Where Do We Go From Here? Does Anyone Have a Map?

Up and down, up and down, that’s been the only news out of this manic-depressive stock market for what seems like weeks now. So, how and when will this level out? It seems pretty clear to everyone – well, everyone who has a functioning brain and is willing to look at the situation realistically – that rescuing the banks is just a first step. The next step is aid for the desperately needy nonfinancial economy.

According to Paul Krugman, we need to put some prejudices aside, forget about being politically fashionable and ranting against government spending and demanding fiscal responsibility. Like it or not, for now increased government spending is exactly what our country needs and we should put our concerns about the budget deficit on hold.

Retail sales have fallen off the cliff and so has industrial production. Unemployment claims are at steep-recession levels, manufacturing is falling at the fastest pace in almost 20 years. All these things point to a nasty and long economic slump. And just how nasty? The unemployment rate is already above 6 percent and it looks pretty certain that it will go above 7 percent, possibly 8 percent and this would make it the worst recession in a quarter-century. It looks as though it could be some time before we see any improvement.

The policy response to the last recession, which followed the bursting of the late-1990s technology bubble, on the surface looks like a success story in spite of there being a lot of fears that the US would experience a Japanese-style “lost decade”, but that didn’t happen – the Federal Reserve was able to engineer a recovery from that recession by cutting interest rates. But it was a slow recovery and came about only because the technology bubble was replaced by Alan Greenspan with the housing bubble.

And now that bubble has burst and we have another huge mess on our hands and right now it seems the initial results of the efforts to rescue the banking system and unfreeze the credit markets have had disappointing results. If there’s another bubble waiting to happen, it’s not obvious and it looks as though Fed will find it even harder to get traction this time.

So, what’s the answer? Krugman feels there’s a lot the federal government can do for the economy – well, McCain and a lot of Republicans won’t like the answer, but it sounds good to me. The federal government can provide extended benefits to the unemployed, which will help distressed families cope and put money in the hands likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages and restructure the terms to help families stay in their homes.

And once again, and how many times have we heard this from many people lately, engage in some serious infrastructure spending. And why do we keep hearing this? The usual argument against public works as economic stimulus is that they take too long; by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Think again, the chances that this slump will be over anytime soon is all but nonexistent, so let’s get with it and get these types of projects rolling.

Right now we need government spending and that is most definitely not the road that John McCain will take. Barack Obama doesn’t have the same knee-jerk opposition to spending but he will have to deal with those who would tell him that he has to be responsible, that the big deficits the government will run next year if it does the right things are unacceptable.

Krugman’s answer for Obama is to ignore them – the responsible thing, right now, is to give the economy the help it needs and stop, at least for now, worrying about the deficit. Now that’s a map that makes sense to me – after all, Krugman is the guy who won the Nobel prize for economics, not those “inside-the-beltway” types.

Investment Tips For 2008

With all the turmoil in the market today and the collapse of Lehman Bros. and Acquisition of Merrill Lynch by Bank of America, this might be some good advice.

For all of you with any money left, be aware of the next expected mergers so that you can get in on the ground floor and make some BIG bucks. Watch for these consolidations in later this year:

1.) Hale Business Systems, Mary Kay Cosmetics, Fuller Brush, and W R. Grace Co. Will merge and become: Hale, Mary, Fuller, Grace.

2.) Polygram Records, Warner Bros., and Zesta Crackers join forces and become: Poly, Warner Cracker.

3.) 3M will merge with Goodyear and become: MMMGood.

4) Zippo Manufacturing, Audi Motors, Dofasco, and Dakota Mining will merge and become: ZipAudiDoDa .

5.) FedEx is expected to join its competitor, UPS, and become: FedUP.

6.) Fairchild Electronics and Honeywell Computers will become: Fairwell Honeychild.

7. ) Grey Poupon an Docker Pants are expected to become: PouponPants.

8.) Knotts Berry Farm and the Nat ional Organization of Women will become: Knott NOW!

And finally...

9.) Victoria 's Secret and Smith & Wesson will merge under the new name: TittyTittyBangBang

Joe Sixpacks, Soccer and Hockey Moms – Pay Attention

I’m not sure what it is about our current economical crisis that some people don’t understand and I’m surely not wise enough or patient enough to try to convince them that their view of the country is badly screwed. I think people everywhere are feeling frustrated, angry, scared, confused and uncertain, but for those who still think that Republicans are the answer, you probably need to see a psychiatrist – and soon.

I could feel some of my own frustration in Bob Herbert’s column today and rather than give you a few quotes, I feel it is well worth the whole read.

October 11, 2008
Op-Ed Columnist

The Mask Slips

By BOB HERBERT

The lesson for Americans suffused with anxiety and dread over the crackup of the financial markets is that the way you vote matters, that there are real-world consequences when you go into a voting booth and cast that ballot.

