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Recession will be worst since 1930s, Greenspan says.

In a speech on Tuesday, Feb. 17th to the Economic Club of New York, former FedHead Alan Greenspan offered a few notable chestnuts:
“To stabilize the American banking system and restore normal lending, additional TARP funds will be required…” and
the financial system needs to be stabilized before any economic stimulus program will have a positive impact.
He also points out that the housing market must stabilize in order for an economic recovery to begin.

There is absolutely no doubt in my mind that Greenspan, as the economic policy architect of the last 20 years, is almost singlehandedly responsible for the collapse we are enjoying, and like any self-respecting auto executive who has driven his company into the ground, Greenspan continues to offer counsel to the overlords of the economy HE drove into the ground.

It was Greenspan who created the conditions in the credit markets that enabled our nation to turn our illiquid assets (the equity in our homes) into money we spent on sneakers and plasma TVs. Then we Americans further leveraged that equity, much like the banks leveraged subprime loans through exotic derivatives, using credit cards. This pumped trillions of dollars into the economy in an invisible hyperinflation, and we spent our way through a 1920s-esque period of excess during which we traded our American citizenship for global consumerism.

Few people noticed. Or rather, few people had the courage to say anything. Ron Paul did, but was handily dismissed as a crank even though he was absolutely right.

No society or person can live on leverage. Eventually the bill comes due, and needs to be paid.

Yet Greenspan based his entire approach to our economy on a fundamentally flawed premise: that real estate always goes up in value.

To be fair, this is true – from the perspective of an economist. Over time, real estate will reliably increase in value. But anything in nature that goes up will also encounter periods of correction where a temporary pullback occurs.

The actual real-world implementation of his plan never accounted for that aspect of real estate’s perpetual climb, and what works well for an economist or statistician does not work quite as well for a banker or mortgage borrower who has grown accustomed to relying on the equity in his home for spending cash.

While it’s true that real estate boomed until it busted, real inflation-adjusted wages in the US have flatlined since George W. Bush became President.

This presents a quandary. What happens during this period of correction, when stressed homeowners see energy prices reach historic highs, and it costs a mortgage payment to commute to work?

On (Greenspan’s) paper, said homeowner can dip into his home equity ATM and cover expenses that way.

Oops. That equity went *poof* in June 2007, and along with a few trillion dollars in derivatives, the downward economic spiral began.

At that, Greenspan hustled out the door. Said he wanted to spend more time with his family, or some such nonsense.

Now Greenspan is back to tell us that the housing market must “stabilize” in order for an economic recovery to begin. But there’s a problem with that. The radical increase in housing prices was not accompanied by a similar increase in wages, meaning the homebuyer’s ability to repay his loan did not increase commensurately. This would imply that housing prices, in order to become “stable”, must return to 2001 prices!

I’m a firm believer in free markets, though by this, I do not mean markets totally unfettered by government regulation. I believe every game needs a referee, but it is a ref’s job to make sure nobody cheats. It is not the ref’s job to play in the game. The same goes for government and financial markets. The government’s role should be one of oversight, to ensure that market players don’t cheat by doing things like creating exotic derivatives and colluding with bond rating agencies to represent them as something other than worthless assets.

Yet here is unrepentant Capitalist Greenspan telling us that “more TARP funds will be needed” and that we must bring stability to the “financial system” before economic stimulus will work.

But, government intervention in the financial markets is the last thing we need. Government is inherently reactive, and usually by the time the government has reacted, it’s already too late – particularly when the “solution” is to exacerbate already out of control inflation. How long can the government sell Treasuries to overseas investors before those overseas investors realize that every bond they buy represents further dilution of the money they will be repaid with?

As it is, government created a new problem in its efforts to spur lending by the banks. While it provided hundreds of billions of bailout dollars, it simultaneously increased margin requirements, forcing banks to maintain higher cash reserve to outstanding loan rations, effectively giving banks money to lend that they could not lend.

