Tuesday, February 24, 2009

Krugman Losing Faith in Government Plans; Also News That Cats and Dogs Will Now Live Happily Together

Someday someone is going to be able to explain to me why Massachusetts drivers INSIST on being in the left lane of a rotary when they have to exit to the right and cut off several cars almost causing a pile up every time. I see this every day. It is a condition specific to Massachusetts. Home of MIT, Harvard, and stupid drivers the envy of the world.

Hilarious Rap Lyrics
I came across this amazingly funny post on the Yahoo Finance message boards for Bank of America (BAC) today. For the full effect you need to be familiar with the the rap song "I Like Big Butts" by Sir Mix-A-Lot:

Now substitute this writers lyrics and you have one funny tune! A sample:
Baby Got BAC
I like big BANKS and I cannot lie
You other traders can't deny
That when these stocks get down to an itty bitty price
it's time to roll the dice
And then SPRING,
Pull the trigger on the trade
Take advantage of the bear raid
The losses that I'm bearing
Won't stop me from getting more shares in
Oh Cramer! I take issue with ya
I get the picture
Your always trying to warn me
But your take on BAC is oh-so-corny

Instant classic!

Read Tomorrows Headlines Today
What good is a financial site if it cannot predict the future? Here at Economic Disconnect I sympathize with the readers need to have some guidance for the future. Tonight I will dust off my crystal ball and deliver unto you the headlines from the future! Now where did I put that thing........

Ready?

In 2-4 months we will see the following headlines in all the mainstream media:

"Foreclosure Numbers Contract Sharply; Housing Bottom in Progress?"
"Foreclosures Drop at Record Pace; Now is the Time to Buy?"
"Homes Entering Foreclosure Drop; Proof Government Plans are Working"


Amazing, huh? Now how can I possibly see into the future (disregard my ability to use the force)? Simple, I can read and I can guess at how news will be spun. You are aware that BAC and C are suspending foreclosures until they get the bailouts they require through the mortgage bill. That is a lot of foreclosures that are going to go away from the count in the next few months. Also, California has led the way with their own bill to delay the inevitable by imposing a moratorium on foreclosures for 90 days! So do you think foreclosure numbers going forward are going to go up, or down? And how do you think this will be reported? Simple stuff this reading the future!

Ben Bernanke Says the Recession Will End in 2009, and 2010 Will be a Year of Recovery
I have nothing to add to that headline, it writes itself!

Krugman Losing Faith in Government Plans; Also News That Cats and Dogs Will Now Live Happily Together
Its is now official, I am very worried. When in the course of human events I find myself in the same boat as Paul Krugman you know something wicked this way comes!

My favorite Keynesian adherent had a blog post today that was honest and forthright without partisanship and cheerleading. Excerpt:
Mysterious plans
I’m trying to be sympathetic to the various plans, or rumors of plans, for bank aid; but I keep not being able to understand either what the plans are, or why they’re supposed to work. And I don’t think it’s me.
So the latest is that we’re going to convert preferred stock held by the government to common stock, maybe. James Kwak has a good explanation of what that’s all about. And it’s not at all clear what is accomplished thereby.

At the top are a bank’s assets. Below are its obligations to various parties, with decreasing seniority from left to right. I’ve drawn it to embody a pessimistic assumption about the bank’s finances, because those are the cases we’re interested in: the bank’s assets aren’t enough to cover its debts. Nonetheless, the stock, both preferred and common, has a positive market value. Why? Because of the Geithner put: the bank is protected from collapse, keeping the creditors appeased, but stockholders will get the gains if somehow things turn up.

What we want to do is clean up the bank’s balance sheet, so that it no longer has to be a ward of the state. When the FDIC confronts a bank like this, it seizes the thing, cleans out the stockholders, pays off some of the debt, and reprivatizes.

What Treasury now seems to be proposing is converting some of the green equity to blue equity — converting preferred to common. It’s true that preferred stock has some debt-like qualities — there are required dividend payments, etc.. But does anyone think that the reason banks are crippled is that they are tied down by their obligations to preferred stockholders, as opposed to having too much plain vanilla debt?

I just don’t get it. And my sinking feeling that the administration plan is to rearrange the deck chairs and hope the iceberg melts just keeps getting stronger.

Welcome to my world Mr. Krugman!

Everything being done right now is all about buying time. And more time. The central belief is still that many of these dud debts are going to miraculously become good in the future. This flies in the face of everything we know. Is there something else? Something myself and even Mr. Krugman are missing?

The only thing I think can explain the "buy time" mantra is that the FED/Treasury know they are going to monetize this debt and devalue the dollar. Obviously this is going to take, what class?, that's right, TIME. The dollar having a huge rally lately only makes the need for TIME that much more pressing. The FED will want to gently devalue the dollar in small increments as to avert a panic. This will take TIME. When viewed through this lens, I think we may be closer to the answer.

If it comes down to the FED being able to orchestrate and orderly devaluation, I think they may be overconfident. Time will tell.

Have a good night.

3 comments:

watchtower said...

"Ben Bernanke Says the Recession Will End in 2009, and 2010 Will be a Year of Recovery"

Our fate is sealed.

Lisa said...

http://www.reteaparty.com/
Tea parties popping up everywhere. The grass-roots movement has begun. It will falter, be a bit wobbly, then gain more momentum.
This is only the beginning.

Anonymous said...

Citi customers angry about reported gov't plans
http://biz.yahoo.com/ap/090224/citigroup_customers.html?.v=4

Wonder if they will tell them with their money and their business. Borrowing you tax dollars back and paying intrest or just paying these thieves fees is unbelievable.

Kevin