Today was an awful day on Wall Street! The dow was down 504 point, bringing the Dow to just above 10,900 (remember when they popped the champagne about 8 years ago when the dow passed 10,000 for the first time?!). The credit crisis, or sub prime crisis, whatever you want to call it, is in full swing, erasing some of our most prominent companies and wreaking havoc on our financial system and economy as a whole.
Yup, this is serious. Bear Stearns gone. Lehman Bros. (who by the way was the first ever company that I used to trade stocks in college, awww) is gone. The giant Merrill Lynch has been bought by Bank of America and there remains only two major firms; JP Morgan (which is technically part of Chase Bank) and Goldman Sachs, who faced all kinds of nasty rumors today as the only two remaining large investment houses on Wall Street. Sad.
The Banks are next. AIG is faltering, looking for a mere 40 billion "bridge loan" to keep them afloat, with no takers as of yet. Washington Mutual has so much crap on their balance sheets that they are on the brink as well, with rumours that Barclays and / or Bank Of America (who seems to have an endless appetite for down and out financial companies) will take WAMU over. Citibank, has already taken billions in loans and "investment" from their Arab friends and has written down a mere 10 billion last quarter with a warning saying more is to come. Who is left?
People this is very serious. We have a very bad liquidity crunch with the safest place to put our money being our bedroom matress. Our banking system is grinding to halt. What is really amazing is that this credit crisis has been going on for about a year and half now and companies still do not know what is real and what is worthless on their balance sheets. Or...maybe they do know but are trying to let the bad news out gradually which seems never ending.
My point here is that we have been in difficult times and there are difficult times that lie ahead. There will be no quick fix here. Christmas will stink as people will not spend. We have not yet hit a bottom and the effects of what is happening will be without a doubt, higher unemployment (no money to create jobs, no bank lending to fuel business growth), reduced salaries, less consumer spending, basically tough economic times. Soooo...what can we do? Well I can tell you what we should NOT be doing as a Nation and that is spending billions of dollars a month on a war in Iraq.
Let me explain; when you dont have money, you dont spend money. When you have a situation where you have limited money but need it badly to improve your situation, you dont waste it else where. When you are facing a tough financial situation you take stock of your resources and maximize them as best as you can. Making sure you spend your money wisely to help you navigate through the tough times. This is the exact OPPOSITE of what our Government is doing.
PEOPLE: we spend 10 billion dollars a month in Iraq. We spend 12.3 billion dollars a month in Afghanistan and Iraq combined. Lets do the math:
10 billion a month in Iraq=
120 billion a year=
1/2 a trillion dollars in 5 years!!!
What credit problem? We have no problems, we must be filthy rich! The Treasury chose NOT to bail our Lehman Bros today but will spend about 2.5 billion this week alone in Iraq! Now, I am not saying that the Government should bail out every failed company, after all, they made bad decisions and need to pay the price. Their investors invested in a failed business model and now they must also deal with that reality. BUT, the harsh economic reality is we need our money now to help get us through this very tough economic situation. I think in the long run a financially strong America will be more secure than a weaker one because the day will come when we will no longer be able to afford to defend ourselves.
Imagine if we took the 120 billion dollars we piss away in Iraq every year and put it into our infrastructure, our financial institutions, building projects that create jobs, education, R & D for alternative energy! We would be the strongest country on the planet in every respect. This is a very different country than eight years ago. We no longer have the luxury to spend billions chasing nukes that are not there. We need to be smarter in terms of how we manage our money. Of course, nobody is closing up America, but we do need to make better choices to secure our future and let me tell you, he who is the strongest financially wins.
As always, I welcome your comments.
OSO.
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3 comments:
Oren,
With all due respect, I totally disagree with your most recent blog entry. You're comparing apples to oranges.
Like it or not, we're in Iraq for the foreseeable future, and pulling the plug now is not the answer. If we do, we'd lose all credibility with our allies, and worse, with our enemies. Peace with honor, not at all cost. It would signal a geostrategic defeat of epic proportion. And if you think things are bad now, well ... (and, BTW, the surge is working much, much better than planned)
Look, we were wrong about nukes in Iraq. So was British, French, Russian, Israeli and German intelligence. Right here, right now, our presence there is as essential as our mission in Afghanistan. We have crushed Al-Qaeda in Mesopotamia. The Shi'ite rebellion is history. Iraq is becoming more and more stable, to the point where it may very well become a viable, democratic, peaceful state allied with us -- a far better alternative than Hussein, who destabilized the region for 3 decades. So, the $120 Bln a year isn't quite being "pissed away."
Which leads to my second point: throwing billions at education, alt. fuel R&D, work projects, etc., are not the answer. I mean, 30 years ago Pres. Carter created the Dept. of Education, raising its Secretary to a cabinet-level post. What exactly does the DOE do, really? Has education appreciably improved in our country since then?
As for alternative energy, nothing, not windmills, ethanol, fuel cells, etc. has come close to replacing fossil fuels. Nuclear energy is a great, clean alternative (80% of France's energy comes from nukes) -- yet we can leave it to private industry to bring it to life, if only there wasn't a nearly 30-year federal moratorium banning new nuclear plants (since Three Mile Island).
Look, there's always need to invest in infrastructure, and every so often, government-funded projects help spark innovation (the Apollo missions come to mind). But to move $120 Bln/year away from what's at this point an essential military presence and funnel gov't largesse to industris it has no business contributing to or getting involved in, is not the answer. In my humble opinion.
Interesting topic, though. Congratulations on getting your blog off the ground.
Oren,
Firstly, congrats on your new blog. Use it well, but keep your eye on the grammar!!
Now to your actual blog.....
I will say that I partially agree with the previous commentor in the fact that you are comparing apples to oranges when you bring the wars (Iraq and Afghanistan) into play.
In truth, I think the government made a big mistake bailing out Bear Searns back then and a big mistake with the bridge load to AIG. If we believe ourselves to be living in a free-market system, then companies that make bad decisions have to live (or die) with the consequences. Maybe when enough of these companies go by the wayside, the people of this country will start paying more attention to what they do with their money.
But as for your idea of spending the 120 billion on education and infrastructure, here's the problem with that.
If you take a look at history, (and remember, those who ignore it are doomed to repeat it) you will find that federal largesse has always been rife with thievery. Every time the government has instituted one of these types of programs, the insitutional bleeding of funds into private coffers has been immense.
Not only that, but in order to run just such a program, you have to grow the size of government, which means more employees making more money doing less work....because that's how the government works. The Peter principal, to the n-th degree.
The war in Iraq was started based on the intelligence of multiple countries. That is not a debateable point. That the Bush administration mishandled it after-the-fact, is also fairly certain. But the notion that we should cut-and-run, is simply foolish.
Let the government spend what they need to in Iraq and finish that properly. There is plenty of money in this country to provide if there were proper incentives for the wealthy to actively participate.
When you hear Obama and Biden consistently talk about taxing the 'rich', you know why those with money simply sit on the sidelines and invest their money outside the United States.
If you need any further proof that there is plenty of money in this country, you need look no further than last nights malibu fundraiser for Obama. Where the price was $28,500 a plate!!
It's high time we get back to the principals that Ronald Reagan eschewed, and what brought this country out of the morass of the 80's.
Shay
Here's a thought; instead of spending the billions in Iraq and Afghanistan on troops and war logistics why not just divide up the money between every single citizen of those countries and let them have it. Peoples incentives tend to change when they start to accumulate wealth, and they start to think about how to spend it and provide for their families etc. Even nihilistic terrorist with nothing to lose may start to rethink their allegiances and would start to have something to lose-money.
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