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Gone with the Wind
By David Glenn Cox
As we sat around the dinner table celebrating a family birthday, the conversation turned to the stock market. My in-laws are retired and in their seventies; they, for the most part, just shook their heads. Then my mother-in-law, with a nervous certainty, remarked, “It’ll come back, you wait and see.” My first impulse was to remind her of some of the events that have already transpired to the contrary, but her tone quieted me.
A look of fear came across her face, like Gerald O’Hara in "Gone with the Wind." A belief that all would be well and that they would live in comfort in Tara all of their days. Unwilling, unknowing or unable to accept that that world is gone or fast slipping away. Genteel retirement for the middle-class elderly is about to become as obsolete as antebellum porches and high-backed wicker chairs.
Wishful thinkers on Wall Street still cling to the same hope, of a return to a bull market, forgetting or not accepting that the world has changed now. The money needed for the bull market is gone; the government is printing money at an incredible rate, trying frantically to keep the system from total collapse. Two more banks failed on Friday and have been taken over by the FDIC. The FDIC itself has been working night and day to merge troubled banks to keep from having to use their slender insurance reserves. With only 45 billion dollars left available, had Washington Mutual gone under alone it would have broken the FDIC all by itself.
The fight over Wachovia is a fight for survival, a fight by banks to become too big to fail. Thursday one of the largest insurance companies in Japan filed for bankruptcy. Met Life and the Hartford Insurance Company are in merger talks for their own mutual survival. This isn’t 1987 or the dot com bubble, this is a titanic event. In the modern vernacular, a game changer. But even that doesn’t begin to cover it, think alien spacecraft on the White House lawn; this isn’t just a crash but a fall down a long flight of stairs.
Last week the government of Iceland nationalized their banks and guaranteed all domestic deposits. When I heard that it reminded me of the Republicans in Congress incensed by provisions of the TARP bailout bill that guaranteed foreign deposits. Had they forgotten so quickly their love of globalism? Of the world economy? Then came news that Iceland was borrowing 5 billion dollars from Russia. Why Russia, I thought? Why not from Europe? Europe would have wanted strings attached, there's the matter of 120 million pounds ($162 million) held in Icelandic banks belonging to British charities which, at this moment, are gone with the wind.
As I say, titanic, the fabric of global finance is coming apart at the seams. In Switzerland, long considered the home of the world’s most conservative bankers, both of their powerhouse banks have clouded futures. UBS, the largest Swiss bank, has 2 trillion Euros on deposit, four times the amount of the Swiss domestic product. Her competitor, Credit Suisse, holds 778 billion Euros and together they hold 415 billion Euros in outstanding loans. Anxious to allay the fears of nervous depositors, both banks have issued Bear Stearns and Lehman Brothers' style pronouncements that all is well. James Nason, spokesman for the Swiss Bankers Association, told the Associated Press on Thursday that "we don't see any sign of a banking crisis. The Swiss financial center is proving to be remarkably resilient." Where have we heard that before? But Switzerland isn’t just a banking economy; it is a banking system with a country built around it.
"We owe this crisis an uncomfortable revelation: UBS and Credit Suisse are too big for Switzerland," wrote the ex-editor-in-chief of a German weekly, Roger de Weck, last week in the Swiss periodical Das Magazin. "If they went bankrupt, a flourishing country would be ruined."
Despite all this happy talk UBS announced 2,000 investment bank job cuts last week. They don’t see the bull market coming that the traders on Wall Street pray for. They see the truth that the global banking system has devolved very quickly into every man for himself. The European central banker’s emergency meeting last week was a total failure; they agree only to fight together, not to fight as one. So the smaller and weaker will go under while the stronger will seek to survive the massacre only to find no markets or customers left when the smoke clears.
J.D. Power and Associates, in a closely-watched report, forecast that "While the global automotive industry is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse." Jeff Schuster, executive director of automotive forecasting for J.D. Power, said, "While mature markets are being impacted more severely than emerging markets, no country or region is completely immune to the turmoil."
GM and Chrysler have begun merger talks, trying to buy time as Ford shares are down to two dollars and change. The industrial and financial foundations of our economy are cannibalizing each other like the Donner Party waiting desperately for spring. Tens of thousands of retirees are finding their incomes cut in half and more. CNBC’s Jim Cramer advised his viewers to sell, just sell. Fox News financial advisor Dave Ramsey said don’t be ridiculous, now is the time to buy! Buy what? With what, Dave? Institutional buyers are so afraid to buy anything that the interest paid on 30-day Treasuries reached .01%. What’s next, you pay them to park your money?
John McCain’s tactics have been blamed for the sharp uptick in the bizarre behavior by the attendees at his rallies. But I think there is more to it than just the personal attacks, many of his supporters are older and retired and living on fixed incomes. They see in McCain the old Republican guard, and the old guard is failing them. They aren’t staring at a failed candidate but at the end of their world. They are scared and frightened, and with the help of the McCain campaign and Fox News they see Obama as the source of all evil. An Arab, a terrorist, the Anti-Christ.
Once again, John McCain has misjudged the situation. As with his “the fundamentals of the economy are strong” remark, he has now shouted "fire" into a theatre crowded with the frightened elderly. He, just like my mother-in-law, the Wall Street brokers and bankers are still living in that old world. A world where people could be demagogued a little bit because they didn’t live in daily fear of losing everything that they’ve worked for in their lifetimes. It’s easy enough to announce, “we’re all out of hot dogs” at a summer picnic, but to say it in front of a crowd of the hungry is a different story entirely.
Financial experts whisper, when will it come back? A decade, maybe, maybe never. Maybe like 1929, two generations or more before it comes back.
“Look for it only in books, for it is no more than a dream remembered, a civilization gone with the wind...”
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