Wednesday, April 2, 2008

The Great Depression II – Oops! Wall Street is Back! April Fools? Maybe ….

“Paulson Plan To Regulate Banking Industry Gets Blasted”
“Banks reveal additional billions in writedowns”
“Banking industry to lose 200,000 jobs over the next 12-18 months”
“Lawmakers grill Big Oil over record profits and $18 billion tax break”
“Corn futures hit record high, food prices to follow as fuel prices force farmers to cut back on planting”
“Food price hikes changing U.S. eating habits”
“Truckers mull over strike as fuel prices force many out of business”
“Dell Computers Announces Slashing of Thousands Of Jobs Worldwide”
“NASA estimates cutting as many as 8000 jobs”

The above headlines were all over the media on this April Fool’s Day 2008.

These past few weeks I’ve had no less than four in the trans community asking if I was going to the IFGE conference this coming week. To all I’ve answered a firm “No!” Money is tighter than I remember it since Reaganomics or the latter days of Nixon. From all the signs I see, if travel isn’t absolutely essential, we’re absolutely being foolish spending money on it. In fact, if there was ever any time to pinch pennies for what’s coming at us – it’s now. Those who are spending frivolously now will be regretting it in the months to come.

Then out of what’s appearing to be a full-blown depression, with even global contractions occurring as we speak, comes this from Wall Street:

The Dow-Jones rises 391 points to start the new quarter. Gold falls $33/oz. to end below $900 an ounce.

While I thought it was a mass-media April Fool’s prank, it appears it wasn’t. Which makes me wonder: where in the hell are they seeing a silver lining? Their behavior is downright bizarre.

To start off the day before April 1, we had Treasury Secretary Henry Paulson on Monday formally announced calls for consolidating bank regulation in the most sweeping overhaul in the banking system since the Great Depression. I’ve got to admit, when I first heard this from a Republican cabinet member, and saw the flag being saluted up the flagpole by the Admin hacks, I could’ve sworn it was an April Fool’s prank. Apparently not – it’s for real. What ever happened to Reagan’s “free market economy” and “industry self-policing” and “bootstraps survival of the fittest”? I guess that last part was only for us little-guy consumers – not the big-fish investors. "I'm deeply concerned about law and regulation that will make it harder for the markets to recover, and when they recover make it harder for this economy to be robust," said George W. Bush on March 18. “The temptation in Washington is to say that anything short of a massive government intervention in the housing market amounts to inaction. I strongly disagree with that sentiment." Looks like Bush & Co. has thrown in the towel on making us buy that “free market” farce!

Unsurprisingly bankers and credit unions, industry lobbyists (remember Tom DeLay’s K Street Project?) and federalist-oriented states opposed to government’s “weakened oversight” railed over this proposal from – of all sources – Republicans who say they hold big government and regulation in disfavor. “It reads like amateur hour and it's because none of those guys ever worked in a regulated, chartered bank," said Camden Fine, president and chief executive of the Independent Community Bankers of America. "A bunch of guys from Wall Street decided this was going to be their proposal."

Last month Federal Reserve was compelled to step in and fast-track a buyout of the struggling investment bank Bear Stearns by JPMorgan Chase & Co. As the Paulson initiative was playing out, a number of major banks announced the new fiscal quarter with news of more severe writedowns. Deutsche Bank, UBS, Lehman Bros. and Thornburg announce writedowns to boost liquidity amid credit crisis.

· Lehman Brothers Holdings Inc. said it would offer up to 3.45 million shares of convertible preferred stock to boost cash flow and reduce debt. Many of their shareholders have been anxious as, of the four remaining major Wall Street investment houses, Lehman is the most similar to Bear Stearns in terms of size, structure and exposure to mortgage-backed assets.
· Thornburg Mortgage Inc. said Tuesday it raised $1.35 billion in an offering as it attempts to keep the company in business and avoid bankruptcy.
· Swiss bank UBS AG on Tuesday reported more serious damage from exposure to the U.S. subprime crisis, saying it would post first-quarter losses of $12.1 billion and that it would seek $15.1 billion in new capital.
· Deutsche Bank AG said Tuesday that it expects first-quarter writedowns of $4 billion due to "significantly more challenging" market conditions triggered by the U.S. subprime collapse.

Further, Legg Mason is talking a nearly $200 million charge to bail out a struggling money market fund. National City hit hard by the mortgage meltdown, has hired Goldman Sachs to shop it around while Goldman Sachs slashed its earnings estimates on Citigroup and Merrill Lynch due to expectations of more credit writedowns. And Morgan Stanley analysts in London wrote in a report that "the industry is facing the most severe investment banking crisis in 30 years."

This of course means that with bank business drying up, jobs will go too. Financial research firm Celent LLC said in a report Tuesday that they expect the U.S. commercial banking industry to lose 200,000 of its two million jobs over the next 12 to 18 months.

