Tuesday, February 24, 2009
Vanishing AssetsSo, I've spent the last week watching my hard-earned retirement funds losing ever more value. There was a point, when the Dow was at around 8000, that I felt pretty confident that a bottom had been reached, and that if not recovery, at least some stability was in sight. Ever since the stimulus bill made it through Congress, the markets have lost a bit each day, and my savings, along with the rest of America's, has evaporated. Which tells me that talking about spending and tax cuts drives the market more than the actual spending and tax cuts.
Barack Obama could save us taxpayers a lot of money, just by talking his way through this recession.
There has been a lot of panic this last week about banks failing, and the possibility of nationalization. If you compare the costs of continued Fed Loans and taxpayer money to some of the largest financial institutions, the cost of nationalization seems much less expensive, and a better bet to fix the situation quickly. Don't ask me how I know, I am truly no financial genius, if I were, I would be writing this post from San Juan by the pool, instead of freezing my ass off in DC. But if you think about the money we've already thrown at these mega-banks, $700 billion in Tarp money, the Fed has forked over some $2 trillion, and all of the assurances we've already given AIG, Citibank, Freddy and Fanny, Bank of America, Goldman Sachs, you name the company, the taxpayers have pretty much given money to nearly all of the big players. It's a whole lot of cash, and maybe now is the time to consider that we could have purchased nearly all of these banks for 1/3 of the cost of what we've already shelled out. The problem is that the stockholders of these failing financial institutions will lose their shirts, once the government takes over. And it could cause the house of cards to collapse quickly, all of those supposedly "safe investments", like CD's and money market accounts are probably all tied up in this gnarly ball of financial yarn, and it all might go completely bust. That means people like my Mom, who never made a risky investment in her life, might get wiped out with everyone else. And that means that Mom would lose her condo, and have to move in with me, which would make me completely miserable, not to mention, my wife would leave me immediately. These are situations most Americans want to avoid. But in the short term, nationalization of the banks would be much less expensive, and probably much more effective.
I can't blame Citi stock holders for wanting a handout, any more than I blame homeowners for wanting an affordable mortgage. Both investments turned out to be bad, but as little as 3 years ago, no one was saying don't invest in financials, and real estate was the hottest game in town. People were encouraged not to put money in savings accounts, but to invest in equities with greater returns. People were also encouraged to buy more house than they could afford, on the assumption that the house would appreciate. The folks on CNBC are outraged at the thought of helping regular people pay off their homes at a reasonable interest rate, but when you speak about taking over the very institutions that made these bad loans, those traders sing a whole different song.
But risk is risk. Buying a home is a risk. Buying stock, or putting your savings into a 401k is a risk. If you don't like risk, then let's all vote for the Communist Candidate next time around, where our assets will never be at risk, and there will always be someone to bail you out when you do something stupid.
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No subject for immortal verse
That we who lived by honest dreams
Defend the bad against the worse."
-- Cecil Day-Lewis from Where Are The War Poets?
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