Government can not be the invisible hand, bringing force to bear against the holism of the financial markets. The only way to return to stability will be to let market forces do their work; to let failing companies fail, even if they’re too big to fail. Equilibrium can not be bought, it must be achieved through natural forces, or we will be perpetually providing TARP money and bailing out a sinking ship.

As part of their business retooling, Detroit’s big three automakers announced plans to close more plants, shed some lesser performing brands and lay off approximately 50,000 workers.

A spokesman for GM said that their plans to revive what most economists agree are already failed companies, had become considerably more aggressive, while refusing to detail which plants they planned to close and where workers would be laid off.

Meanwhile, industry oracles predict sales of a mere 10.1 million new cars this year, a paltry number number of new car sales that couldn’t pay half of Detroit’s executive’s salaries.

I won’t point out that demand for American cars is at its lowest in 26 years because of the stupidity and hubris of management that ignored the environmental/gas price writing on the wall (see above!)  and continued to make big gas guzzlers – this has been done sufficiently by thousands of other writers.

I won’t point out that Chrysler’s CEO is the very same Robert Nardelli who drove Home Depot into the ground and walked away with a $200,000,000 severance for his failure.

I won’t point out that the impact of Detroit’s overarching failure has contributed mightily to the deflationary depression we find ourselves in today.

I won’t point out that there are literally millions of jobs at stake, and the men driving this collossal cluster-guzzler are the same ones who have already driven the companies they purport to be capable of rescuing into the ground.

I did point out in another post about Ken Lewis, chair of Bank of America, that the government resorted to threatening management at BoA with replacement if they wouldn’t play ball where Merrill Lynch was concerned…

So someone please answer this question: why should the government bail out the auto industry, but not require changes in a management rogues gallery that’s clearly culpable and incapable of “fixing” the problems they created in the first place?

These same rogues are back in Washington asking for B$34,000,000,000.

I would like to see Detroit continue to produce cars. To wish their failure would be irrational considering the broader impact failure would have, but there has to be some give back.

Perhaps no structure on this list more embodies the original impulse behind the tall building — pure human hubris — than Dubai’s Palm Islands. Composed of three separate islands, Palm Jumeirah, Palm Jebel Ali and Palm Deira, the entire construction will add nearly 330 miles of beach front to the city of Dubai. Parts of Palm Jumeirah are currently open for development, with the remaining islands to be completed in the next 10-15 years. When finished, the three islands will contain over 100 luxury hotels while Palm Deira itself will be almost as large as Paris.

’nuff said.

The World’s Largest Man-Made Islands

I heard a couple days ago that another friend lost his job. That brings to about 10 the number of people that I speak to on a regular basis (friends, as opposed to acquaintances) who are out of work since the, um, “economy-saving” “Bailout” was begun last year.

Having worked in media and advertising for 15 years, my circle of friends consists mostly of media and advertising people. It occurred to me that if all of us unemployed media industry people got together, we could form a hell of an ad agency, and it also occurred to me that it would need a crass and snarky name, so, it would have to be called “The Unemployment Agency”.

Talk about Truth in Advertising!

Today the Wall Street Journal published a story that gave background to the tale of the purchase of Merrill by Bank of America. One might reasonably ask how a retail bank’s rescue of an investment bank falls into the category of High Crass, as it seems almost run of the mill during these troubled times of bankstas and their antics, but I assure you that it does.

As it turns out, Ken Lewis, head of BoA was loathe to make the acquisition. An analysis of Merrill’s books showed billions upon billions of pretax losses, making any deal a big loser for BoA.

Yet, at the same time, Treasury Secretary Hank Paulson and FedHead Bernanke were exerting a substantial pressure on poor Mr. Lewis to not walk away from the deal. They told him that it would be a “death sentence” for Merrill, and would reflect badly on BoA itself.  But Mr. Lewis, demonstrating his conscientious devotion to the well being of his bank, and in service to the interests of his shareholders, argued that BoA had a legal right to walk away, and “interpreted (the government’s) comments as a signal that the government was willing to work out a compromise”.

