This week marks the one-year anniversary of the Lehman bankruptcy. The media struggles to say something meaningful about it. Here at The Daily Reckoning we will not even attempt meaningfulness. We’ll be satisfied with a few snide remarks.
What is most remarkable about the world a year after Lehman fell it is that so little seems to have changed. Even the papers have noticed.
“A year after Lehman, little change on Wall Street,” says the headline on today’s International Herald Tribune. “Backed by huge US government guarantees, the biggest banks have re-structured only around the edges. Employment [on Wall Street] has fallen just 8% since last September.”
“Obama to push banking overhaul,” says another headline at the Telegraph. Yes, the pols will try to convince the world that they have regulated risk out of the market. Perhaps they will limit salaries…or insist on more disclosure…or require that the capitalists hold onto more of their capital. Then, they will stand before voters and say they have made the world safe for democratic capitalism. Don’t believe it; their bailouts have made it more dangerous.
We don’t know whether this was what Nobel prize-winning economist Joseph Stiglitz had in mind. But he has come to the same conclusion:
“Stiglitz says banking problems are now bigger than pre-Lehman,” says the Bloomberg report.
Yes, Wall Street has a good gig going. The whole industry now benefits from the hedge fund formula – ‘heads I win, tails somebody else loses.’ When the hedge funds play the game, it’s their clients who lose money. But the way Wall Street banks play it, the big loser is the US government directly, and US taxpayers and bondholders indirectly.
When the going is good, the bankers make millions in profits – which they take home as salary and bonuses. An analyst at JPMorgan estimates that American and European banks will pay their 141,000 investment banking employees $77 billion in 2011…or about $543,000 per employee. Since they pay out so much of what they earn, they lack the capital to survive a crisis. But when they’re threatened with extinction, the feds step in to bail them out. No wonder they have no fear of a meltdown…
Wall Street was quiet on Friday. The Dow was down just 22 points.
The most exciting news was that gold closed at $1,006. But if gold buyers were afraid of inflation they neglected to mention it to the folks over in the bond market. The US 10-year Treasury note yielded all of 3.34% on Friday. Which is to say, fear of inflation is probably NOT what is driving up gold. But we’ll come back to that tomorrow. We’ve been doing a lot of thinking about gold…stay tuned.
Meanwhile, The Financial Times says world equity markets have rallied 65% since their lows in March. There is no longer any sign of panic. Or fear. People seem to think the crisis of over. This has reinforced their illusions. They desperately want to believe that their financial authorities have the matter under control. So long as things seem to be stabilizing – or actually getting better – they figure they can relax.
‘Nothing has really changed,’ they tell themselves. ‘It was just a hiccup…nothing serious,’ they say. They look out their windows and see the same trees, same buildings, same automobiles; it certainly seems as if nothing had changed.
Of course, when you set out on a drive from Manhattan, it takes a long time to get out of the city. For a long time, the buildings…the landscape…and the people still look the same. But you haven’t even crossed the Hudson yet! It is only later, after a lot of driving, that you realize…you are a long way from home. We suspect that there’s a long trip ahead of us too. We have begun the process of reversing a half-century of credit expansion. Since 1945, debt per person has increased. Now it is decreasing – with vast consequences. If we’re right, the financial sector will shrink for many years. Profits will be hard to come by. A job will be difficult to get too. And the part of the world dominated by Anglo-Saxons will diminish.
Fear will make a comeback…when people realize where they’re headed…
As you’ll recall from Friday, between the fall of the Berlin Wall and the fall of Lehman was perhaps the happiest, most worry-free period in American imperial history. The country had no military challengers. Finance was the world’s highest margin business…and New York’s hustlers were good at finance – rivaled only by those in London. And English was the world’s dominant language. With these advantages behind them, Americans (and Brits) saw nothing before them but growth and prosperity. They had gotten used to living off the kindness of strange lenders. They thought they could get away with it forever. But when Lehman went down, so did hopes for the eternal reign of the Anglo-American financial empire.
Now, savings rates are going up in America. Spending is down. So are salaries and prices. It’s a deflationary world…practically everything is deflating…
Consumer prices…inflation is negative in the United States and Europe…
Wages…household income is down in the United States. Unemployment is up and the length of the average workweek is down. Result: lower wages.
