Recently in Economy Category

On the heels of a $770 billion bailout of the financial industry, and the more than $120 billion handed over to the immoral criminal pig fuckers at AIG so they can go to spas and treat themselves, Democrats are now seeking $25 billion to hand over to the auto industry. Obama's significant lead in voting in Michigan has no doubt played a part in his thinking about whether these companies should be rescued.

Where in the hell is this money coming from? My pocket. My children's college funds. Can I give you any idea how pissed off I am that I'm losing money every day in my 401k and having to give up on all sorts of things so we can get by day-to-day while we prop up failing businesses?

And this is not just a Democrat thing, though they're pushing hard for the auto industry bailout.

I guess I've got a metric shit ton of money I didn't know about?

So far these bailouts are costing $3050 per person in this country: $915bn / 300m people, or $12,200 for me because I'm the sole earner in this family. Give me the fucking $12,200. I can find a lot better uses for it.

Fuckers.

It's always been interesting, and a bit foolish, to me that the news media like to use the stock market as a daily barometer of the health of our country. It should be clear to people who think that the stock market is large and often seemingly irrational ecosystem with so many moving parts that it is hard to figure out what causes what fluctuation and why.

Anything more than the broadest strokes about the activity on the stock market are invariably wrong, but that has not stopped any pundit from trying to use it's churn as an indicator for why their particular view of "something" was right all along.

So, thinking about this I did some research about the stock market and historical trends related to elections and found this site.

I've taken some effort to recreate a graph they have on their site, but I highly recommend that you go to their site and look at the entire article because it's chock full of information.

The graph above represents the general rate of return for the S&P500 for every presidential election between 1950 and 2004. As you can see the general trend of the growth is upward but there is some churn. What's most interesting to me is the 0.5% average drop in the days following an election. I am willing to bet that even though the average trend for all elections displays this dip, and is part of an overall uptick in value pundits on the losing side of the election will spin this an indicator of people's pessimism and anger from the election.

And I'm saying this no matter who loses on Nov 4th.

And it's almost true...wait, what?

Well, here's what I mean. As I see it, and grossly oversimplifying here, there are three groups at play in the stock market around election time: supporters of Candidate A, supporters of Candidate B, and investors who just don't care. In the days leading up to the election as it becomes clear that Candidate A is going to win the election his supporters are more exuberant and more willing to spend money on the stock market. They think the future's bright. Also, because there's let instability, since we pretty much know who the winner is, group three invest more. When Candidate A wins, the supporters of Candidate B are in a pessimistic mood and sell off some assets because clearly this is the end of days. Group three investors (those who don't care) also sell off some of their gains from the last month's worth of investing. These two groups selling, for different reasons mind you, causes that 0.5% dip.

And that dip's not terribly significant. These days that'd be between 50 - 60 points down.

The important thing here, and what I'm trying to drive at is that it's not an indicator of the implosion of our economy, or even that Americans as a whole are unhappy at the outcome of the election. It instead reaffirms what psychologists and honest financial analysts have told us all along: the market is ruled primarily by emotions and irrational behavior.

I want to add one huge caveat to my thinking. We have several new factors in play that could throw this historical trend out of whack:

1. This is an unprecedented election. If Barack Obama does win and America has elected its first black president there's no real way to predict the reaction on Wall Street. We'd be living in the middle of history but the business economy seems mixed on Obama, so it's possible for the American public to feel elated and excited while the market sinks.


2. Tying into number one, the world is watching this election with keen interest. Many people abroad see a McCain presidency as one of continued conflict and instability and I think that his election would spur sell-offs in the global markets as well as liquidation of American assets by overseas investors. If that does occur the markets would go down in value as well.


3. We are currently in economically unstable times. Investors and the markets in general might ignore the election completely and continue to thrash about wildly on every bit of news.

Like I said, the markets are a large and complicated ecosystem. Only time will tell what will happen in the days following Nov 4th.

I keep listening to the debates and to people around me talk, and again and again I hear self-professed conservatives talk about how they don't want Obama to win because they don't want "socialized medicine". They rarely define what they mean by "socialized medicine", only that they don't want it.

WHY?

When did "socialized medicine" become the biggest boogie man out there? And why? There are s many fundamental issues we are wrestling with in this world and things that we haven't dealt with and people are frothing at the mouth about the health care issue.

Let's assume that by "socialized medicine" they mean government-run health care, which I admit is not necessarily the best sounding idea out there. But I'd also be lying if I didn't think sometimes that it would solve a lot of problems in the world. But why does it scare people? And why doesn't it scare me?

I'm still wrestling with it.

What do you think?

Checking CNN this morning I came across three stories about the economy that I wanted to share.

1. Ten states are reporting that by 2009 they will have no more money in their unemployment funds.

2. AIG says the $85 billion they received in government assistance was not enough and that they want more. $37.8 billion more, to be exact.