Apparently this was not the case, and the principled Mr. Lewis was all set to leave the table when words were spake that shook Lewis to his core…

“A Federal Reserve official warned that if Mr. Lewis did so (let Merrill die) and needed more government money down the road, Bank of America could expect regulators to think hard about their confidence in management. Mr. Lewis was told that the government would consider ousting executives and directors, people close to the bank say.”

Oh, well, since you put it that way, then of course, we’ll be happy to cooperate and buy Merrill, says Lewis.

After all, if a banksta has anybody’s interests at heart, they are surely his own. Bank of America, Merrill, America, the world, you, me and everybody we know be damned, Ken Lewis stood to lose HIS job!

Now I get it. That IS crass!

I would like to begin by defining a symbol I suspect I will use often:  B$ = Bailout Dollars. These are distinct from normal dollars in that they are acquired as a consequence of failure. B$ are earned by someone other than the person who gets to spend them, because the spender is a failure being rewarded commensurately with the magnitude of his or her failure.

The crassness of Peter Kraus’ recent purchase of a B$37MM apartment on Central Park was impressive. Citicorp’s B$50MM private jet was impressive. John Thain’s B$1.2MM renovation was impressive, too. But these are all merely examples of pigs feeding at an overfilled trough. They are crass, but not, in my opinion, inherently evil. They merely represent the “let them eat cake” detachment that those who have no connection to on-the-ground reality invariably suffer from.

Today, one is again given cause to consider exactly what version of reality the bankstas running Wall Street are part of. One must also wonder what it will take for these same bankstas to realize that they do in fact bear some of the responsibility for the sorrowful condition of our economy.  A sound thrashing with a hickory stick? Chilly eggs at breakfast? An American car?

When bankstas go hat in hand to Washington seeking hundreds of billions in bailout dollars, it would seem wise to at least pretend to have interests other than their very own at heart. I mean, if I were arguing that  my institution was “too big to fail”, I would at least try to concoct some plausible rationalization about why that were true. And one of the singularly most effective arguments at earning government largesse is job creation. A simple “if you save us, we will preserve 14,000 American jobs! Think of how that will help the economy!”

And it’s true! Saving American jobs WILL contribute toward saving the economy. No matter what your run of the mill trickle-down dittohead tells you, an economy with a sound foundation (at the bottom) is one upon which a great structure can be built.

But…while they were sitting before congress, hat in hand, seeking to loot the tax trough, these same bankstas were laying off American workers and working to replace them with foreigners. They increased their H1B visa applications for highly compensated foreign workers by over 30% during fiscal years 2007 and 2008.

Now THAT is High Crass!

I have vehemently opposed intervention from the beginning. I believe in the rationality of free markets, and that manipulated markets are inherently corrupt ones. I believe no institution is too big or too little to fail, no matter the “ripple” effect. I believe the bailout will serve only to make a bad problem much worse, and far more costly to society both directly and indirectly, and that by the time government intervenes (as a reactionary entity), it is already far too late.

Yet it is quite clear that government feels compelled to “do something” – which I read as “let’s throw everything at a wall and see what sticks”. So far, nothing has stuck, only smeared.

That said, I’d like to comment on something Jon Stewart said recently on the Daily Show:

He said “bail out Americans”. Use the bailout money to erase consumer debt and give the economy a do-over.

I think it’s a Great Idea that would serve a key purpose: it would relieve American taxpayers of having to pay their loans twice – once through direct loan repayment and secondly through the taxes they will pay to fund the bailout.

The banks would get the money they need – and the people would get a much needed break. It’s not “free money”, either. We’re going to pay it back either way. Why pay twice?

Welcome to High Crass. Originally I’d planned to make this site a sort of portal for crass internet media – car wrecks, jackass stunts and the like.  Then it occurred to me that our nation and world, its leaders, priests and politicians are chock full of instances of crass corruption, greed, hypocrisy and utter bad taste.

This is an invitation to join me in documenting high crass. If you would like to be added as a writer, I will be happy to add you, otherwise please feel free to comment or email me with your favorite examples of High Crass!