Housing…“house price decline [in England] will continue after false dawn fades,” says a headline at today’s Telegraph. A study by Ernst and Young predict a 1.6% drop in British house prices in the first half of next year, after an 11.4% fall this year.
Net household wealth…down too, caused by falling house prices and falling incomes.
Oh…but here’s one thing that is up: government deficits. The United States posted a deficit of $111 billion in August. A few years ago, that would have been a frightening deficit for an entire year. Now, we have hundred-billion deficits every month…with no end in sight.
As we forecast, protectionism in on the rise. The Obama administration put a tariff on tires imported from China. It was done do to protect American tire manufacturers from competition. Free trade? Sure, when it suits us.
But China is getting huffy about it. In an “unusually strong riposte,” Beijing, using diplomatic language of course, said to the United States roughly what Serena Williams said to her net judge:
“If I could I would take this f***ing ball and shove it down your f***ing throat…”
Why’s China so upset? In an expanding world, everyone greedily grabs market share. Even if they’re not as fast as the next guy, they still feel they’re making progress. In a deflating world, on the other hand, if you give ground…you’re not just losing market share…you’re losing money!
This weekend we traveled back to Paris to take part in a panel discussion on freedom. Liberty is not a hot topic in Paris. In a metropolitan area of some 4 million people, only about 50 turned out to hear our talk – and half of them were American or English. Still, we were surprised there were so many. Liberty is a popular word. But freedom has never been much in demand. Millions of books are sold that promise to reduce your weight. How many are sold that promise to increase your freedom? We don’t know of any. Our guess is that the bookseller who makes freedom his market niche will soon have dust on his books and cobwebs in front of his door.
Still, the little group was enthusiastic. Assembled in a stuffy miniature theatre off the Rue Mouffetard, the freedom enthusiasts had a number of ideas for promoting their cause. One wanted to infiltrate the government with closet libertarians. Another suggested a takeover of academia. Still another suggested engaging taxi drivers in Socratic dialogues.
We looked for a fire alarm. Clearly, the heat was getting to them. They needed a good hosing down. We live in a world dominated by rules, laws, edicts, taxes and regulations. But it is not because the masses have never heard of liberty. They know what freedom is; they just don’t want it.
Instead, they want instead is an edge, an angle…a law that protects them from honest commerce…a special tariff that gives them an advantage…a monopoly…a privilege…
They want food stamps and unemployment compensation. They want free medical care for their parents and free schools for their children.
They want what we all want…growth and prosperity, without corrections. And they want to go to heaven without dying.
Bill BonnerThe Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010.
Exactly everyone is looking for an angle. Instead of hard work, diligence and frugality or living within our means…..investing and taking risks and learning from our mistakes…winning some losing some but not giving up on our dreams.
Bears/doomers/deniers are always looking for the one guy to support their viewpoint:
“We don’t know whether this was what Nobel prize-winning economist Joseph Stiglitz had in mind. But he has come to the same conclusion:
“Stiglitz says banking problems are now bigger than pre-Lehman,” says the Bloomberg report.”
BB, I can find 50 other economists who say differently. BTW, new market highs, kids. Stop denying and start buying!
Hey BB i c u’ve latched on 2 a “Troll” thats bent on prove’in u wrong. I c he just does’nt get it! But in the fullness of time he will! Were all here making money cuz of u. Keep up the great work! U r well appreciated’even by the Trolls. Thats why he’s here every night posting,sounds like “Luv2me!” Don’nt u agree BB? Well lets all live long and prosper! Until we all get 2 the other side! Were there is no, who’s right or wrong,cuz will all have returned back 2 the energy and matter that created us! W0o…
Ah, we can always count on Harry The Recovery Troll to brighten our day! But as i said before, i really suspect Harry is just Mr Bonner teasing us…
Meanwhile, on a drive from DC to NY I counted 37 places for lease, including entire facilities that could house factories inside. And a coleague lawyer I met in DC said he`s quite worried about clients going bankrupt at full speed…he`s lost about 25% of his clients, and now seeks business in the Brics… Keep buying Harry, I just hope you know when to sell…
And sparkie, please type REAL words, so you can fool people into thinking you have a REAL brain.
Protectionism…no big surprise there. The U.S. has the consumer markets that all foreign producers seek. Supporting domestic industries will create needed jobs. Besides when you don’t have comparative advantages, what else is there a goverment can do?
