09/01/09 Bedford Springs, Pennsylvania
Hey, the economy is not only recovering…it’s becoming better than ever before!
“Banks recover to their levels before the fall of Lehman,” is a headline in this Monday’s El Pais from Madrid.
“Public assistance enables the world’s largest 15 financial firms to return to the capitalization they had in September 2008,” the article continues. The largest of the largest, HSBC, is now judged to be worth $186 billion, according to the stock market. China’s ICBC is on its heels, with a market cap of $178 billion. BNP Paribas is 7th at $87 billion.
We will overlook the compromising detail that banks actually lost money in the last quarter – more than $3 billion. And let’s forget that China’s major banks are sitting on mega-losses from more than eight years ago (to say nothing of the more recent losses). Western banks, too, still have billions in assets whose real worth is an open question…and subject to quick reconsideration…
El Pais goes on to report something intriguing: “The two big Spanish banks leave the crisis stronger.”
Ah. What doesn’t kill you makes you stronger. The world economy is recovering, or so people believe. Stocks are going up – led by the banks. But are the undead of the banking world really stronger?
Ha ha…don’t make us laugh.
But the world seems to believe it. The Wall Street Journal reports that just five big financial stocks are behind the stock market’s rally. Fannie Mae, Citigroup, Freddie Mac, Bank of America and AIG account for nearly a third of market’s daily turnover. Seems everyone is speculating on the banks…and moving them higher.
You will recall, dear reader, the banks made a fortune during the bubble years. You may also recall that they made so much money that when the bubble years came to a close, that they were almost all broke. Without hasty action from the feds, it would have been the end of the road for every major bank on Wall Street. As it was, even with government help, none of them survived intact. They all either went bankrupt, were sold off, or got bailouts with strings attached.
What busted the banks was too much of a bad thing. They made their money by peddling debt. In order to move the stuff, they convinced clients that their products were good safe investments – even leveraged derivatives backed by subprime mortgages! Such good salesmen were they that they even convinced themselves. When the crisis came, they realized that they had been buyers of the debt…as well as sellers of it. What could they do with it…except sell it to the feds?
But the whole financial industry is coming back to life. According to El Pais, it’s back…and it’s better than ever.
But wait? How could that be? Hasn’t the world entered the worst recession since the great depression? How could lending money be such a good business? People don’t borrow in a recession.
Strategic Short Report’s Dan Amoss is just as skeptical. “The banking system has no experience managing through the current ‘negative home equity’ environment,” he tells us. “This is an environment in which mortgage rates are already about as low as they can get and consumer balance sheets are as stressed as ever. Due to the nonrecourse nature of mortgages, most borrowers have no financial incentive to keep paying. Many are choosing to mail the keys back to the lender.
“This problem will cap the upside of bank stocks for years to come, so the sector will offer lots of short selling opportunities.”
Borrowing by households has fallen off a cliff. Instead of borrowing, they’re paying back debt at the fastest rate since the ’50s. No money to be made there.
How about commercial and business loans? Are you kidding? Businesses are cutting back too. Businesses borrow to expand…and there is no expansion going on. This is a contraction. Credit is contracting along with everything else.
Then, how could the banks make money? Let’s refer to that news item again. Oh…there are the magic words: “Public assistance enables…”
The banks are making money the same way Detroit is making money…dishonestly and temporarily. Instead of doing honest deals with willing and able counterparties, the banks are pulling a fast one. Their money comes, ultimately, from the poor taxpayer…the poor sap who funds all the government’s giveaways. The private sector lived far beyond its means during the bubble years. People wasted their money they didn’t have on things they didn’t need. Now, they try to save their money. But now the government wastes their money for them.
Speaking of which…a quick note on the Cash for Clunkers program. Numbers to be released today are expected to show a peak in sales in August caused by the feds’ incentives. President Obama calls the program a showcase, proving how effective government can be at getting the economy back on the road.
But let’s go back to basics. It’s a sham when people waste their own money. It’s a crime when they waste other peoples’ money. Prosperity comes from accumulating (saving) capital…and using it to increase productive capacity. The formula is pretty simple: Save your money. Invest it in productive business. The Clunkers program encouraged people to do the opposite – consume capital, other peoples’ capital.
’Nuff said.