3. Cook County Sheriff announces he will no longer honor foreclosure eviction notices from banks.

Clearly they paint a bleak picture of the economy and the news is stark, but are these stories just being reported because the media is looking for these types of stories? It's hard to really know. The old adage is that no wants to read the good news. It's always the bad news that sells. But as an overall picture of what's going on around the country, the details are disturbing. The ten states running out of unemployment funds are: California, Michigan, Missouri, New York, Ohio, South Carolina, Wisconsin, Indiana, Kentucky and Arkansas. According to the report, eight more states are in danger of insolvency if the economy gets worse. To think about it at a macro-level, twenty percent of the country will have to pass emergency legislation to honor their unemployment laws or cut the people loose. If those additional eight states fail that's fully thirty-six percent of the states failing. It's hard to predict what the overall impact of the failure would be, but I can imagine, and it's not pretty.

So while these states, their leaders, and their people struggle to figure out what they will do, our government handed over more than $750 billion to the Treasury Department to help failing banks, and the State of New York (who is one of the states running out of unemployment funds) loaned AIG $85 billion. Now they want an additional $37.8 billion. We're told on one hand that we need to save companies like AIG because they are important to the overall health of economy, and they're in danger of failing, but they have half-a-million dollars to spend on a weekend at a luxury resort. I am pro-business, but not to this level of obscenity. Which is what this is. I'm almost inclined to think that it would be more beneficial for the US government to buy the mortgage insurance policies AIG holds, as well as the other profitable assets, sell them to other companies at a discount and fire the AIG executives. Well, maybe not beneficial, but certainly satisfying in a vengeful kind of way.

And speaking of satisfaction, we have Sheriff Tom Dart of Cook County, IL who has begun refusing to evict people from their homes for foreclosure. In an interview with CNN this morning he stated that the overwhelming majority of the people he has been evicting have not been the homeowners, but tenants. They are renting the homes and condos that are being foreclosed on, and had no idea that the property where they resided was in danger. Sheriff Dart says that banks are not doing their due diligence and until they begin to assert that the resident is the borrower. The banks are threatening to take Sheriff Dart to court and have him charged with contempt. Call me crazy, but I don't think that he's going to get convicted, even if charged. Going back to that notion of vengeance and its distant cousin justice, people are angry. They're hurt, and their scared, and Sheriff Dart's actions seem heroic. He's standing up to the banks, who look like the bad guys right now, and telling them that they have to change. While he might be breaking the letter of the law, a jury of his peers would validate his stand. A judge who convicted him would do so with the knowledge that he's going to ignite a firestorm of protest. It is an injustice to the people to have them pay through the nose to bailout the banks through the Federal Government while tossing them onto the street. Sheriff Dart's acting on his conscience, And for me, that's very satisfying.

Yesterday the stock market dropped over 777 points, or about 7% because a proposed $700 billion bailout did not pass the House of Representatives. Hopefully you already know all of this and this is not the first time you're hearing about this. A lot of politicians, including our own president and his appointees have come on the news and told us that we MUST DO SOMETHING NOW to get the bailout passed. Frankly I'm happy to see the current administration twisting in the wind.

Seven years ago (too many damn sevens) the Bush administration came to us and promised us the end of the world if we did not grant him powers never before wielded by the president and overreaching authority to do what he wanted. Congress rolled over and gave him the PATRIOT Act. Five years ago Bush went before us again and asked us to give him more authority and more powers and the freedom to invade Iraq as he saw fit. We were again promised death, destruction, and the end of the American way of life if we did not immediately give him what he wanted. Congress, and this nation in general, rolled over and now we are mired in a war we should never have been in. So now we face another situation where the President (and others) are using the same grave language in an attempt to force us to swallow a trillion dollar loan to Wall Street. But somehow, the press, and Congress have found their courage and are taking the administration to task.

This correction we are facing, the instability we are facing is still less than the one day drop of 22% we faced in 1987, or the two day 13 and 12% drops seen before the Great Depression. 7% is the amount the market crashed the day the markets opened after Sept 11th. We've come back from that crash, and we will come back from this one too.

What galls me about this is two things:

1. Between 2001 and 2005 we had a round of corrupt corporations close and we were told by our President that he had "cleaned up Wall Street". Apparently not. Nothing was cleaned up. If anything, the problem was swept deeper under the rug in the hope that it would stay hidden until he was out of office. There was a possibility to nip this problem in the bud before it became a problem and institute real reforms but, AGAIN, our leaders were asleep at the switch. And now Bush wants to heap the blame on us. This is somehow all our fault.

2. These same banks that are now crawling to the government seeking relief are the same ones who were before Congress 4 years ago demanding a change to the Bankruptcy laws. They said they were being punished by borrowers trying to discharge their debt and it wasn't fair to let people skate by without paying back what they were required to. And now, NOW? Well they are before Hank Paulson and others saying they cannot manage their own money and they want a free loan from the taxpayers to cover the shortfall. It's offensive. It's ludicrous. And to further salt the wounds of ordinary Americans, these are the same banks that refused to renegotiate the mortgages of struggling borrowers starting two years ago. Their argument that somehow borrowers should have known what they were getting into does not seem to hold water when it is now the banks that are saying "We didn't know what we were getting ourselves into."

I say the banks need to be punished. I think the banks should be thankful that people have not thus far marched on them and burnt them to the ground. I am not surprised that Congress has suddenly found their will to speak out and act. They feel and hear the anger of Americans from small town to large city demanding that we hold the guilty responsible. Now is the time to act. We do not need to turn to full scale socialism, but we most certainly need to sweep the halls and high-rises clean. The corruption and rot has to be cut out of the system. And it needs to be done now.