Tuesday, September 16, 2008

As if things weren't bad enough.

It has been an eventful week in the investment world. Like many others, I have stock investments, and have been riding the rollercoaster for the past few years, but the what has happened in the past few days has been like nothing I have ever seen. I can't help but wonder if this is a taste of what my parents and grandparents experienced when the Great Depression hit, sans the bread lines.

I am not suggesting that we are headed for the Great Depression Part Deux, but it certainly is causing a lot of nervousness here. What is even more troubling, is the government stepping in and taking over what once were private financial institutions, such as Fannie Mae and Freddie Mac. I keep reading in so many places that this was the right thing to do in order to stabalize them. But now comes this news, and I really wonder if it is a good thing that the government is stepping in a taking over. While it is not a nationalization of hte banks, they are going to have a huge stake in them.

Let me state for the record that I am a card-carrying capitalist, though not in an Ayn Rand, Atlas Shrugged sort of way. Her methods were far too radical. I shudder at the idea of the government taking over what were heretofore private financial institutions. (Update on this point: http://www.iht.com/articles/2008/09/17/business/rescue.php)I have to wonder if that is a slippery slope. I see Greenspan's point about taking it over then re-sellling them in chunks as smaller insitutions, but one has to wonder if the government would be willing to give up control of these institutions once they have them. I'm glad they let Lehman Bros. go under. If they screwed up, then it is their mess, (Lehman's) and they should fix it.

I don't pretend to be an economist, a banker or anything even remotely related to those professions. Hell, if I can manage my Quicken, I'm having a good day. It just seems a little odd to me that these banking and insurance behemoths would not have a better grip on reality. The housing debacle that seems to have started this mess is certainly a major culprit, but I am forced to wonder why there was no one in these companies that couldn't see this coming a mile off. Isn't this what they are schooled in? Don't they have enough savvy and experience to know when a bad investment is staring them in the face? This is the type of unbridled, Ayn Rand style capitalism that I don't agree with. There has to be accountability and responsibility to more than one's self.

The rest of us here in the trenches are left to just sit and wonder when the other shoe will drop.

9 comments:

Retiredandcrazy said...

One word my friend, they did it because of greed. I read a book years ago called The Swinging Dicks. It was all about setting up these multi-tier scams (because that's what they are) to make big bucks. They really don't care that it is going to impact on ordinary peoples lives so long as they get the huge bonuses.

VioletSky said...

Maybe, and I really have no idea about economics or investments, but I fear these companies might be living on hope that things will 'turn around' or can be 'covered up' and somehow they will be rescued and then they can take their heads off their pillows and sigh in relief.

This whole thing baffles me so much it puts me in a run on sentence mode.

Peter said...

I feel we will see re-regulation appearing after the big boys made a mess in the kindergarten.

As soon as I saw the long lines in Singapore at AIG Asia (people desperate to get their money out) along with McCain appearing on CNBC stating "no intervention" while Bush delivering an "all clear" nonsense soundbite (well, the FEDs stepped in, fortunately), I knew this financial earthquake had a political angle.

Anyway, hold on tight, this is going to be a rough ride.

battlemaiden said...

I've heard that the recommendation du jour is to dump all your stocks and invest in mutual funds. And don't have more than $100,000 in any one bank, because that's all the government will insure. (I personally don't have to worry about that.)

I have a Roth IRA that has continuously plummeted. Pretty soon there will be very little left in that so I'm going to have to up my contributions to the 401(k).

Being an adult sucks sometimes.

Anonymous said...

Yes, and there are a couple of things that are bugging me - first, no-one seems to know the extent of the risk, as in the sub-prime debts have been sold on so many times that no-one's sure how big their exposure is. To my mind, and I'm definitely no economist, the impact of this crisis in the UK alone is quoted as being in the squillions, yet the amount outstanding on all home loans, defaulted on or not, doesn't seem to add up to that vast a figure. In the UK we've had one bank go under/be nationalised due to the credit crunch caused by the American sub prime market, and others in the process of merging (HBOS/Lloyds) or snapping up bargains (Barclays/Lehman Bros). Secondly, the city slicker fat cats earn massive bonuses during the good years (fair play to them, I wouldn't like the stress levels), so why are WE having to bale them out during the lean years. It can't be beyond the realm of the regulators to stipulate that, say 15%, profit be invested SECURELY whilst the stock market is rising, in order to be able to stave off the worst effects of a falling market. The idea of saving for a rainy day while the sun shines seems to be old hat, with the majority of the population living on credit. I'm afraid that we're about to have some good old-fashioned monetary common sense drummed into us the hard way. In any case the days of the American economy as world leader (both upwards and downwards) are coming to an end, with the twin powers of China and India taking over. We'll just have to wait and see if two economies, with different rates of rise and fall have more or less impact globally than the American economy has had for the past 70 years. In any case the UK economy, based on the housing market, shopping and on the financial markets is in between a rock and a hard place. It's tempting to feel that we are paying for our unruly colonial cousin's mistakes, HOWEVER INACCURATE THAT MAY BE. (Am donning skid-lid and ducking).
j