We were going to let Ted Kennedy go to his grave without mention here at The Daily Reckoning. The newspapers, television and radio shows have mentioned it enough. Even the foreign press has taken note of the event.
We might have let it go, but we have taken an oath: whenever we see a bubble we must pop it. And there is a bubble in Kennedy worship so big it threatens to blot out the sun. Today, we approach with a needle.
No writer has failed to mention that Mr. Kennedy was not the first of the clan die. The press cannot resist hero worship – especially when its heroes die young.
The Kennedy brothers could have lived comfortably all their lives on their father’s liquor money. Instead, they took up the banner of ‘public service’ and wrapped themselves in it so tightly it suffocated them all. The oldest of the band was killed in WWII. Ted Kennedy’s grave lies only 100 feet from his brother, Robert, killed in 1968 while running for president. And only another 100 feet from another brother who was shot down five years earlier. With that kind of curse on a family, you’d think the younger bro would have gone back into the liquor business. Instead, the younger held his head up…headed for glory…and drove off a bridge. The bridge probably saved him. Had he made it beyond the primaries, some nutcase would have certainly taken a shot at him.
The bridge incident would have sunk a lesser man – that is, one who lacked the name, family connections, lawyers, and money of Ted Kennedy. It probably would have sunk a more reflective, more sensitive man too. A man with a sharper conscience might have seen the girl’s face in his dreams and have been driven to drink…eventually drowning himself in his own guilt, like a character from a Russian novel. But Kennedy had the ability to rise above shame and put scandal behind him, with some helpful amnesia from the press. Chappaquiddick is reported in today’s press as though it were a personal triumph. A lesser man would have gone to jail for manslaughter; Kennedy went on to become the ‘lion of the Senate.’ He merely gave up his presidential aspirations and buckled down to the life of a Senate hack. The eulogies tell us that driving off the bridge, drunk, made him what he was: “the greatest legislator of all time,” as the President put it.
No, we never shared the conservatives’ loathing for the man. We never met him. Had we known him personally, we probably would have found him as agreeable a drinking companion as anyone else. But we come neither to bury Ted Kennedy, nor to praise him…we merely poke fun at the world that idolizes him.
The fact that the Kennedys committed themselves to ‘public service’ seemed to make them part of the furniture of public life. Everywhere you looked, there they were. The newspapers loved them. Everyone knew what they looked like. Hairdressers knew their private lives. Taxi drivers suffered their personal tragedies as if they were one of the family.
But the Kennedys were more than just furniture. First, because they were not particularly useful…you couldn’t sit on them or dine on them. More importantly, when it came to decorating the republic, they were the ones who wanted to arrange the furniture.
All the obituaries hammered this point as if they were hardening steel: “He devote his life to public causes…” says one. “He fought for the poor and the downtrodden…” says another.
He said so himself. In a letter to Pope Benedict XVI, Kennedy seemed to write his own obituary. He allowed as how he had “done his best to champion the rights of the poor and to open doors of economic opportunity. I’ve worked to welcome the immigrant, fight discrimination and expand access to health care and education…”
USA Today provides a typical illustration of the Senator’s magnanimity and generosity.
A woman with an autistic son asked the government for help. “The Haitian immigrant wrote to her senator, ‘the only one who can understand what it takes to raise a child with disabilities.’” (Kennedy’s son lost a leg and his sister, Rosemary, was mentally disabled. This, according to USA Today, gave him “a connection with the public’s private pain.”)
“Within three weeks,” the news item continues, “they secured vocational and life skills training [for the son]…that allowed his mother to finally earn a college degree last year at age 58.
“I have my life back and my son is no longer under by my care 24 hours a day…”
No…now he’s under someone else’s care! Kennedy redecorated. He moved the cost of caring for the poor fellow on to someone else.
And what does the mother do with her free time? She’s now a “community organizer.” You can bet she’s organizing more transfers…of money from the people who earned it to the people who didn’t.
“He was always reaching out,” said Democratic strategist Donna Brazile. Yes, he was always re-arranging the furniture. And USA Today told us that he inspired a whole race of redecorators – people infected by a desire for ‘public service.’