Harry and the market crash last time happened in a period of bullishness . Markets crash from highs not lows, just because it has not happened yet does not mean it won’t . A few more articles about small investors getting back in this market should do it .
Protectionism always kills more jobs than it saves. We need those cheap tires to keep the American consumer economy going, in as much as it is possible to do so. American jobs are in retail, selling things that are obtained from foreign countries in exchange for worthless American dollars and treasury bonds.
America needs to start producing things that foreigners want to buy. Preventing Americans from obtaining lower cost goods from overseas is a surefire way to prevent that from happening.
America’s solution to every economic downturn for the past 38 years has been to create even more money out of thing air and scam the world into thinking that it is actually worth something. It won’t work anymore.
The greatest constraint on freedom is the concept of salaried jobs and mortgages. Freelancers — the Ronin — are free. We do work, we don’t have jobs. Mortgages are a modern form of indentured slavery. Oh yes, the other contraint to freedom is dependence on money. The less money you need i.e. the more you can do for yourself like growing your own trees for heating, the more free you become.
Our monetary policy is to reward incompetence and punish hard work and innovation… our freedom is already gone.
turbulence spiral (altitude or height with cycle)
quantity liquidity infusion (linear or flat)
See …… .
Dimension is deferent.
You gonna hurt or destruct something .
Harry: “BB, I can find 50 other economists who say differently.” So find them and lets see them.
Update: Economic numbers blew away estimates again this morning. Keep denying but to do so is naive and foolish in the face of what is becoming growth that is impossible to refute.
Libertarian ideas will never work in the real world. It is a great theory, but the world is full of greedy lazy people who want to and can just simply buy a pol and secure some law or regulation to make a successful bus. This is much easier than building a better mouse trap and we all know it. Waiting for the day the Lib.s ideas win out is like waiting for hell to freeze over – it ain’t gonna happen! Their will always be con-men, crooks and folks in the bus. of doing favors. If you think the folks in D.C. are ever going to let the power structure they have created for themselves, their friends and campaign contributors vanish then you are simply deluding yourselve. Given all this protectionism is a much better idea than this so-call, phantom free market everyone speaks of.
I would be surprised if the DOW stopped short of 10k. The government is buying banking and utility stocks, bears don’t stand a chance.
And today Ben Bernanke said that the US is probably likely could be out of recession. Of course, this as Eli Lilly announced that it will eliminate 5-6,000 jobs over the next few years, and the Philadelphia Free Library system is going to completely shut down forever on Oct. 2 as the city of Philadelphia plans to lay off 3,000 other workers, including police, fire fighters and teachers. Blockbuster is going to shut down 950 stores. Sounds like good times to me or maybe it’s just a big push to help Obama regain some of his lost popularity?
Hey Alan it could b just BB just fool’in with us.I like the spin ur spinning! Harry is really BB in disguise,i luv-it! All i can say is keep posting Harry/BB in-disguise we luv that u came 2 the xchange, 2 xchange! Alan I wish i could rite in real words,but the way i rite is kinds my style.Some may say that i have no style! But ahh! No style is my style!Get It??? Live long as prosper! W0o…
Has Globalization worked out to the best interest of the U.S. Is it better to be in retail sales of foreign made products or in retail sales of goods made in the U.S.? Wouldn’t the latter create more jobs? Just a thought.
Seems Sparkie is a freakin’ freak. But then, who cares?
Protectionism, from the point of view of history, is long overdue, folks. It is time again for the gov to pimp their own people in order to be able to cash in on them as the foreigners are not willed to pay anymore.
It may be in the best interest of US if recession continues. People will continue to buy for the basic needs.The corporates which are thriving on Push product sales since WW II will down the shutter.The cheap chinese products will evaporate from the market.lower salary structures will create more jobs instead of outsoucing.
When you've got a room full of 200 oil insiders scratching their heads at current high prices, something's gotta give.
For most investors, it’s weird to think of stocks as their go-to investing option.
The petropoly has bills to pay and setting the price of oil was a simple way to balance their budgets.
Investors don’t seem to care that what's propping up their investments is what will ultimately destroy them: government monetary policy.
For the next decade the energy revolution will be likely confined to the US, displaying the robustness of American entrepreneurship.
Why the Sage of Baltimore’s commentary persists through America’s changing times.
After attending Platt’s oil conference in London I want to relay two important themes you need to know.