Capitol Hill lawmakers grilled executives from the world's five largest publicly traded oil companies Tuesday, criticizing them for taking tax subsidies and not investing in renewable resources amid record prices for oil and gasoline. "Americans are hoping that the top executives from the five largest oil companies will tell us that these soaring gas prices are just part of some elaborate hoax," said Ed Markey, D-Mass, chairman of the House Select Committee on Energy Independence and Global Warming. "Unfortunately, it's not a joke."

Referring to reports showing that low income people are paying 10 percent or more of their income on gas Markey said, "So your message to them is you can't do anything for them," he said. Critics say the oil companies deliberately keep supplies of gasoline tight, and there have been calls to break up the big firms and enact a windfall profits tax. The House has tried to repeal the tax break several times, only to have it shot down by Republicans in the Senate and face a veto threat from President Bush. Meanwhile oil is currently at $101.40 a barrel, and gas broke another price record at an average of just under $3.29 a gallon. Big Oil’s CEO’s responded that they deserve their profits, and that their profits “weren’t out of line with the rest of [corporate America].” What?!?

As oil and gasoline go up, so are nearly everything (other than wages) in the economy. Farmers are expected to plant 8 percent less acreage of corn from 2007, (which was the highest annual amount planted since World War II). The decreased supply will likely push corn prices even higher -- a cost for food producers that could be passed on to consumers. On that news corn hit a record $6 per bushel on the commodities market.

The ethanol industry (an additive in gasoline during the oil crunch) is heavily subsidized and has contributed to the rise in prices, a decrease in corn production could hurt that business, too. A 100 million gallon-per-year ethanol plant consumes about 33 million bushels of corn. Higher prices for the crop could be passed on to those filling their cars up with the renewable fuel.,CST-FIN-wallet01WEB1.article

Meanwhile corn lags behind wheat prices which have risen 16% (due to Asian demand and a weak dollar) and even dairy prices which have climbed over 20%. On the plus side of the corn price rise, more livestock fed off corn will have to be slaughtered to save money. Meat (especially pork) will decline for the short-term, but then once that inventory has decreased and sold at market, expect it to rise similarly afterwards. More people say they are eating at home, buying food in bulk. Additionally restaurants have felt the pinch of both increased costs and fewer customers and are considering reduced staff hours.

Meanwhile truckers tried, but didn’t uniformly follow through with a nationwide strike. Reports have shown sporadic shutdowns in the face of a threatened truckers’ strike. "We've heard from a lot of members who have no intention of participating," said Norita Taylor, spokeswoman for Owner-Operators Independent Drivers Association. "What's more important is what happens tomorrow and the next day and next week.” She added that, “More and more truckers will be faced with decision about what to do, whether or not to stay in the business.”

As fewer truckers are available, many are worried about a shortage of drivers and attendant cost increases for shipping. "I don't have any of my drivers who are striking, but we lost 12 trucks yesterday," said Gary Salisbury. "Guys who have a mechanical problem, if they go down, they don't have the cash reserves to fix it and keep rolling."

After laying off around 1100 employees in February, Dell Computers announced they are slashing 10% of its workforce – around 8800 jobs – around the world to save $3 billion. They note sagging stock prices due to consumers’ tightened pocketbooks as reaspm. Dell plans on terminating 900 positions in their home base, Austin, and closing their desktop computer manufacturing plant there in order to focus on “other markets.”

Looking down the road, even seemingly recession-proof jobs in the government aren’t quite so safe. Right across town at the Johnson Space Center came the announcement that NASA will be shedding as many as 8000 jobs themselves as they wind down the space shuttle program.

As for places where jobs are safe in this stagflated economy, there’s nursing (at least until they bring in enough Filipino, Irish and Singaporean nurses – those who speak English from other depressed economies – to fill them enough to depress those wages). Keep in mind we’ll have to be able to afford the health care in the first place … an iffy proposition. As for the oil industry with all their profits, I wouldn’t bother. My current job is a contract stint at one of Big Oil’s giants. The reason I’m there? Others who had our finance, payroll and accounting jobs have already left to find other positions as these jobs are being prepared to migrate to India. Yep, record profit-making companies don’t stop wanting even more record profits!

Disappearing jobs, higher prices, fewer customers, failing banks … and lots of war to pay for – don’t forget that! So is this an economy on the upswing? I’m sorry, but I get the distinct feeling – as does the teeming mass of America – that this isn’t any upswing. It’s going to be April Fools … and I’m not gonna be one of them.

"As President Bush has said, the U.S. economy is fundamentally sound, and so we expect to see continued economic growth." — White House spokesman, Gordon Johndroe, responded “with confidence” on August 18, 2007

“I'm confident that our economy will continue to grow because the foundation is solid.” — President George W. Bush on March 18, 2008

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