Thursday, March 5, 2009

Things Will Never Be The Same

Good Evening Everyone

Just a heads up here before I start: Some of my posts are going to contain much more commentary going forward. I need to make this change because its now become almost impossible for me to highlight all of the financial news around the collapse of our economy.

The amount of negative news is rising to a level in which I can barely keep up with it. It would take a several page post in order to include everything. I am sure one page per day of me ranting is more than enough for all of you! Here is a nice recap on today's news for whoever is interested.

Folks, our "economic ship" has now sprung more leaks than the Titanic. Today alone we saw Citi go under $1/share, news of a potential GM bankruptcy, and word that AIG was bailed out in order save Europe.

Here is the Guardian link to the Reuters piece on the AIG story:

"WASHINGTON, March 5 (Reuters) - The U.S. government rescued giant insurer American International Group in part because its collapse would dramatically hurt European institutions, a senior Democratic lawmaker said on Thursday.

The U.S. government has bailed out AIG three times since Sept. 16 and committed about $180 billion to keep the insurer alive and doing business.

"One of the reasons we had to rescue AIG was the fact that it was going to bring down Europe," Pennsylvania Rep. Paul Kanjorski told reporters after his subcommittee held a hearing on systemic risk.

When asked if he was concerned that some of the money going to AIG was going to European counterparties, Kanjorski said: "I am sure it is."

Final Take:

I sit here in shock as I begin to try and digest these three headlines. My first thought here is "Wow, how the mighty have fallen". I mean these three companies(C, GM, AIG) are the USA's largest bank, automaker, and insurance company respectively. When I look at their stock prices on my computer screen, I can't believe my eyes. All three are now under $2 a share. Two of them were under $1 dollar a share at one point today.

I continue to ask myself: How on earth did this happen? How did three of the strongest companies in the world shrink to nothing? Then I think: How was this ever allowed to happen? Where was the risk management? I mean you gotta wonder: Did these companies even have a business plan?

I spoke about investors that were "blinded by the bubble" last week. I guess the CEO's of this nation were no different. What angers me here is they are paid to be different. They are supposed to avoid such catastrophes. I would love to know the answer to this question: When our CEO's dropped the ball, why didn't the CFO's of these companies or our regulators catch it?

Folks, the problem the market has right now is investors have ZERO confidence in our economic system. They don't trust the bankers, they don't trust the ratings agencies, they don't trust the SEC, and they don't trust the politicians.

I believe the market is starting to price in a new fear. They are beginning to lose faith that the system can or will be fixed. I also share this concern.

Our economy is filled with so much fraud and corruption that it may be unable to fix itself unless the system completely fails.

Lets be brutally honest here. We all know what the market needs in order to begin to recover: TRANSPARENCY. This is the root of the problem when you get right down to it. The private money that's needed in order to begin the healing process is on strike until it happens. When price discovery is established, you will see trillions of dollars immediately go right to work. This will allow us to finally begin the healing process.

Its really that easy in my eyes folks. Whats so frustrating here is you know the government has come to the same conclusion. So you gotta wonder: Since all of us know what the problem is, why is the hell don't we just fix it and get it over with? This is where the corruption and fraud come in. They refuse to do it because 1000's of companies will fail as a result, unemployment will rise to near record levels, and the risk of social/political chaos will rise dramatically.

Well guess what folks? ITS GOING TO HAPPEN ANYWAY WHETHER WE LIKE IT OR NOT! If the government refuses to allow transparency then the market is going to take things into its own hands and destroy itself until it gets what it wants. The result is going to be the SAME either way!

If this is the case than lets just do it already. I am tired of slowly peeling off this band aid. Lets just rip it off! Its much less painful this way.

Our politicians refuse to pull the plug because they are scared to bite the hand that feeds them. It was reported on CNN yesterday that Wall St spent $5 billion in DC lobbying for deregulation. 1/3 of this was in the form of campaign contributions. Folks, essentially this tells you that this housing bubble was the best bubble that money could buy!

I am sure there were more billions thrown at them by every major industry that threatens to go under if transparency is established. I mean Gee, Do you think the home builders, the auto industry, and the NAR(National Association of Realtors) threw a buck or two at the politicians.
Do I really need to answer this one?

My fear here is I don't think any of our politicians have the guts or character to stand up to the power and influence of our financial elite. I mean I haven't seen one guy in DC try to stand up to them and try to do whats right. NOT ONE PERSON! This infuriates me! Where are the LEADERS folks???? Why won't one frickin person stand up?? There is a huge void of leaership in Washington.

There is a gigantic empty platform that's just sitting here waiting for a hero who is willing to grab the bull by the horns and LEAD. America is desperate to find a leader: SOMEONE IN WASHINGTON PLEASE STAND UP AND TAKE CHARGE! AMERICA NEEDS YOU DESPERATELY!

Its obviously not going to be Obama. His agenda unfortunately is just more of the same.

Bottom Line:

The system is broken and needs to be totally overhauled. We continue to see zero transparency for two simple reasons: 1) The companies involved in this debt bubble refuse to open their books because most of them are insolvent. 2) Our politicians don't have the balls to force them to do so because they are afraid to bite the hands that fill their coffers with cash.

As a result, we all sit here and suffer as the market drops week after week. Our retirements, our economy, and our way of life are all being destroyed as a result of this fraud and corruption.

If we don't put a stop to this soon there will be no economy to save. Today was totally demoralizing. The principles that made this country so great are currently being stomped on by both political parties.

