11/19/10 Baltimore, Maryland – Here’s the story:
The Irish caved in. Apparently, they negotiated a deal. They’re going to go for a bailout.
This was all it took to bring stock market investors relief from their bout with temporary sanity. They sent the Dow up 173 points.
The New York Times tells the tale:
Stocks in the United States rose Thursday as expectations grew that Ireland would receive billions of euros from international lenders to rescue its banks, easing concerns about the health of Europe’s financial system.
Shares of General Motors began trading after the company’s initial public offering, the largest in United States history. The shares surged nearly 8 percent after the market opened, and in late trading fell back to $34.07 on the New York Stock Exchange. The stock had been priced at $33 on Wednesday evening.
Ireland has moved more aggressively than many countries to address problems brought on by the financial crisis, but investors have been losing confidence in its banks in recent months, and a Greek-style rescue now appears imminent. On Wednesday, the British government signaled that it could offer Ireland direct financial aid as well.
What are investors thinking? A Greek-style rescue? How about a Titanic-style sea voyage? How about a Little Big Horn-style pony trek?
Greece is still going broke. It is just a matter of time. And now this Irish bailout does the same thing. It postpones the real problem – and makes it worse.
Investors are probably thinking – “everything is under control”…“no need to worry”…“the authorities know what they are doing.”
Well, we’ve got news. The authorities have no idea what they are doing. If the Irish authorities had seen the problem coming they would have forced the banks to straighten up long before 2007. And then, if they had any idea what they were up to, they never would have written the banks a blank check when they got into trouble.
They are just muddling along from one crisis to the next. If the Irish had just let their banks go bust in the first place, they wouldn’t be in this mess, in other words. And if the Europeans would just let Ireland go bust, well…we don’t know what would happen…but we’d like to watch!
Meanwhile, in the US, the municipal bond market seems to be on the edge of chaos lately. It is probably only a matter of time until the Fed starts buying muni bonds as well as US Treasury bonds. Why not? Neither one is good for the money.
State and local governments made promises during the fat years. Now that the lean years are here, they’re having a hard time keeping them. Just like the feds. Just like the Irish. Just like the Greeks.
To their credit the Irish, Greeks, Brits – and others – have begun to make cuts. Even government employees are having their hours or their salaries trimmed.
Not so in America. The process of cutting has barely begun. (About which…more on Monday…)
Meanwhile, a news report tells us that many rust-belt cities are demolishing buildings. Owners aren’t paying property taxes and the buildings are not worth the maintenance it takes to keep them standing.
And here’s Bloomberg with more news from the homing sector:
Foreclosures on prime fixed-rate mortgages in the US jumped to a record in the third quarter as unemployment strained household budgets of the most creditworthy borrowers.
The inventory of homes in foreclosure financed by prime fixed-rate loans rose to 2.45 percent from 2.36 percent in the previous three months, the Mortgage Bankers Association said in a report today. New foreclosures rose to 0.93 percent from 0.71 percent. Both numbers were the highest in the 12 years since the Washington-based trade group started tracking the categories.
“The increase in these plain-vanilla type of loans to the highest numbers ever show us it really is being driven by the economic environment,” [Michael] Fratantoni, [the Mortgage Bankers Association’s vice president of research and economics], said in a telephone interview. “It’s not going to turn around until we get more significant job growth.”
New foreclosures against all types of mortgages, which also include subprime, rose to 1.34 percent, the highest level in a year, according to the report.
Bill Bonner
for The Daily Reckoning
Bill Bonner
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.
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Dear Bill:
I love your articles. They are funny, witty, and smart. However….. I know you are a “Let it crash and burn” purist but there is no way things will work out better for everyday people if officials let the banks drop dead. If the crisis takes longer, although I admit that’s not necessarily a good thing, it gives people time to adapt and adjust. No one will feel better or be better off with Dow 6,000. No one with a 401K, anyway. Look at GM. Their bailout helped to give the corporation a new lease on life and their employees benefited from their second chance too. So Bill… Bailouts aren’t so bad.
Cheers,
Wendy
So here’s to the next bailout.
And here’s to hoping that Ford won’t need one to compete with GM.
Fed knows one thing a lot of people don’t. The Fed actually has 3 mandates. Two of these – stable currency and economic growth – are delusional contradictions demanded by the Congress. The third mandate, however, originated from the banking Illuminati, and that is to fight a world war of currency manipulation when things aren’t working out their way.
China is and has never been part of the western banking Illuminati controlled by the Fed chairman. It manipulated its currency in a way that much displeases the Illuminati powers. So the third Fed mandate, the War, in now officially declared. The first shot, $600 billion to finance an insolvent US Treasury stuck with too many expenses and too coward to raise tax, is now in action. We will see more shots. What’s next depends of how China fires its shot. But we can expect the Fed to load up another trillion dollar into its keyboard to fire by next summer. Stupid economists call this ‘competitive currency devaluation’.
The idea is to see which country will blow up bigger than the other. Well, the US has blown up quite a bit. So one can expect China to be more vulnerable. Bernanke will love to see China collapse into a holy mess. He can declare victory, his place in the history books secured. Of course, the military will be called upon to tackle the resulting mess. Just like Hitler did for Germany. You gotta admit, Hitler did restore the Mark to have some value.
Folks, this is not bailout. The Fed does not do bailout, except for its Illuminati members. Let the sorry bankrupt governments do bailout. The Fed does far more important things. Like run world wars.
How would you like to be a Britsh civil servant, recently tossed on your keyster and out of a job as the government cuts expenses, only to see the proceeds from elinating your job used to bail-out Irish banks? Greeks rioted when confronted with austerity. Britain will be Greece times 10 as the rioters go on a drunken rampage. It’s amazing how similar the outcome from too much booze or too much credit. Mix them both together and the resulting cocktail is nothing short of explosive.
Wendy, would you share your drugs please.
The bailouts transfer debt from the private sector to the government sector, this may surprise you, that would be us taxpayers.
GM has received resources that should have been allocated elsewhere, like for instance to a business that could actually trade at a profit.
And good luck with the 401 btw, the feds will nab all of these in the next 5 years to help pay the interest on the public debt some of which would be due to bails outs.
Now repeat after me Wendy, the Dow has nothing to do with the economy, partic as this country no longer makes anything. And finally, why the hell would you give your savings to pay off a third party debt, to feel better?