Doug's Darkworld

War, Science, and Philosophy in a Fractured World.

Today’s Business Report: We are SO screwed

with 8 comments

Well, the stock market seems to be in the news these days, what with it dropping all over the place and giant companies folding up almost daily. Obviously this is not a good thing, and while I don’t fully understand it, I do have a few thoughts and observations.

My first thought is “Told Ya.” Back in the eighties when the FIRE (Finance, Insurance, Real Estate) industries began to explode I had a lot of arguments with people about them. My concern was that an increasing share of America’s industries didn’t actually create any wealth. I mean, if one builds farms/factories/mines or  provides infrastructure/service for same, somewhere along the way actual wealth is being created. The FIRE industries do not generate any wealth and only generate profit by moving money around. And while I am not saying we don’t need the FIRE industries, we managed to have a booming economy in the fifties and sixties with less than 10% of the economy being in the FIRE industries. Now it’s over 30%.

My friends would argue that no, it’s simply the new economy, it was just capitalism evolving, etc. Well, yes, the economy was evolving. The rich were getting richer and the nation’s wealth was being concentrated among people who made their wealth through crony capitalism and government lobbying. (I mean, ENRON didn’t actually produce a damn thing, they simply bought and sold energy futures.) Throw in deregulation and the loans got out of control because the more money that was loaned out, the more profit there was!

Oddly enough similar in some ways to the causes of the Great Depression. There the whole country was buying stocks on margin, IE credit. As long as the stock prices kept going up, everyone gets rich. All this buying stock on credit inflated the value of stocks ridiculously, and when the prices dropped, everyone was ruined since they now owed all this money for stocks that weren’t worth anything. Pretty much the same thing here, except on a much grander scale. The whole goddamn economy was based on loaning money to anyone who wanted it, and when the value of the housing market started collapsing, all these loans suddenly were worthless. And since the FIRE industry was all based on credit, the whole house of cards is coming down. Loan shark capitalism, bad idea.

Granted, that’s a simplistic analysis, but I suspect it’s pretty close to the truth. And now rather than let everything crash Bush is desperately trying to keep things afloat by buying out failing firms, the AIG buyout being the latest. Since the government doesn’t really have any money, or more accurately, has to borrow money from abroad, this is just buying time at best. While the excuse is that these firms are “too big to fail” in reality they have failed, this is just a desperate attempt at damage control before the elections. And once the government “owns” all these huge firms, yeah, they are going to run them in a fiscally sound manner? Give me a break.

In case I didn’t make it clear, in summation, deregulation and greed in high places is what made this mess. So expecting the people who created this mess to fix it is, well, stupid. I should also mention that the timing on this is really bad, the economy is also battered by spending a trillion dollars on two profitless wars, and about 700 billion on “Homeland Security” after 9/11. (The only thing we needed to secure after 9/11 was cockpit doors.) Then there’s the hurricanes that are rolling into the Gulf, that’s more body blows to the economy.

So this is going to get a lot worse before it gets better. Basically there are so many bad loans out there that the dollar is more or less worthless. And many doomed artificial industries that were more or less created by financing and government support. I’ve heard that the airlines and auto manufacturers are next, that they will be bailed out soon to prevent them from going bankrupt. Well, attacking the symptoms instead of looking for root causes is Bush’s stock-in-trade, so it won’t surprise me. Heck, in a few months the government may “own” just about everything. On the plus side at least people will save in postage since all their loan payments, tax payments, etc will be going in the same envelope. And if the world’s economy goes down the tubes, why, the price of gas will keep dropping as demand for oil slacks off! Yeah, good times ahead!

(The above disturbing 9/11 image is claimed as Fair Use under US copyright law. It is basically a historically important iconic image and is not being used for profit. Credit: Unknown. I chose it to reflect the severity of this issue, the country is going to the dogs…and the candidates are arguing about lipstick innuendos.  Even as I write this the markets are collapsing and more bad news is hitting the wires, I just heard a rumour that the government is going to bail out the Federal Reserve bank. The mind, already reeling, boggles uncontrollably.)

Written by unitedcats

September 17, 2008 at 8:53 am

Posted in Business, History, Politics

8 Responses

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  1. The government won’t own everything. With the dollar down groups from around the world are buying up buildings and businesses all over the place. Should make things interesting.

    Steve

    September 17, 2008 at 10:02 am

  2. Let me preface this by saying, yes, this is awful. And it’s not going to be the wealthy who pay it off. It’s going to be the middle class, especially if (heaven forbid) McCain gets elected. He’s certainly not going to distribute the burden fairly, that’s for sure.

    BUT, to play devil’s advocate and just point out another side, a number of people, including my ex in-laws, rode my ex-husband and me relentlessly. “Buy something. Buy something. Lending is good. BUY SOMETHING.” Over and over, we heard, “Renting is throwing money away.”

    I, however, knew that we had no business buying. Sure, we could have gotten a loan for 6 or 7 times my salary with little to nothing down. But I knew that was not a smart thing to do, because I knew the bubble would burst. That kind of ratio is just not smart. Never has been, never will be.

    And right now, if we had stayed together, we’d be in the same mortgage mess everyone else who overextended themselves is. So to a certain extent, yes, homebuyers should have known better. I’m not financial guru, but even I knew that.

    Terri

    September 17, 2008 at 11:22 am

  3. In regards the current wars being unprofitable, war for profit itself is immoral and against international law. It may be argued that some wars are nonetheless necessary, but the invasion and occupation of Iraq was certainly not that, either. Nor, in my opinion, should a military response have been the first choice in Afghanistan: there has still failed to be a proper policing response and where oh where is the criminal indictment of the perpetrators?

    Mahakal / מהכאל

    September 17, 2008 at 1:05 pm

  4. I actually cried today.

    I cried for my kids, my country, and you my countrymen and countrywomen.

    This will not end well.

    The deck of the Titanic is tilting. Get food, empty your bank account.

    And please remember that Ron Paul TRIED to warn us and address this issue. Its too bad we missed our chance. Now liberty itself is at risk!

    God help us.

    ET

    September 17, 2008 at 1:37 pm

  5. Heard on the radio:

    “Thanks for calling Julie, no there is need to withdraw your money, that’s what the FDIC is for. Whatever you do, keep your money in the banks!”

    The bloated bureaucrat trying to maintain calm, to use Eric’s analogy, the band is still playing. Of course the ship will sink that much faster when rumors spread and we start to see runs on our banks. I wonder if they will start to legislate our withdrawals (a la Argentina)?

    I’ve heard Doug or others say this before, but worth repeating,

    “Privatize profits, socialize losses.”

    Gads, trying to maintain a sense of calm but clearly need to formulate a backup plan (basically make sure I have the resources to get to the border).

    Truly frightening.

    Andrew

    September 18, 2008 at 7:06 am

  6. Furthermore, would have to agree with Eric. Make sure you are WELL stocked while your money is still worth something. If things go as badly as some economists predict, all your precious money isn’t gonna be worth spit within a few months.

    Andrew

    September 18, 2008 at 7:11 am

  7. Sorry, Doug, I didn’t read this one. Your choice of pictures (a 9/11 jumper) was too upsetting.

    PiedType

    September 22, 2008 at 10:23 am

  8. ahh, i have to stop reading your blog and get back to work! i. just. cant. stop. reading….

    wstreetis4lovers

    September 23, 2008 at 9:47 am


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