“Tonight We’re Gonna Party Like It’s 1929!”

I remember the Sigma Chi Frat parties at LSU in the early to mid 80’s playing Prince’s song: “1999” from the late 1982 album with the same title.  Ah, the good old days. We partied, danced and spent money like rock stars. When we ran out of money, many of us contacted our parents and requested a “bailout” of some sorts. We got scolded for mismanaging money and being irresponsible, but promised to manage our funds better, attend classes regularly and maintain our class load for the semester.

25 years later, corporate America is partying like it’s 1929! There is a “soup line” for corporations and industries that mirrors those of almost 80 years ago. Instead of soup, these companies are looking for green. We need a “Soup Nazi“. While some of them humbly approach the line with their heads low and others take the posture and position of some type of extortionist, we’ll call them  ”Extortionsistas”. These guys are attempting to scare the US Congress and all of us who actually pay for this experiment, into fearing that if a particular company were to close down, the entire world may come crashing down with them. 

This is a very sad picture for humanity for several reasons to me.  In one way, the fear mongers are selling this “systemic risk” to us as if the entire world had a catered lunch from Kenny Rogers Roasters and the chicken served had the “bird flu“. Furthermore, Pandora’s Box has been opened and we, the US taxpayer are finally seeing that we were not the only one who had money management issues and that entities and municipalities were/are all tremendously leveraged and are spending today what they hope to receive in the future.

Let’s  take a look at the Welfare Soup Line.  All of these business types are connected to the world in some way. Cars, credit cards, insurance, lending and homebuilding are just several major industries that are in Hank and Ben’s Inbox with the Subject Line: “BAILOUT”.  The first initiative was to save the banks and free up liquidity.  I know it has just started, but I have not heard of a single borrower with any credit being further extended. Rather, the HELOC lines are being adjusted lower or frozen, but the rates have moved lower. Fannie Mae and Freddie Macare now fully in the government’s hands in conservatorship. This has not significantly lowered mortgage rates at all. Mortgage rates should actually be much higher given the risk of them and the depreciating collateral, but that is not the way it was “sold to us”. Next, was one of the largest insurance companies, AIG, in the world. This is where it gets very complicated.  Basically, AIG, lost or is on the hook for these complicated credit default swaps, but the insurance and annuity divisions are just fine, separately. However, the threat from AIG is that if they were not bailed out of their bad debts, they would fold on the retirement annuities (run out of money) for retired school teachers throughout America. Next in line are the car makers.  They make gas-guzzling, comfy living rooms on wheels, and now know that America can’t afford their vehicles even with 0% financing. Their argument is about massive unemployment that would travel across the country and affect numerous industries directly and indirectly. Next in line are the credit cards and their argument is that without credit, the world will stop spinning on its axis.  After cards, are the builders. Their argument is that they must be bailed out to shore up the housing problem. But wait, weren’t they blamed for being a major part in the problem to begin with?

I am picturing the CEOS of these companies standing in line waiting for their soup from Hank and Ben  or Nancy and I am just wondering when someone finally gets the courage to say, “No Soup For You!”

Thanks again to my gifted partner, Larry Jacobson of Clearpoint Mortgage,  for the images provided. His pictures are really worth 1000 words.

November 12, 2008