“Hundreds of lesser-known former Kennedy staffers and campaign volunteers…followed him into public service…The alumni of his office pepper the government…”
But what is the consequence of all this meddling? Is the nation better off for it? None of the obituaries we saw even raised the question. How do you know if something is genuinely a public service? Is it a public service when you take money from one person and give it to another? The press seems to think so. Is it a public service when you load up the nation with hundreds of billions worth of programs and pet projects?
Kennedy was a prolific proposer…a serial legislator…a Tom Friedman with a Senate seat. Surely some conservative think tank has totted up the cost of all his legislation. And surely it is in the hundreds of billions of dollars. Where did the money come from? It had to come from somewhere. It has to come from people who had ideas and plans of their own…people who had put the couch under the window and the TV in front of the easy chair, just the way they wanted it. Were they really any better off when Kennedy moved things around? Was the republic stronger, healthier, more prosperous and more honest after the Kennedy brothers got through with it?
We leave you with the question.
As for Ted Kennedy, the man was a scalawag. But he was God’s scalawag; and all His creatures deserve our respect. And now that he’s in the dirt, God will do with him as He chooses. RIP.
Until tomorrow,
Bill Bonner
The Daily Reckoning
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“I have my life back and my son is no longer under by my care 24 hours a day…”
‘No…now he’s under someone else’s care! Kennedy redecorated. He moved the cost of caring for the poor fellow on to someone else.’
Dunno, but the idea that the public cares for the guy in order to allow his mother to live her life more freely resonates with me. I mean you can easily criticise when all your own children are healthy and/or you have the means to hire someone to care for an autist but if that is not the case things might be slightly different.
God doesn’t love the self-righteous, I guess.
When we are eating the very dirt because of the tragically misguided (if not outright villainous) works of the Statists (like Ted Kennedy), THEN maybe everyone will understand why what Bill is saying is TRUTH writ large.
We’ll learn that someone had to pay after all.
I think a bit less of you dwelling on Teddy and all that.
Let it go. We have more than enough to dwell on, which you do so magnificently. And far superior to all others to boot.
A SCALAWAG WAS A SOUTHERNER, kENNEDY WAS A NORTHERNER
Please stick to economics…
If Ted Kennedy didn’t meddle in everyone’s affairs then he wouldn’t be in the article. Great article Bill!
Yes, please you sound like a fool with your contradictions. “Let the dead lie in peace” you say one day only to trash “the dead” the next. But you’re also the guy who believed the parking lot attendant story as well.
In case you didn’t notice, world economic news last night and today was pretty impressive once again. Sorry to burst your bubble of negativity.
I enjoy your posts except for the hypocritical parts which is to say, I enjoy 60% of your posts. Just come out and say that you despised Kennedy then get back to the “Oh what the rich are doing to US” as you jet between your French and Argentine properties.
Talk about a bubble needing a needle
Bill, your criticism of Kennedy was uncalled for, and of what value? Rational people don’t buy the conservative nonsense about liberals spending other people’s money to do good. All societies have a responsibility to care for their citizens who can’t care for themselves, and they are stronger when they do. Tell me, was any currency ever printed with your name on it? Remember, no man is an island who can live for himself alone. Still, we love you anyway. Tell us about economics and Paris and Argentina instead so we can all play nice and be friends.
Best critique of the Bloated Windbag of the Senate I’ve read to date.
Ted Kennedy’s career is proof positive that politicians should be limited to one term.
Ted Kennedy was an elitist that got away with manslaughter or murder . The same kind of elitist as Bush going to the front of the national guard list and then not showing up for duty. Or Dick Cheney with his constant Vietnam deferments and Limbaugh with a pimple on derriere that kept him safe at home. The real tragedy is that people worship any of these losers.
Why does’nt everybody just “Lighten-Up!” Remember that nursey ryme bout Sticks and stones! Or have we 4gotten the simplest of truthes. Socortes would b ashamed of all of us!!!
Last week about 100 cows followed each other in the Swiss Alps to fall down a cliff…about 100m lower they smashed to death on the rocks.
It seems the majority of the people aren’t much smarter, however some (the bankguys) have (golden) parachutes…
Bill – Nice critique of Ted. The media showed their loony-left stripes with all of the drivel about what a “caring” guy he was. Am I a caring guy if I offer all of the leftist’s money to the less fortunate? Hmmmm…..
