Tuesday, March 3, 2009

Shovel Ready Nonsense

The United States Government now owns 80% of AIG.

The United States Government now owns
36% of CitiGroup and is the largest shareholder in Bank of America, having all but nationalized the former financial giants.

Since it was established on January 5th, 2009, NASDAQ's
Government Relief Index, an assembly of the most-bailed-out banks, has absolutely plummeted, from an initial value of 1,000.00 all the way down to 494.28 at closing today, over a 50% drop in value in only 42 business days.

The stock market has lost over 30% of its value since Barack Obama took office and overwhelmingly began to further the mistakes of the Bush administration. As what were once murmurs of nationalization of the banks have grown in both volume and veracity, today the often repugnantly over the top James Cramer offered some sound advice to the Obama administration, urging that the more the government becomes involved, the more the market will continue to respond as it has thus far, poorly:

A tip of the cap to the oftentimes nonsensical Talking Points Memo for the video, which includes a former blogger of theirs who has somehow become Joe Biden's Chief Economist. Former blogger Jared Bernstein offers us the ever poignant note that, once again, the Obama Administration inherited this mess. You know, it's Bush's fault that Obama keeps doing the wrong things bigger and bigger.

He goes on to dismiss Cramer's remarks as "shovel ready nonsense." Considering that this remark made no sense whatsoever, in any context, it made me wonder if it was a prerequisite for working under Joe Biden that you be able to spout Hiroshima-like verbal gaffes at the drop of a hat that leave your audience cringing in despair for the fact that you haven't got a clue.

After I realized that thinking about it would only serve to kill off brain cells to the point that I'd eventually understand people like Bernstein, I decided I'd better do some real thinking; real thinking about the actual "shovel ready nonsense" we're encountering.

I've done a lot of research and a lot of other writing already in my short time in the blogosphere related to Barack Obama's Stimulus, and to the Bailouts. Given my look into how the Bailouts work, I can stand solidly behind James Cramer in discussing just why, as the government continues to intervene, it will only further drive the market into the ground.

The structuring of how the TARP funds work means that when the government puts money into a bank, it receives preferred stock and a dividend of either 5% or 8%. The fact that the government receives preffered stock means that these banks will continue to have to pay the dividend to the government first, prior to any common stock holders receiving any dividends. Furthermore, the government has the option, as it has looked to do recently with Citigroup, to convert portions of its preferred stock to common. What this does is actually to dilute the value of the stock's value to the other holders. It's almost like instant hyperinflation for stocks. Now there is so much more common stock, that the value of the stock you had goes down.

Both of these happenings are greatly disincentivizing any new investors from coming into the marketplace. Even with Citigroup's shares closing today at a measly $1.22, nobody who plays the market wants anything to do with it. That $1.22 is worse than if it was zero at this point. Any reasonable investor cannot look at that company without realizing that at any point in time, the government could convert preferred stock to common, and wipe out half his value. Even if that doesn't happen, that same investor cannot possibly want to bother with the risk of not realizing a reasonable dividend.

All-in-all, the more the government puts into the marketplace, the more the private capital is going to flee the marketplace. When FDR issued the order to confiscate all gold in 1933, it is believed that about half of all the gold that had been in active circulation flat out disappeared. People were not stupid then, and people are not stupid now.

Gold was, at the time, the backing for all US Currency. It gave our currency a solid value. FDR nationalized gold and the people who knew better got away from the mess. FDR proceeded to give the previously established Federal Reserve its now immense power, and, with his Keynesian tax-spend-inflate governmental model, essentially laid the first ace in the financial house of cards we now find crumbling around us, leaving the idea of the flow of credit as the only basis for the value of our money.

Perhaps it's not so nonsensical after all, then, to be ready with shovels for the burial of our economy. As the government continues to pour printed money into the markets, further inflating the dollar and disincentivizing real investment, the basis of our money is once again threatened. Barack Obama, following in the footsteps of someone he so greatly models himself after, is on a path to nationalizing the banks, which, as did the "great" FDR, will once again serve to destroy the basis for our money.

It should come as no surprise now that, once again, the people who know better are running for the hills.


  1. I find it hilarious that Joe Biden has become the mouth piece for middle class America when he's the one that buried them in Credit Card debt with his support of the new credit card and bankruptcy laws in the past.

    In any case, it will be interesting to see how this all plays out and I thank you for your views on this subject!


  2. Shovel ready construction jobs are a good sign, we should be able to get started quickly.

    A smart solution is construction staffing. When you need skilled tradesmen think of GRUS