CHASING THE CORPSE CANDLE

The corpse candle, in Welsh mythology, is an apparition that manifests when someone is fated to die. The illumination is also known as ignis fatuus (foolish fire) or the will-o-the-wisp that leads unwary travelers to a boggy death. Wall Street traders, in the aftermath of the government bailout , are following an ignus fatuus to their destruction. There is no substantial basis for rallies on the Street because stock buyers are pursuing the same leads that took America to finacial ruin.
According to news reports, stock speculators are buying stocks in those banks and investment companies that require government bailout or corporate buyouts such as Morgan Stanley, Citigroup, and Goldman Sachs. They are not buying conservative bank stocks, banks that have been less careless with investments, like Wells Fargo whose House Mortage fund is rated 'AA'/Outlook Stable by Fitch Ratings. Stockbrokers, instead of prudence, are once again going after the risky money that they believe will pay off big but which left them (and the world) with nothing.

This crazy optimism ignores some fundamentals to the economy. I am sounding like a broken record but there is no money in the United States Treasury to pay for the bailout. Second, stockbuyers are ignoring that the retail sector is posed to take a significant dive due to the twin evils of the credit crunch and record unemployment. This will be a bleak Christmas because stores are set to have weak sales and less need for temporary workers. The unemployment levels are at record highs and will probably rise from 6.1%. Bill Gates, speaking at Harvard Business School, thinks that unemployment might rise to 9% of the American population. People are cutting back on spending by not buying goods except for those necessary to keep life together. They are purchasing what they can at discount and thrift stores. Stores, as a consequence of this fear, will be unable to continue and will lose more workers. Fewer workers will mean less purchases and a stagnant flow of money in the economy will loop back to create a nasty cycle of more lost businesses.

So what is the answer? Regardless of which political party takes the White House there will always be those who want the quick buck, damn the consequences. The most effective and thought- filled response is to invest in real goods such as manufacturing equipment, employee training, and savings. This is the correct and safest way to create wealth in a society. The paper-chasing speculation that has destroyed the world economy must stop if global financial stability is to be achieved.

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PLAY MONEY

The American government's $700 billion bailout of Wall Street is a fraud because there is no money to buy the debt associated with the rescue. The United States government has a debt, with the bailout, of more than $11 trillion. As I have stated before, the government is buying debt with debt like the credit default swaps that created the crisis in the first place.

Some definitions are in order. Essentially, a credit default swap is insuring the owner of a debt that the debt will be paid. If the debt is not paid or bought, then the insurer is stuck with the bad debt. Many of the banks and securities with trouble now had insured or bought credit default debt. What the United States government plans to do is to buy the companies' bad debts and assets and hold them until the toxic financial products can either be sold as debt or wait until the magic moment until the economy supposedly recovers to sell off the real assets at a better price. The American government plans to purchase this all with the non-existent money in the United States Treasury.

The bailout is down a rabbit hole but not through a looking glass in terms of sense and rational thought. The problem could have been contained with legislation that mirrored the Glass/Stegall Act which forbade banks from offering investment, commercial banking services , and insurance services in the same corporate entity. Banks that offer all three endanger citizens' money through speculation not saving. The Republican Party, led by Phil Gramm, destroyed the barriers to prudent banking. However, a Glass/Stegall provision is not a part of the current bailout scheme. Serious bank reforms that will prevent imprudent corporate investments are necessary before a true bailout of the American economy can occur.

UPDATE: In the middle of this financial scandal, the National Republican Congressional Committee has one of its own. Wachovia, a bank Wells Fargo has now bought, was in serious trouble and on the brink of bankruptcy. Despite its financial woes where the managers froze credit to institutions and other ordinary lenders, the bank loaned $8 million to the NRCC to continue its political campaigns. The full story is at Daily Kos.
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GO FIGURE

The current troubles on Wall Street might seem arcane and esoteric but the story is very simple. Pull up a chair and let me tell you.

I attempted last night to explain the current financial crisis to my youngest child during supper. I was talking with my husband about the situation in our dinnertime wrap up of the day's events.She was becoming bored with the adult recitation. I decided to interpret the grownup conversation in words that she could understand.

First, I defined some of the terms. I asked her if she knew the meaning of assets. She, naturally, was not familiar with this word. I told her that assets are what you own like her clothes, furniture, and stuffies. This was sensible to the child. I then told her about the banks that were having difficulty because they claimed assets (money) that they do not have. An example of this was Citigroup whose managers asserted they had enough cash on hand to be solvent until the necessity of Abu Dhabi Investment Authority buying up their losses. I explained that the organization (Abu Dubai) bought the bank's (Citigroup's) pretend money, what adults call 'debt', with real money. My daughter thought to buy something imaginary with cash was nutters.

She was restless at that point. It was time for her to take a bath and get ready for bed so I did not have the opportunity to give the child a more broad picture of why the United States government bailout of Wall Street is crazily dangerous. The boil-down of the problem is that the Bush administration is buying debt (pretend money) with debt (more pretend money). This debt will go on sale to the world market which, if countries are pragmatic, won't either take the bag and buy the feigned assets or purchase the fakery with more leveraged commodities. The bailout is a sham, a political expediency from the Bush administration that deliberately overlooks the fact that the American government does not have the funds to buy out trillions of dollars worth of subprime mortgages, hedge funds, and jiggered accounting books that show a profit where there is none. The entire capitalistic system has failed.

My eight-year-old can understand the insanity of the Bush administration's non-funded buy-up of Wall Street. Why can't the grownups?

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