It’s absolutely amazing how people who think they are financial and business wizards can suddenly become victims of fate according to them. “It ain’t our fault, we’re the heroes.” From Bob Murray of Murray Energy Corporation who was running around trying to impress the public with how concerned he was about the trapped miners in Utah, talking about natural disasters, in other words an unforeseeable act of God to the Wall Street mavens who were calling on the fed to lower rates and inject cash into the system this week was a new high in hypocrisy. At best coal mining like financial speculation is a dirty, someone gets rich, and someone literally gets the shaft business.
Yet here were both looking for sympathy and help from their self induced calamity. Murray was telling everyone who would listen how he was taking care of the miner’s families, doing all he could to extricate them and oh by the way it was an earthquake that caused the disaster. In fact he had submitted a plan last year for retreat mining at the site. Retreat mining is used when coal companies greedily want to get every last piece of coal out of a mine by removing the coal pillars holding up the roof and allowing it to collapse. The last pillar is called the “suicide pillar”. While many mine collapses have caused seismic events in Utah, none have ever been caused by a seismic event (earthquake). Yet Murray insists he will prove it was an earthquake. Chalk up another avoidance of responsibility to corporate America.
When Jim Cramer on MSNBC went into a rant last week talking about “Armageddon” and how we were all supposed to be upset that people employed in fleecing poor people into subprime mortgages with adjustable rates were losing their jobs it was more of the same. Why is it that these folks who all cry for less regulation, free markets and minding our own business are the first ones to plead innocence and ask for a government bailout when their actions cause catastrophe?
All over the airwaves in and in the newspapers, business pundits are telling investors don’t panic, leave your money in the market, in the meantime the financial pillars have been removed from a ceiling of debt held up by cheap money loaned for speculation with real little hope of repayment in the event of the inevitable economic downturn. The other message I love is the one that says, it’s just the mortgage market, everything else is ok. That message ignores the billions, maybe trillions of dollars in junk bonds used to finance questionable speculation in buyouts floating around the financial markets; it ignores the increasing weakness of the dollar caused by budget deficits, trade deficits and increasing consumer debt.
When Wal-Mart has to cut prices, the great American consumer spending machine is tapped out and no matter what anyone says the party is over. The speculators at Goldman Sachs, Bear Stearns, Morgan Stanley and 9,000 hedge funds are all leveraged to the max and the only way out is deflation or more free money, hence, the cry for more cash infusion by the feds and lowering of interest rates. The reality is they don't have the funds to cover their declining positions and need the cash to stem the bloodletting.
The real deal is the pundits don’t want to be the last ones out and take the loss. “Please oh please, pump up the market so we can sell before everyone else catches on.” If these folks were really worried about the consumer they would be pleading for congress to pass legislation to allow people who are in danger of foreclosure to rent their own homes at the market rate until things stabilize and they can negotiate a reasonable repayment plan. The reason the whole subprime market was so attractive was because of the unregulated ability to suck people into thinking they could afford something they couldn’t and by the time they realized it, it would be someone else’s problem.
The increase in money in the system is unlikely to increase liquidity enough to stem the tide. Most banks are hoarding cash because they are unsure of how exposed to the subprime market they are. Corporations who are cash heavy have no incentive to buy when an economic downturn and falling profits are on the immediate horizon. Little of the increase if any will flow into the system. At the same time consumers trapped between loss of real income, inflation in energy, food and medical costs are drowning in debt. Think it will get better, not likely, $2.7 trillion dollars of adjustable rate mortgages will reset to higher interest rates between now and 2009. What the big boys are hoping is that they can get the feds to stall the crash for them to get out. The problem with that plan, is there will be too many of them sneaking towards the exits to go unnoticed.
Like an alcoholic who says, “I’ll quit tomorrow”, the financial industry is crying for the government to give them just one more drink, just one more fix, just a few dollars more. Like all addicts, this behavior will inevitably come to a catastrophic end. The problem is that the average consumer won’t be able to escape the consequences (they failed to hire a lobbyist thinking their representative was protecting their interests) of lost jobs, lost housing, destroyed credit and the new indentured servitude enforced by the bankruptcy laws. Quite the contrary energy, food and healthcare costs will in all probability continue to rise because of their own dynamics in the world market including inflation in China.
The question is not if we are facing a recession, the question is, are we facing a depression, with massive devaluation of the dollar, financial collapse and massive unemployment. If it happens believe me the financial pundits will all be running around like Bob Murray, declaring their horror at what an awful act that God has wrought. What many of them won’t be showing is their pronouncements from their palatial homes financed by the offshore accounts in the Caymans they have been accumulating. If you have any doubts about whether they foresaw this massive swindling of the American worker out of their assets, ask them what their position on the bankruptcy bill was.