For the nitwits who vote for the man or woman they’d most like to have over for dinner, or hang out at a barbecue with, I suggest you take a look at how well your 401(k) is doing, or how easy it will be to meet the mortgage this month, or whether the college fund you’ve been trying to build for your kids is as robust as you’d like it to be.

Voters in the George W. Bush era gave the Republican Party nearly complete control of the federal government. Now the financial markets are in turmoil, top government and corporate leaders are on the verge of panic and scholars are dusting off treatises that analyzed the causes of the Great Depression.

Mr. Bush was never viewed as a policy or intellectual heavyweight. But he seemed like a nicer guy to a lot of voters than Al Gore.

It’s not just the economy. While the United States has been fighting a useless and irresponsible war in Iraq, Afghanistan — the home base of the terrorists who struck us on 9/11 — has been allowed to fall into a state of chaos. Osama bin Laden is still at large. New Orleans is still on its knees. And so on.

Voting has consequences.

I don’t for a moment think that the Democratic Party has been free of egregious problems. But there are two things I find remarkable about the G.O.P., and especially its more conservative wing, which is now about all there is.

The first is how wrong conservative Republicans have been on so many profoundly important matters for so many years. The second is how the G.O.P. has nevertheless been able to persuade so many voters of modest means that its wrongheaded, favor-the-rich, country-be-damned approach was not only good for working Americans, but was the patriotic way to go.
Remember voodoo economics? That was the derisive term George H.W. Bush used for Ronald Reagan’s fantasy that he could simultaneously increase defense spending, cut taxes and balance the budget. After Reagan became president (with Mr. Bush as his vice president) the budget deficit — surprise, surprise — soared.

In a moment of unusual candor, Reagan’s own chairman of the Council of Economic Advisers, Martin Feldstein, gave three reasons for the growth of the deficit: the president’s tax cuts, the increased defense spending and the interest on the expanding national debt.

These were the self-proclaimed fiscal conservatives who were behaving so profligately. The budget was balanced and a surplus realized under Bill Clinton, but soon the “fiscal conservatives” were back in the driver’s seat. “Deficits don’t matter,” said Dick Cheney, and the wildest, most reckless of economic rides was on.

Americans, including the Joe Sixpacks, soccer moms and hockey moms, were repeatedly told that the benefits lavished on the highfliers would trickle down to them. Someday.
Just as they were wrong about trickle down, conservative Republican politicians and their closest buddies in the commentariat have been wrong on one important national issue after another, from Social Security (conservatives opposed it from the start and have been trying to undermine it ever since) to Medicare (Ronald Reagan saw it as the first wave of socialism) to the environment, energy policy and global warming.

When the Nobel Prize in Chemistry was awarded to the discoverers of the link between chlorofluorocarbons and ozone depletion, Tom DeLay, a Republican who would go on to wield enormous power as majority leader in the House, mocked the award as the “Nobel Appeasement Prize.”

Mr. Reagan, the ultimate political hero of so many Republicans, opposed the Civil Rights Act of 1964 and the Voting Rights Act of 1965. In response to the historic Brown v. Board of Education school-desegregation ruling, William F. Buckley, the ultimate intellectual hero of so many Republicans, asserted that whites, being superior, were well within their rights to discriminate against blacks.

“The White community is so entitled,” he wrote, “because, for the time being, it is the advanced race...” He would later repudiate that sentiment, but only after it was clear that his racist view was harmful to himself.

The G.O.P. has done a great job masking the terrible consequences of much that it has stood for over the decades. Now the mask has slipped. As we survey the wreckage of the American economy and the real-life suffering associated with the financial crackup of 2008, it would be well for voters to draw upon the lessons of history and think more seriously about the consequences of the ballots they may cast in the future.

Financial Crisis - What You Should Know

I have been looking for something in language I could understand to explain what this financial crisis is and what we should know about it. I found this article by Allison Linn, a senior writer for MSNBC and at least I could understand pretty much all that she said, so I thought I'd pass it on with the hope it might help someone else.

Crisis sparks confusion, questions about personal finanace.

While the rescue package is expected to help deal with the financial crisis, experts have warned that tough economic times are likely still ahead. Here’s what else you should know about how the crisis might affect your personal finances.

Checking and savings accountsNews that major banks including Washington Mutual and Wachovia have been pulled down by the crisis has sparked fears about whether Americans should trust their banking institutions to stay solvent.

Most banks are expected to continue functioning normally. Still, it pays to take a few simple steps to protect your assets in the event of a bank failure.

First, make sure that your bank is backed by the Federal Deposit Insurance Corp., better known as the FDIC. Under the changes approved in the bailout package, if your bank is a member of the FDIC then the amount of money insured would increase to $250,000 until at least the end of 2009.

Under previous rules, individual accounts were insured for up to $100,000, and joint accounts were insured for up to $200,000.

If you bank with a credit union, make sure that it is insured under the National Credit Union Insurance Fund, which provides similar protections for credit union account holders.

