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
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
“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.
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
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.