Thomas Jefferson and Benjamin Franklin would be ashamed if they were were able to see what this nation has morphed into.

Chaos is right around the corner if we don't straighten this out folks. What frightens me most is it might be too late.


johndaniels said...

What is "capital"? Is it cash positions? No, money is debt, in and of itself. Every dollar in circulation represents some debt that has to be repaid. If there were no debts in the system, there would be no money. Is it equity? No, equity is the consumptive result of capital; and its value is dependent on liquidity and the marketplace. Capital is the store of value that is not tied to debt or equities; be it production, labor, technology, resources, or commodities. Real capital leads to real economic growth; debt based capital just leads to more debt, and a destructive illusion of value that we are now witnessing the implosion of.

Our modern economy has become perplexed by credit and debt being defined as capital, for the purposes of monetary expansion. We see this everywhere on Wall Street and the banking system. The Fed is not a source of true capital, but printed debt money. They create nothing, they do not provide real capital. The entire Federal Reserve banking system requires more and more debt to conjure more money into existence. This debt-based monetary system cannot survive; because it is based entirely on fictitious capital. (

Jeff said...


Good points

I agree with you that the dollar is only a piece of paper.

However, it is worth something with price discovery because it allows you to buy hard assets like homes, buldings, and other hard assets.

People will own something with price disovery. They won't be borrowing and creating debt when they buy it. They will use cash to buy something tangible.

Cash is worth something if you can buy a house with it.

I agree with you on the productivity part. We need to get back to making things. Innovation and resources are also very critical.

However, I think long term resetting the economy via price discovery will be important and constructive in terms of fixing our economy.

Avl Guy said...

RE: AIG's counter-parties in Europe. Remember how explicit Team Paulson was that the overseas debt holders of Fannie & Freddie had to be reassured of backing of the US gov't? I think Team Paulson expressed something similar in September about AIG, perhaps in more muted tones, after pulling a 180 on bailing out AIG.

Anyway...can’t believe folks rallied yesterday on a 'rumor' of more Chinese stimulus, only to hear otherwise today. Why would anyone w/o an office directly on Chinese soil make investment decisions on Wall Street based on opaque gov't data and stmts from China, w/o having the on-site wherewithal to corroborate it?

Jeff said...


I agree. You make a great point.

The type of crap you are describing only adds to the uncertianty and lack of clarity.

The governments of the world need to start being very clear around their intentions or we are all cooked.

All of these rumors and interventions need to stop! We need to let the market clear and start over.

Minton Mckarkquey said...

Jeff, I have to say that your posts in recent days have really been among your best. I'm looking forward to more of your commentary, but I think you make numerous excellent points in this post.

The founders would be ashamed. The businesses are corrupt. The politicians are clueless or complicit. Until we fix everything you name, we'll never get out of this.

Jeff said...


Thanks a lot. I always appreciate the feedback.

I am glad you are enjoying the content! I am trying my best to keep up with everything.

Things are changing at lightning speed. I just read there was a huge protest in New York today around the cities budget cuts.

Crowd was estimated to be 50,000 people. The herd is getting restless.

Wait until their welfare checks stop!

Jeff said...

Link to the NY protest story

johndaniels said...

jeff: im just saying that the consideration of debt and credit as 'capital'; thereby a foundation of healthy economic growth, is false... and cash iitself is debt.

inevitably, cash wont get you anything, and i think that one day we're all going to wake up and suddenly half our purchasing power will just be "gone". call me a conspiracy theorist, but i think this is all a design to get everyone into panic cash, thinking its capital... then they lower the boom. who's they, the financial elites working through there government pawns.

i agree 100% with Schiff; i think what he said is coming to pass, because non debt assets arent necessarily deflating (i.e. gold). real estate and stocks are debt/leverage based.

its hilarious, NONE of these bubbleheads knows wtf is going on; look how wrong they've all been. even schiff.

Jeff said...


I hear you around the dollar. All of this printing scares the daylights out of me.

It is funny watching all of these so called experts that got it all wrong.

I have a great video that I am putting up tomorrow that makes fun of the bubble buys on CNBC. Its frickin hilarious.

Make sure you stop by.

Speaking of Schiff, check out Mish's post on him. He has an annual statement of someone who invested with Schiff. The poor guy is down 70%. Mish really reamed him good.

Schiff was furious thought about taking Mish to court. I don't know if he ever did or not.

I think a lot of bloggers are angry with Schiff because he got all of the press for being a bear but was never called out for being totally wrong on his investment thesis.

His whole "de-coupling" theory really went down in flames. I agree with some of what he says but man he has destroyed a lot of investors worse than if they had gone long stocks!

johndaniels said...

well they jumped on him like jealous hounds, thats for sure. his scenarios still have yet to play out, and mish is just another blogger in the masses; i follow his blog occasionally he doesnt necessarily impress me; i think your blog is much better than mish, to be honest. mish just regujitates the same ol bearish sentiment. i still side with schiff and i think his theories are correct.

Jeff said...



Yeah hI think Schiff may have just been too early.

It sure doesn't seem like "de-coupling" is going to happen..

His thesis is more around a US dollar collapse so if this occurs his investors should do well "de-coupling" or not.

I think the one thing he underestimated is how important the US economy is to the world.

I enjoy listening to Schiff because he has ben right on a lot of things. Its a shame he couldn't have put together a better strategy but like I said.

ITs early and Schiff may have the last laugh.