market crash

It has been perhaps the longest year of our lives where we witnessed the absolute collapse of the banking system, to the largest bailouts in history, one of the largest market declines in history, historical political elections, the largest stimulus in the history of our country, and the list actually goes on. There are a lot of history making events that happened over the last year and with those history making events we were promised change and a brighter tomorrow. However, what has really changed? Absolutely nothing, for the most part.

We are expecting the political establishment to address us in the upcoming week to tell us what a great job they have done in ‘saving’ our system and way of life. While they are patting themselves on the back and congratulating each other they know that they have merely postponed the inevitable. No matter how hard they try to hide the facts we know all is not well and we know that there is no way the epic stimulus packaged saved any jobs or created new ones. What our leaders have done is nothing short of criminal as they allowed us to go deeper into debt bringing our long-term liabilities to upwards of $55 trillion dollars.

The Banking System

Next they will tell us how the bailouts, no matter how distasteful, were necessary to preserve the way we live, which is so fatally flawed that defending it is impossible. The sad reality is that the banking system is just as insolvent today as it was last year this time. How could I make such a statement with the market screaming and banks climbing to 52 week highs? Simple, look at the economic facts:

1. Defaults have increased substantially year-over-year. If defaults broke the bank last year then surely twice the level of defaults must have inflicted horrible damage to the balance sheets of banks. However, mark-to-market is gone and mark-to-fantasyland is here and if they don’t have to mark the assets down or include SIV’s and the other BS then everything is fine. They merely postponed the inevitable problems to a future date.
2. Unemployment was nowhere near where it is today last year. If you really think we are at 9.7% ‘real’ unemployment then I have a nice CDO to sell you. The reality is we are closer to 17% real, real, unemployment according to how the government used to calculate the unemployment rate. This will lead to more defaults in credit and is the nexus of our problems.
3. Defaults across the board are sky high and will likely get much worse. Of course, as long as you get to market things to fantasyland does it really matter? No, not until it ultimately blows up on us, which it will.
4. Everything they told us they were going to do, they did not do. Banks will hold those toxic assets forever because they are worthless. Why participate in the PPIP if you have to sell the assets at market value versus holding onto the assets at fantasyland value? It makes no sense which is why the PPIP was scaled way down because no one wants to participate, except for the FDIC and Federal Reserve which is surely holding a bunch of that garbage.
5. The Fed is encouraging risk by allowing Goldman and the remaining investment commercial banks to borrow at the discount window and speculate driving earnings through the roof. At the same time the Fed is simply trying to re-inflate the same credit bubble that got us here to begin with. One wonders why anyone would think more debt is the answer to our already overwhelming debt load is the answer.

As far as banks are concerned, I would not touch them, period. Yes, they have the backing of the US government, but the bottom line is you have no idea what their assets are really worth. From a personal point of view I also wonder about their ethics, or lack thereof. When they came to Washington, hat in hand, for their bailout which Congress was ‘pressured’ to give, more than likely to save their largest campaign contributors, they received it, no questions asked. Now that these same banks are ‘healthy’ and allowed to pay back their TARP funds, presumably so they can receive their annual bonuses, while at the same time hiking their banking and overdraft fees from the very people who bailed them out.

The Federal Reserve refuses to tell the American people which banks received any special loans and what was taken in for collateral for those loans, if anything. We already know the banking system is fragile and that banks were in jeopardy of failure so there is little reason to not tell us who got what and how much. Of course, let us not forget that we have had 89 bank failures this year which means that the bailout was, in my opinion, a failure. Not to mention that by the time these failures end, some predict 1,000 bank failures, it is clear that only the Citi, BoA, and Goldman Sachs will be the only survivors left which leads us to an oligarchy banking system with only a very few big players left, who just happen to be the most politically connected I might add.

Even politics have not changed at all, with the exception of grander spending projects. Washington is still polarized and, from my perspective, we went from an inept president, who was utterly clueless, to another inept president who is equally as clueless. Even more disturbing is the fact that Congress is, mostly, the same as it always has been. When looking at the list of Congressmen and Senators you see that very, very, few are new names and the names you recognize have been there for decades. How in the world do you get change when you elect the same people every election? That has always bothered me about politics; you want change so you vote in the 18^th term congressmen? We get, at the end of the day, what we deserve.

I realize that speaking against our newly elected messiah is a one way ticket to being called a racist or, somehow, anti-American, but, frankly, nothing has changed. The Patriot Act is still alive and well, lobbyist are ever where, Iraq is still alive and well, Afghanistan is getting worse, spending is even more out of control and we are all still polarized between two parties who only care about campaign contributions. Nothing, and I mean NOTHING, has changed and to think otherwise is simply being delusional. If we now have a transparent government why are all the questions people want to ask always having to be pre-approved? Sorry folks, I am just pointing out the obvious here.

For all intents and purposes the country was blackmailed by the banks to bail them out so they can continue business as usual. It is perhaps the greatest heist in history and did nothing for the American people except tack on trillions of new debt. To make matters worse the industry is at it again coming up with a new securitized product for life settlements, perhaps the sleaziest way to make money. Life settlements basically buy life insurance policies from those who will die soon. They buy the policies for 40% or so of face value, pay the premiums and collect the difference when the person dies, only in America. Goldman Sachs, always ahead of the game, is even starting an index so you can bet on whether people, as a group, will live longer or shorter than expected, I always knew they were vampires, but this is taking it to a new level.

So as we come up on the 1 year anniversary of the Lehman Brothers collapse and we watch the politicians pat themselves on their backs, for doing nothing, we really need to ponder what has changed. As you think about where we were to where we are today you will see that nothing has really changed except for some accounting gimmicks that really never should have changed. Even though the industry and politicians threatened a complete collapse if they were not given money or unless the accounting rules were changed is complete hogwash. Elizabeth Warren who chairs the Congressional Oversight Committee over the EESA is not even convinced that a total collapse would have happened if we just said no to the bailouts.

To think anything has really changed is simply a matter of people not doing their homework or just buying what they are being told by the media. Based on the above, fairly quick, but accurate analysis, it is clear that things are still the same. We simply just postponed everything until a future date and that future could be tomorrow or 10 years from now, who really knows. What I do know is that we must vote out our leaders faster than every 10 or 20 years, when they die of old age in office that is simply just too long.

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