Retirement investments
The FDIC also provides coverage of up to $250,000 for certain retirement accounts, such as IRAs that are held in FDIC-insured financial institutions. If you have more than $100,000, it pays to check out the FDIC's online deposit insurance estimator.

Brokerage account
While most of us expect to see gains and losses as a result of investing in the stock market, some have raised concerns about what happens if the company that holds your investments runs into trouble.

If you are concerned, check to see whether your firm is a member of the Securities Investor Protection Corp., or SIPC. Created by Congress in 1970, SIPC covers investors for up to $500,000 in the event a brokerage fails or securities are stolen.

It’s important to note that this does NOT protect people whose investment portfolios lose value because of drops in the market or bad investments. That’s because investing in stocks and bonds is considered to be a risky endeavor, with upsides and downsides.

“They’re not guaranteeing the value of the stock,” said Barry Ritholtz, chief executive of the research firm FusionIQ and author of the forthcoming book “Bailout Nation.” “They’re guaranteeing $500,000 against the company going belly up.”

Some brokerage firms also have supplemental insurance for certain investments, should their brokerage fail.

Money markets
Money market funds often have been considered a safe haven for stashing cash that you don’t want in riskier investments, such as stocks. Recent troubles at one large money market fund sparked concerns that even these investments — considered by some to be safe as cash —are not completely secure.

Hoping to quell the anxiety, the Treasury Department recently stepped in to provide guarantees for money market funds, using a Depression-era fund to back them.

Mutual fund firms, also, have taken steps to comfort worried investors, including disclosing money market fund holdings and posting information about their investment decision-making.

Russ Kinnel, director of mutual fund research with Morningstar, said the best way to assure that your money is safe in a money market fund is to choose a relatively large, low-cost fund from a large company. Those steps should make it less likely the fund will make riskier investments, and more likely that the firm itself will make investors whole should the fund “break the buck,” or fall below the target of $1 per share.

Consumer credit
For many Americans, the credit crunch that is a key factor in the current financial crisis has been a relatively abstract idea, affecting mainly large financial institutions. As the crisis unfolds, economists say we could start to see more of an impact on people’s everyday lives.

Consumers who are trying to borrow money for a new car or new home, for example, might find it harder and more expensive to get a loan. Some might find it tougher to get a new credit card, said David Wyss, chief economist with Standard and Poor’s.

People who already have credit cards likely won’t see much change, although Wyss said some credit card companies are starting to reduce credit lines for riskier clients.

“They’re getting tougher on who they lend money to,” he said.

Business credit
Economists are watching closely to see if the credit crunch is going to make it harder for small- and midsized business owners to borrow money.

That, in turn, could crimp their ability to do business, leading to layoffs and affecting related businesses. It also could make it tougher for entrepreneurs to find money for starting new businesses.

Mortgages
The crisis on Wall Street shouldn’t have a direct impact on people who are paying their mortgages on time.

If you are seeking to refinance your mortgage or take out a second mortgage, however, you may find it to be more difficult, if not impossible, because of stricter lending requirements.

What Are the Answers? And Who Has Them?

And here I go with the questions again. Like I’m sure nearly everyone else, I’ve been following the downhill tumble of the Dow Jones, the defeat of the bailout and asking, ‘what’s next’?

I don’t think that there is any doubt that the next president is going to have to deal with more than one major financial crisis. Who’s ready to do that? I do agree with Paul Krugman, NYT Op-Ed Columnist, who says that Obama seems well informed and sensible about matters economic and financial. I also agree with him when he says John McCain scares him -- he scares me, too.

Maybe Obama could have shown more leadership in regards to the bailout during the debate over the bailout bill, but that pales in comparison to McCain who was frightening before and is even more so now. We know he doesn’t know much, if anything really useful, about economics – he said so himself. Of course, he denied later that he had said it, but even that wouldn’t matter if he had surrounded himself with capable, knowledgeable advisors, but he didn’t. Gramm is still around even if it’s in the shadows after his “nation of whiners” statement. How do you feel about him as Secretary of the Treasury? I don’t think so!

McCain’s views have gotten progressively erratic. He’ll have a very strong opinion one day and a short time later he will go off in an entirely different direction. He’s still declaring that “the fundamentals of our economy are strong”, and this when the financial crisis had entered a new and even more dangerous stage. He was threatening to fire the head of the Securities and Exchange Commission, which isn’t in the president’s power.

Then there was the rant about Fannie Mae and Freddie Mac and claiming that Obama was under their influence, when as it turned out, the firm owned by his own campaign manager was being paid by them until last month.

In spite of the fact that Paulson’s plan was only three pages long, McCain finally admitted that he hadn’t actually read it!

You can talk tough, stomp your feet, shake your fists at the evildoers all you want, but that isn’t what is needed in the office of President of the United States!

Again, my thanks to Paul Krugman! To read his complete article http://www.nytimes.com/2008/09/29/opinion/29krugman.html?ref=opinion