Safe as Houses
I’ve been reading Jon Taplin recently. He and John Robb seem to be a slightly eerie source of pragmatism on current economic problems. Jon:
At the beginning of last week, Bear Stearns had $18 billion in cash. Today it has no cash, but lots of unsellable bonds.
We were astonished last week that Carlyle Capital was leveraged 30-1. Well it turns out that Bear Stearns was also leveraged 30-1. The house of cards is falling, but because everyone is trying to hide the Old Maid, we have no idea how bad it could get.
Bear Stearns will probably be bought by its largest creditor JP Morgan Chase for $20 per share. Since Bear’s book value is $80 per share,
(Edit: They bought it for $2 a share)
and this, from January, on the “stimulus plan” announced by the Bush administration:
The U.S. Treasury is going to borrow $150 Billion from the Chinese and other T-Bill buyers and mail checks for that total amount to anyone earning less than $75,000 a year. But because the IRS is too busy dealing with tax returns, the earliest the money could arrive in your mailbox is June. At that point consumers are going to do one of two things with the $600 check. Either use it to pay down their maxed out credit card or go out and spend it on some cheap Chinese manufactured goods at WalMart.
Homo Economicus? Extinction on the phone. It says it’s calling in the 30-1 leveraged ideology that people used to buy into you.
For years, many people have been trading in equity on their houses for a higher standard of living (i.e. holidays and cars, not things that will make them more money). It’s the kind of thing that has been advertised in the UK for a long time, I even saw it on a bus advert today. I don’t have much to say about it other than that it never seemed like a good idea, and this set of headlines on the BBC website said a lot to me the other day:
“Fundamentally strong”? Oh sure… major financial institutions worldwide have been individually mismanaged, and they all just happen to be going into meltdown at once. He used to be outrageous, but with economics, Bush just seems a bit pathetic.
Is there anyone out there who still can’t see that the neocon bubble is fundamentally psychotic?
March 17th, 2008 at 4:22
Well, I say a pox on the Repubs and the Demos. Things are bad now, they’re really bad — but you remember what happened last time a Dem took over in really bad times? We got the “new deal”. We got Socialist Insecurity shoved down our throats, not to mention price controls, agricultural subsidies, big-business subsidies, and the wonderful FDIC which will be soon be — once again — taking money from those who make good decisions and redistributing it to fools — and it doesn’t much matter to me if they’re Wall Street Fools or Bowery Fools or New Orleans flood zone dwellers.
Making bad decisions is supposed to have bad consequences. That’s how we learn. Perhaps we voters should learn something — got knows we’re the ones suffering the pain — about tossing our government back and forth between the Socialists on the left and the Fascists on the Right. Big government does not work, no matter which scapegoats they choose.
March 17th, 2008 at 10:17
Well if America is really hung between the extremes of fascism and socialism, I’d say it’s done pretty well for itself over the past couple of centuries…