)

Monday, July 20, 2009

Because it’s a matter of trust. The economy won’t recover until there is a palpable sense that we are doing the right thing. But no one can say, with certainty, that we are. Meanwhile, Americans, who truly understand being in debt, are watching the government pile on trillions with only a possible (it’s a bet!) positive outcome.

It’s beyond frightening. And though as a basic matter of economics – the money goes into circulation and revives the patient – what they are doing should work, there is a “spiritual” component here that is ignored. The patient has got to believe he’s going to get better. On that score, the doctors have a lot more work to do.

Just watch the Q2 GDP numbers beat expectations. We’ll hear that the recession is (near) over. And yet…their are plenty of layoffs on the horizon and no job creation; plenty of debt, and nothing resembling a balanced budget.

The hardest times are still ahead.

P.S. On a related note, if Congress doesn’t tax Goldman Sachs bonuses at, like, 90% (and they won’t), it will be hard to say that Americans aren’t justified in taking the law into their own hands down at 85 Broad Street. They shouldn’t. It is wrong to do so. But it will still be hard to say. Goldman Sachs represents the apotheosis of the moral hazard. Too big to fail, they make their profits on your back.


The Wall Street Fix

Sunday, January 4, 2009

Michael Lewis (of Liar’s Poker fame) and David Einhorn (of shorting Lehman fame) have published an op-ed in today’s NY Times. It diagnoses and provides solutions to Wall Street’s problem(s).

The bottom line (emphasis added)?

Our financial catastrophe, like Bernard Madoff’s pyramid scheme, required all sorts of important, plugged-in people to sacrifice our collective long-term interests for short-term gain. The pressure to do this in today’s financial markets is immense. Obviously the greater the market pressure to excel in the short term, the greater the need for pressure from outside the market to consider the longer term. But that’s the problem: there is no longer any serious pressure from outside the market. The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest.

The piece goes on the expose the well known cozy relationships between Wall Street, the credit rating agencies, and the SEC, and to criticize Treasury, the Fed, and Congress for poor ad hoc solutions driven by short-term market considerations and industry lobbying.

It ends with a series of “perfectly obvious” changes to be made to the financial system. These are a manifesto for action. Digest them and begin regurgitating to everyone. A movement must be built.

I hope Barack Obama is reading this piece. I’m forwarding the Chuck Schumer (not likely to be helpful) and Hillary’s replacement (it better not be Caroline Kennedy).

On Wall Street, the fix is in.

It’s time to fix the fix.

Obama’s Folly?

Monday, December 29, 2008

Bush’s folly was/is Iraq. Will Obama’s be the stimulus?

Peter Schiff in the Wall Street Journal:

It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can’t be repaid. However, this is precisely what we are planning on a national level.

The hope, with all of this printed money, is that it will stimulate the economy to grow again and that, once the growth begins, the Fed can start taking dollars out of circulation without undoing what it just did. It’s a very, very delicate act they’re trying to pull off and Schiff is arguing that, ultimately, it can’t be done. At some point, the piper will have to be paid.

I don’t disagree, but I do think we have to forestall a massive depression. Recession, yes. Long and hard, yes. But let’s not have 25% unemployment ever again. Let’s have plenty of pain. Just soften the blows a little.

On an even gloomier note, Marc Faber says short treasuries and buy gold. Hyper-inflation is coming and it’s going to be brutal.

This I believe. I don’t know the timing, but we are going to have massive inflation at some point likely coupled with a lagging economy (stagflation).

The only solution after we run through this cycle? Some day, and not far off, America is going to go bankrupt. We are all going to lose our shirts and suffer the harsh austerity measures of a vengeful globe’s bailout (or conquering).

America, we need to take our medicine now. It’s time to cut spending everywhere. By all means, Obama, borrow and spend, but phase in cutting, too. I can see $100 billion from defense right off the top.

This simply can’t go on forever.

How to React to the GM Bailout

Friday, December 19, 2008

As guaranteed on this blog, the Feds have ponied up $17.4 billion in loans. I hope you took my advice and bought the stock when it was cheap(er). On the Ford stock alone, I’ve seen a return of over 80%.

Now the question is, when to sell?

I’m not sure. I may sell as soon as today. But don’t hold on to GM for too long. They are definitely going under. Ford, I’m willing to take a wait and see approach.

Bonus Day at Goldman Sachs

Wednesday, December 17, 2008

It’s happening.

They took $10 billion in taxpayer money and are handing it out to their employees in the form of year-end bonuses, in some cases, worth millions of dollars.

And a lot of them are complaining about it.

Contact New York State Attorney General Andrew Cuomo and let him know how you feel about Wall Street rewarding failure with your money. Also let him know that if he acts, you’ll support him for Hillary’s vacant Senate seat.

You can also contact your representatives here.

Free Money, Baby: The Fed Targets 0%

Tuesday, December 16, 2008

There’s no where left go after this.

First thoughts: Japan, Inflation… and holy shit.

Even if this (the Fed and Treasury plan) works and keeps us out of a severe depression, which is the goal and, likely, the result, we are going to have long, long hangover.

Where are all these dollars gonna go? And how, in the long run, are they going to maintain their value?

Just remember, ultimately, a loose monetary policy is what caused this mess in the first place.

The Auto Bailout is On

Friday, December 12, 2008

Now that that GOP has killed the auto bailout in Congress, what will happen?

The automakers will get their money.

Bush will order Paulson to use TARP (or an emergency measure will pass in the Senate.) It is a certainty.

The GOP is stupid, but they’re not suicidal. They’re going to realize that letting General Motors go bankrupt in this economy, just before Christmas, will damn them through 2012, at least. It would be, as Cheney warned, “Herbert Hoover” time for the Republicans.

Thinking about it, it could just be a bit of gamesmanship here. Bush will cover (pun intended) Congress with the TARP money, and the Republicans can still look like principled fiscal conservatives. Bush was never a true believer, they’ll say (despite the fact that they went along with everything).

At any rate, don’t bet against the bailout. It’s a done deal.