Mr. Nighttime said...

Retired - Well, no doubt about it, and it was greed in a Gordon Gekko-type of way, and I am well aware of it. The problem is that while greed is an obvious answer, there are two types of greed: Stupid and smart. The smart type of greed allows one to get what they want without collapsing the very thing that is supplying you with the source of money you want. Stupid greed is what this whole banking and mortgage scandal is. They were basically the gang that couldn't shoot straight. Remember the line from "Wall Street," when Charlie Sheen asks Michael Douglas why he wrecked Sheen's dad's company?

"Because it was wreckable!" Douglas answers. That is stupid greed, and that is what brought him down. Practically the same thing here.

Violet - "This whole thing baffles me so much it puts me in a run on sentence mode."

LOL, yeah, me too, and usually when I am talking. I have to remember to pause and take a breath.

Battle - The best thing to do, if you don't already, is to get a very good investment advisor to help you move that Roth into something more secure, a better Roth. If you would like, I can recommend the woman we use. She is here in town, and in general has been able to shield us from the more severe effects of this market. Yes, you should never put all your eggs in one basket, and mutual funds tend to perform better, but like everything else, it is knowing which ones to put them in. Dump all individual stocks? I'd say no, but rather do your homework. Some individual stocks are performing well, but it depends on the sector one is invested in.

Anonymous - Lots of good points here:

"Yes, and there are a couple of things that are bugging me - first, no-one seems to know the extent of the risk, as in the sub-prime debts have been sold on so many times that no-one's sure how big their exposure is."

Indeed, it was essentially a big game of three-card Monty.

"In the UK we've had one bank go under/be nationalised due to the credit crunch caused by the American sub prime market, and others in the process of merging (HBOS/Lloyds) or snapping up bargains (Barclays/Lehman Bros).

Right, well that's the way it is these days, as banks have become more globalized. If the situation were reversed, say if this all started in the UK, you would have seen the same ripple effect here.

"Secondly, the city slicker fat cats earn massive bonuses during the good years (fair play to them, I wouldn't like the stress levels), so why are WE having to bale them out during the lean years."

I think a lot of it depends on the type of institutions. In the case of Freddie Mac and Fannie Mae, the gov't was so wrapped up in these two organizations that everyone agrees that bailing them out was the right thing to do. Lehman Bros. and AIG on the other hand are another story all together. I don't understand why they are doing the right thing with Lehman, and the wrong thing with AIG.

"In any case the days of the American economy as world leader (both upwards and downwards) are coming to an end, with the twin powers of China and India taking over. We'll just have to wait and see if two economies, with different rates of rise and fall have more or less impact globally than the American economy has had for the past 70 years."

I'm not so sure this is the case. India has a long way to go in terms of it's national infrastructure, amongst other things. And China, as powerful as it already is, will have to eventually dump the yoke of Communist rule if it truly wants its economy to perform in a market environment. Also, as history points out, the American economy is incredibly resilient. This is an enormous economic correction to be sure, but I am not with the doom and gloom crowd. I suspect that after all the smoke clears and the shit hits the fan, that our economy will rebound. The bigger question is; who will have the guts to reform the system without crippling it?

AnneDroid said...

My brain cannot cope with the off-side rule in soccer and the money markets.

But I DO grasp that things aren't very good!

Anonymous said...

On your last question I'd guess that Obama has better access to Clintons economists than McCain, then again depends on to what extent william has desisted from chucking toys out of perambulator;-)
j

Jay said...

We've been very concerned over the last few weeks. As you will know, what happens to your stock market, will follow in ours, as night follows day, and the market here has been plummeting.

Seems like good news this morning though, with a tentative recovery on the charts! Long may it continue!