A Beacon of Light in the Darkness

Paulson's statement of not buying toxic mortgages was great to hear today, especially since I was opposed to the $700B bailout.  This move is in the direction that I am moving myself, away from debt.  The focus needs to be at the bottom, helping people refinance.

The market managed to stay above 8,000 which I use as a measurement stick for stability.  Another fact to note when you hear that this crisis is the worst since the depression is the employment numbers.  Keep in mind that unemployment is 6.5% and will get larger.  But in the early 1930s unemployment was 25.6%, and the early 1980s 10.8%.  It's true that the cause of this recession and unemployment is different than the past, but historically 'bubbles' do pop and we get to experience the downside.  I think since the world is now tied together in one financial web, it creates more fear and hysteria than before.  That is the unknown as far as what lies ahead.  How effective are we as a country in working with all the other countries who economies are tied into ours?  We are finding this out step-by-step.

I have been watching the insurers AIG, GNW, and MBI and can see that based on the stock price movement, more government action will be needed beyond The $145B loan to AIG.

And the big three automakers, GM, Ford, and Chrysler should NOT be bailed out without wholesale changes.  GM and Chrysler should be combined to save on overhead, management, and general and administrative costs.  All of them should reduce the price of their vehicles to recapture costs only for a defined period of time to keep the cash flowing.  Doing business the same way means more bailout money required.  There should be an accounting of what has been planned and accomplished according to this plan with the $25B they have already received from the government.  Rescuing without a comprehensive radical change in the way they do business is only delaying the inevitable.  With 1 in 10 jobs being at risk, it is even more critical to act in a manner that is decisive to stop the cash hemorrhaging.  

Another item of interest today was GE has been backed by the FDIC for $139B of their capital debt.  Look at how fast this $700B is being spent.  Do we really have an understanding of how much money has been loaned in total beyond the $700B approved by Congress?  It has to be in the trillions.

My opinion of the $700B bailout

After much thought, I wrote the following letter to Ms. Feinstein, Ms. Boxer, and Mr. Herger.  I tried to mail this to Christopher Dodd who heads up the committee on finance, but he only accepts mail from citizens of Connecticut.

"I am representative of the ordinary citizen who has money invested in the stock market and have seen it drop by 50% in the last 3 months.

After reading and hearing about the $700B bailout plan, I am OPPOSED to it being passed.  The fact that this is a guess without knowing the ramifications until it actually happens is too big a risk.  Also, as a citizen, I am against buying 'toxic mortgage debt' that no one can discern as to who owes who and the valuation of it is unquantifiable.  I think that the excess that has occurred because of the bubble in the housing market needs to be corrected by allowing the market forces to take their way.  This destruction allows us to reach the bedrock and allow for reconstruction.  More debt to our already staggering balance only makes us weaker as a nation.  Collectively, we all need to learn how to manage debt and not let it get out of hand.  The time is NOW.

Thank you for reading my view."

I feel strongly enough about this subject to write to these representatives.  I welcome reading your opinion here.

Haven for Bad Debt

What a surprise on Wall Street today.  Look at the power of words from the right person to change the emotional collective in a flash.  If this entity is set up by the Fed, I would ask 'who' gets to put their bad debt there?  What is the criteria to qualify?  Do you have to be 'too big' to fail, have too much 'influence in the world markets?'  To save the group i.e. us, bad decisions and greed are being rewarded at the top levels.  I have heard all the reasons why we had to save Freddie, Fannie, and AIG, but as history shows, when there is a bubble in some sector of our economy, the latest being the housing market and mortgage downfall, there is an underlying correction required before the solid foundation is felt again.  What we are doing here is trying to buy time because of the fear that the foundation will crumble too.  Destruction, construction, and renewal are the cycles of life, at the individual and collective level.  I am enjoying the creative energy on the part of the Fed and SEC in trying to prevent what is normal.  

A major change today was Britain banning 'all shorting of stocks.'  Does that mean the U.S. is headed in that direction too as one of the tools in our basket to try and stem the downward spiral?  It looks like anything goes here.  That statement is what created the problem with the mortgage market.  We are repeating ourselves under the disguise of doing in a different way.