Monday, March 17, 2008
It looks like something really crazy could happen in the stock markets today. And it won't be good. The investment bank Bear Stearns is selling itself to JP Morgan Chase for about $250 million, which is soooo cheap I am wondering if it's a typo. Bear, as those in the know like to call it ( but not for long), was/is big into the MBS, or mortgage backed securities, business, which has totally tanked. And now Bear has too.
I don't know if bloggers have any disclosure requirements, but I bought some JP Morgan stock last month. Just a little. But I'm feeling pretty smart about it today.
So anyway, it looks like the financial markets could have a total meltdown today, which, while exciting, could really suck for everybody. Our intrepid Fed Chairman Ben Benanke, who I am liking more and more, is acting quickly and with a great deal of inventiveness. Banker Ben is an academic at heart, and is a poor public speaker. His voice shakes and he frequently seems as though he is about to fall into stuttering. But Hats Off to Banker Ben! He has been coming up with new programs so fast to keep our whole credit economy house of cards from crashing down that it really is amazing. He came up with a new credit facility for investment banks, to stop any more from failing, a la Bear, over the weekend! I for one didn't do squat this weekend, but Ben saved our economy. AND, nobody even realized he was doing it.
Amazing. I am very very impressed.
He did something similar for regular banks in the mortgage lending business a few weeks ago. I'm fuzzy on the details, because I really don't know that much about banking. But it seems clear that Ben is doing everything he can to bring order to an otherwise chaotic situation.
Listening to the business pundits in this era is rather surreal. Their consensus is that the market has to take a huge price drop, not necessarily to get prices in line with actual values, but rather as some sort of psychological acceptance of the fact that investors and/or investment houses have let the market become irrational, and they need to show (someone) that they have resigned themselves to getting things back to some semblance of reality.
The other thing that the pundits are hoping for is that some folks with actual money might come in and buy up all of this wreckage at bargain prices so that we can get this mess behind us. The key is people with actual money, not other people's money (OPM). People with actual money are relatively free of the restrictions on what they can buy, and so can buy stuff that temporarily looks like garbage, but really has intrinsic value, like mortgages. This is actually what will most likely happen. The real question is whether it will happen quickly enough to save us all from further economic decline. Doubt it!
The real underlying weakness here is that we have evolved into a consumer based economy. Since almost every American can afford basic necessities (do you know anyone without a car, cell phone, and air conditioning?), this means that our economy is based on each of us buying a bunch of junk, on a continuing basis. This weekend I spent most of my money on fast food, gas to drive around for no real reason at $3.79 at gallon, movie tickets, and some Nikes (made in Vietnam.) None of my money went for, say, a solar powered passenger train to get me around the Atlanta metro area. But it sure would be cool if we, as the Greatest Nation In History, could build something like that. Very ironically, Michael Dukakis sort of predicted this in 1988 when he challenged George Bush the Elder on what kind of jobs a republican economy would produce. Duke said that under a Bush economy having jobs would mean that we would all end up making each other lunch.
Ben cannot solve that. How do we change our economy so it builds lasting value and a great civilization? Not through consumerism. It is an underlying problem that would require a national will to greatness. But I just don't see that we have any such will. We have a pretend will to greatness where we wage little wars to feel macho, but refuse to balance our country's checkbook, or clean up our own water and air. That is not a great nation. That is a nation of spoiled children.
Well, off to work. Maybe I'll pick up a croissanwich on the way in.