For starters, I am going to open up my heart and offer all of the Kennedy clan’s money to the victims of drunken driving. I just ask the leftists to refrain from hero worship. My boots are already clean and I just can’t respect a bootlicker.
It is comical to listen to the self-appointed voices of reason who counsel restraint and measured responses, and won’t countenance that those of us who find redistribution to be abhorrent are on the side of morality…
It is easy to support a lax view of armed robbery if you are the perpetrator. How about you re-distributionists can take a step back, leave your hand outta my pocket (and the nose of your beloved nanny outta my business)…. then we can warm up the pipes for a round of kum-by-ya and loving our fellow man…. I don’t make nice with the man who is plotting to steal my wealth and curtail my right to live as I see fit. I oppose him, and if I get an opportunity, see to it that he never crosses my path again.
A don’t wish Teddy and ill will in death, any more than I would wish on any other robber who sought to fence me in for my own good. I’m saving my ill will for the live ones who want me oppressed and stripped of wealth to fund their utopian visions and foreign wars… teddy can rest in peace…..
One question NEVER asked of these statist, liberal politicians: Why don’t you give your own money to help others instead of using mine? Statistically, conservatives are far more charitable than liberals, and why is that so?
The critque of the Liar in the Senate was perfect. Liberals always spend the money of others to “do good”. The Catholic church does charity all over the world with donated money not $ taken via threat of imprisonment. If the Liar was a good Catholic he would know that you are to perform charity via your own means and without adolation. The Liar wanted to be recognized and adored by man without having to do the heavy lifting required to perform true charity. What is nonsense is people expecting others to pay for and do the work that they themselves would never undertake and expect a good pat on the back afterwards.
Please tell Mogumbo to cease his stupid comments ( jokes ). They lower the tone of his essentialy good arguments.
I do not mind seeing my taxes spent on taking care of the sick and the helpless. I do very much resent having it go towards paying off the gambling losses of the Wall Street Bankers.
The Kennedy brothers were not in government to get wealthy. They were true public servants, working hard on behalf of the disenfranchised.
You gave us a glimpse of your character, and it was very disappointing.
to start off, Warren you are full of crap about Conservatives spending more than liberals. Where the heck do you get such a crazy idea? And by the way that doesn’t matter one bit in relation to the financial problems/opportunities at hand.
Back to my main point…All you Fiscal conservatives need to reinforce the fiscal part and don’t tread where the emotion rich Social conservative (strings pulled by Neo-Cons) hate speech comes to the forefront. I am very displeased by all the simplistic arguments made by Conservatives because they can’t get to the meat of the issues; they are much happier to make blanket arguments that feed on fear and hate. This form of making an argument is opposed to what Bill and many other fiscal conservative individuals are often so successful at, yet all too often within their own circles only.
This entry by Bill was a walk on the dark side of bringing easily grasped sound bites back into the reasonable discussion of the fate of this great country. Even opponents celebrated the life of Ted Kennedy because he forced them to elevate their arguments to more complex ones. This has been admitted by some Republicans. There aren’t many easy answers in this world. These town hall meetings would be a lot more interesting if there were actual real knowledgeable people arguing about facts rather than saying, “gawrsh this damn Negro commie president is trying to kill grandma” We need to raise our own standards to get Liberals to open their freaking eyes on some very important fiscal matters! Its not impossible and so many people forget and are to busy picking sides and hating their neighbor for their opposing beliefs.
p.s. Phelps: “The Catholic church does charity all over the world with donated money not $ taken via threat of imprisonment” is true… but their threat is much more important threat: hell for not donating 10%! (or at least a lesser place in heaven)… but don’t worry, donate some money and we’ll get a space ready for ya
Ted is still dead but before that he pump up or otherwise saved the Kennedy coffers while avoiding any real work the last 40yrs. Yeah well , I’m just fed up with the lack of tem limits. Bill B tells it like it is.
Bill, there is no need to trash the dead. God will do it masterfully. Let Ted go and wish him luck in the after life…he’ll need it.
The commentary on Mr. Kennedy was quite brilliant. Refreshingly honest and well articulated. He was a perfect human manifestation of everything the government and financial system has become.
All you kennedy lovers go to F***** hell where you will meet your leader.