Bar Tab on the Andrea Doria

[Daveparts]

Bar Tab on the Andrea Doria
By David Glen Cox


Washington Mutual failed this morning; the deal brokered by government regulators to shuffle Wamu into its grave makes JP Morgan Chase the nations largest bank. The move also keeps the FDIC off the hook for 120 billion in claims, money it doesn’t have. Even before Wamu’s failure whispers and rumors began circulating Capital hill about a 150 billion-dollar bailout of the FDIC before the end of the year due to increasing numbers of smaller bank failures.

House Republicans have circulated a letter from over 160 notable economists stating categorically that the Paulson bailout plan won’t work and will be bad for the economy in the long run. That sounds bad doesn’t it? 160, wow! It has been said however that if you laid all the economists in the world end to end that they couldn't reach a conclusion. Economics is an opinion science, like theoretical physics a science of unprovable theories.

In Senator Richard Shelby’s (R) home state of Alabama there is the Ludwig Von Mieses Institute at Auburn University. Sort of a Mad Hatter society that discusses the economy and offers position papers on the subject all with one guiding principle. That the government should never intervene, oh that’s bad when government intervenes. It’s far better they offer, that rather than intervention its better that banks, investors and pension funds be bankrupted and wiped out, that way the economy will work more efficiently in the future.

True, millions will suffer. Tens of thousands will lose their homes and their retirement. The elderly will develop a sudden taste for Tender Vitals but its bad when governments interfere with the free markets. During the flight of Apollo 13 the crew powered down the command module, engineers argued that that had never been done before and that the module might never be able to be powered back up. But due to a loss of electrical power the crew had no other choice. Working off a checklist that required four hours to complete the crew finished in 20 minutes because time was of the essence in four hours the batteries would be dead and all the arguments academic.

Daimler the former owners of Chrysler are trying to sell their remaining 20% stake in the automaker and announced a further 1200 job cuts. Bill Heard Chevrolet the nations largest Chevrolet dealer shut down this week. Employees at 13 dealerships nationwide were given no notice, they were told to turn in their keys and cars and get lost. Here in Cobb County Georgia a woman had purchased a car on Tuesday and was told that she could pick it up Wednesday morning. Instead, she got a phone call saying that the deal was void that she should come pick up her trade in. When she arrived her trade in was gone, already sent to the auction. But if we don’t interfere with the free markets she will get her car back or a replacement in just a year or two.

New home sales fell by 11.5 % the largest number in 18 years and the value of existing homes in California fell by 41% month over month. A $300,000 home is now worth 180,000 that is of course if you could find a buyer, which you can’t, and if that owner could get a mortgage which he can’t. The Republicans in Congress are worried about bailouts and the mortgage provision is a sticking point. They ask, is it fair for a person with a troubled mortgage to get their mortgage renegotiated while the person who is making their payments gets nothing.

In a theoretical world they are right, but at this rate like Apollo 13 in a few months it won’t make any difference. The number of homeowners making their payments will continue to shrink and the value of their homes will continue to fall until more banks fail and the banking system collapses. Pilgrims Pride Corporation the nations largest chicken producer now has it’s own neck on the chopping block. From a stock close of $35.98 in October to its close this week at $3.84 Pilgrims Pride has begun lying off workers.

The Republicans in Congress decry the bailouts as Socialism, lets the skies fall but let us preserve our freedoms and free markets. Theoretical freedom and theoretical socialism, real job loss, real bank failures, real hunger, real people. Never mind that overseas our friends in the world will suffer because of the Republicans dithering about the theoretical. Never mind that every hour that they dither and posture for the news cameras that the chances of success falter. A self-fulfilling prophecy arguing in the hypothetical while the suffering will be real and widespread.

John McCain claimed to suspend his campaign so that he could to come to Washington like a white knight and save the situation. Instead of proving his leadership abilities he proved his lack of leadership abilities. Stuttering and stumbling McCain offered no advice, as his hour in the sun became a pointless partisan squabble. He was for the bailout before he was against it and now he is unsure instead of leading he doesn’t even know who to follow in his own party. A sad, pathetic figure playing on the real stage he finds his voice has no carry and his song has no tune. He can’t even save himself so how can he rescue us?

Job losses soar as home prices fall, blue chip stocks aren’t so blue chip anymore.
Billions in foreign free trade capital flee America’s shores leaving a market struggling with liquidity just that much less liquid. On Apollo 13 they made air scrubbers out of plastic bags, rubber hoses and duck tape no one knew for sure if they would work but if they didn’t work it really didn’t matter, it became academic.

A minor Chinese newspaper published an article this week saying that the government had sent notices to banks to restrict lending to American and other overseas banks. The newspaper and the Chinese government quickly retracted the story. But I wonder if it wasn’t like Mahmoud Ahmadinejad alleged statement about Israel. That Iran would wipe Israel from the map, Neocons and politicians jumped on the bandwagon to condemn Iran. Theoretically it gave the administration political cover to assault and harass Iran. Other translations put it as; Israel will fade from the pages of history while Iran will not.

Chinese is one of the worlds most complicated languages, perhaps the story wasn’t untrue only misinterpreted or mistranslated. As the news of the bailout potential failure because of Republican dithering and posturing began to circulate around the world, stock futures began to slide and Asian markets began to meltdown. Maybe the notice to Chinese banks was in error this time but the next one won’t be. After all, if the American Congress can’t come together to save its self why should the Chinese throw good money after bad?

But there is some good news; you don’t have to pay on your credit cards anymore. If you haven’t maxed out the balances already do so right away, the failures of Lehman Brothers, Bear Stearns, Wamu and a host of others will leave ten of thousands of investors screwed blued and tattooed. When the banks fail they screw the investors, when Congress dithers and postures while Rome burns it means more bank failures and as Richard Shelby maintains its wrong to help people in trouble without helping those not in trouble. Theoretically credit defaults go up in hard times so it’s not as if they don’t expect it. When your creditors call you tell them that and that its wrong to interfere in free markets and that’s the way it goes. Think of it as not paying your bar tab on the Andrea Doria and besides you’re going to need that money very soon.