I was hoping that I wouldn't have to sound the bell of doom and gloom and that some semblance of reality would set in, but, alas, we're too far beyond reality for things now. We seem to be stuck on a course of disaster not unlike the course that fateful ship, the Titanic, seemed to be set upon - where everyone seems to be an expert after the fact.
I'm not a financial genius, but I know when things are screwed up. It might feel good to say, Screw Wall Street!, but the reality is that we're only screwing ourselves. As one Republican congressman so eloquently put it, when a man is drowning in front of you, you don't first yell at him for going swimming in dangerous waters.
You see, its fun to say that we don't want to give tax money to rescue the financial markets. But these arguments are too late. That house is already burning. What we're trying to do is prevent the next house from burning. With the no vote by Congress today, we've set the entire block on fire. First, more banks will collapse (we lost four more banks here and abroad over the weekend). Then credit will dry up - and not just credit for home loans and car loans, but everyday credit. "Well, I won't borrow anymore," you say. But you really don't have a choice. Like my company here, most companies don't have large reserves of cash lying around to pay for goods and services. If they need to buy product, they do so by financing it. I pay for six months stock now, and by the time that six months have passed, I've made enough money to pay off the bill and then also enough profit to keep my company afloat. But if they can't finance the purchase of products, then they don't have anything to sell and their companies go belly up. So, very quickly, without credit available we're going to see the financial crisis spread to other businesses (Sears, JCPenney, etc...) and these companies will collapse, adding to the unemployment rate and also driving up the price of goods available in other markets. Think of where you're going to shop when WalMart, Target, and J.C. Penney all disappear? And its not just retail companies that are in trouble, but just about every area of the economy. Doctors are going to be hard pressed to pay their bills when all of these companies shut down their medical insurance. Construction companies are going to stop building new buildings when there's no credit to fund their construction. Etc...
We are really only about one step away from complete collapse. Once these things start occurring, it'll be too late to put the genie back in the bottle and the entire financial landscape will be forever altered. But then, its probably more important to determine who to blame than to actually fix the problem.
2 comments:
Watching CNN at lunch (I was at the gym) it was pretty clear that the misguided congressmen were the conservative Republicans and the more liberal Democrats who voted "no".
Do I think there's panic selling?
Yes.
But you hit the nail on the head...it's the credit markets that are the greater concern - and that's exactly what makes the world tick. If a regular everyday business, like yours, can't borrow enough cash to cover daily expenses (payroll, inventory) until AR is collected, then we've got a very, very serious problem.
The problem with the Stock Market is that Panic is synonymous with Recession or Depression. The entire conceit of the Stock Market is that you buy stocks because they'll keep going up in value. When they stop doing that, you sell. If stock values continue to drop, you sell faster! Panic is the opposite of Confidence.
I knew that as long as the HOPE of a bailout existed the stock levels would remain high - because that's what we were really selling, Hope. Now we need to replace that fear with a new hope - perhaps some farmer's nephew on some far off desert planet?
Post a Comment