Nero was a Roman emperor who was rumored to have played a lyre in his palace in July 64 while Rome burned for six days. And to paraphrase Mark Twain, history may not be repeating itself now; but it sure is rhyming. The 30 developed economies are receding -- expected to shrink 0.3% in 2009. Meanwhile, in the U.S., foreclosures are up 25% since last year and Wal-Mart Stores, Inc. (NYSE: WMT), which was thought to be the place everyone would shop in a recession, now forecasts fourth quarter earnings per share to be as much as 7% lower than analysts expected. And the S&P 500 has lost 41.4% of its value in the last year.
So why does this feel like Nero's Rome? Two things: Hank Paulson -- who has consistently made confident predictions that later proved to be wrong -- has done so again. And, Washington, which was required by the terms of the $810 billion rescue plan to report on its progress after 30 days, has missed its deadline. As I posted yesterday, Paulson admitted that his plan to save the world by using reverse auctions to buy toxic waste was DOA. But the subtext of speech was that he does not have a clue about what to do -- and he has his eye on the exit door.
Meanwhile, a special inspector -- to be appointed by Bush -- and a Congressional Oversight Panel, which was supposed to check the dictatorial powers that Paulson originally asked for, has no staff members. This means that the taxpayers do not know exactly where the $290 billion that Treasury has committed so far has been spent. Simply put, the economy is getting worse, the program to restore it is rudderless, there is no public information on how the money has been spent, and nobody is in a position to provide that information.
It's not exactly a repeat of ancient Rome. While I doubt anyone in the White House knows how to play the lyre, the global economy is going up in flames.
Today, the President-elect is meeting at the White House with the current President. No President in U.S. history has left his successor with two long wars with no end and an economic depression. That is until the current one. But George W. Bush has more trouble in store for his successor. And he's piling on the problems in his usual secretive manner -- hoping nobody will notice.
How so? First, the Treasury Department this morning announced that it would increase the size of the bailout of American International Group (NYSE: AIG) from $143.7 billion to $150 billion and it would do so from funds in the $810 billion bank bailout bill. Second, he snuck a $140 billion bank tax break into that same bailout bill that would encourage bank mergers by allowing profitable banks to pay less tax by using the losses from unprofitable ones they buy to offset their taxable income.
Each of these moves is complex but the bottom line is that more of your money is going to bail out the mistakes of a handful of executives without any input from taxpayer representatives. The new AIG bailout swaps a program that gave it $143.7 billion of taxpayer money -- the original $85 billion loan for warrants to buy 79.9% stake; plus$37.8 billion more to cover losses from AIG's money-losing securities lending unit; plus another $20.9 billion worth of Commercial Paper -- for a new deal.
I realize that it's not a reason to pick a president, but if you care about your stock portfolio, you'd be better off with a Democratic president. How so? Peter Siris of Guerrilla Capital has run some numbers -- comparing an investment of $10,000 in the S&P 500 under Republican administrations to the same investment under Democratic ones. He permitted me to preview these numbers which will run in his New York Post column on November 3rd.
Since 1929 both parties have controlled the White House for 40 years and Siris estimates that the $10,000 would be worth $11,733 under Republican administrations and $300,671 under Democratic ones. According to Siris, "for whatever reason, Republicans have been in office during the three worst stock market declines: The Great Depression, the early to mid-1970s, and the current market."
That may sound interesting but what about recent presidents? Under the Clinton administration, the S&P 500 rose the most in the last 60 years -- up an average of 17.4% per year. The only president who posted a negative performance is a familiar name -- George W. Bush -- under his administration, the S&P 500 has fallen 27% from 1,342 to 979. It's an exceptional record and one that I hope will never recur.
We have finally reached a point where all denial is gone and we are ready to admit the error of our ways. Sure, there were plenty of folks ringing the alarm bells years ago, but universal acceptance of the fundamental economic calamity that faces us from every corner of the world, and every person with two cents to rub together, has just now taken hold.
I wrote quite some time ago that the turning point in the economy cannot come about until President Bush admits there is a problem and that he will be the last person to do so. While I do not have a high opinion of President Bush, the facts speak for themselves as I wrote one year ago. (See Is Bush giving the country away without knowing it?)
The storm is not over, but we are coming to grips with it at very great expense. Admitting our errors is only the start; now we will have to spend years fixing problems and making many compromises. Unfortunately many people may lose their homes, jobs or both before we see significant growth.
If the government is finally willing to admit that we are in some deep crap and Warren Buffett is willing to make the call to arms himself, a non-Bush supporter, then the members of Congress that can't find some satisfactory compromise on the $700 billion appropriation are screwing up!
I don't care if the number is a trillion dollars at this point. The money is not a give-away if it is a loan. It may be a bailout, but it is also a backstop against further erosion of our economy.
If the value of equity in the United States, all real estate, stocks, bonds, gold, you name it is worth 100 trillion dollars (wild guess) than how much do we lose if it goes down in value like it is doing now as I type. See Flash: House rejects bailout package, market dives
Every man, woman and child in the country will lose if confidence and liquidity are not propped up. How many jobs will be lost?
Think about this, if the downward spiral is not curtailed than the amount of taxes NOT collected by the Federal Government in the next year or two will be larger than the amount of the backstop the fed is trying to create now! That alone makes the deal worth doing.
Update: The Dow Jones Industrial Average lost 7% of its value today. That is in just one day! How many billions of equity is that? How much did you house go down in value today? How much less secure do you feel in your job today?
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.
In perhaps the shortest press conference on record, President George W. Bush confidently predicted that the government's $700 billion rescue of Wall Street will pass. I am not holding my breath.
Bush remarked that the legislative process sometimes is not "pretty." Talk about an understatement. Rhetoric on both sides of the aisle has been boiling over all week. People are angry, and who can blame them? It's a tough sell to taxpayers that there is a huge sense of urgency to rescue financial services companies that overextended themselves by lending money to people who could not afford to pay them back. The whole thing strikes many Americans, particularly those living paycheck to paycheck, as unfair.
Polls have overwhelmingly shown that most people are against the bailout. Most members of Congress have very little to gain right now by sticking out their necks for the Bush plan. If it passes, they have to explain to their constituents why they are helping out Wall Street fat cats. Voters will be angry and will demand explanations about why the value of their 401 (k) has plunged.
Pundits continue to plead on CNBC that the credit market is frozen, making it more difficult for people and businesses to get loans. They have warned of a financial apocalypse worse than the Great Depression. Maybe they are making valid economic arguments, but their message is not resonating with the public.
Members of Congress can ill-afford to alienate voters, many of whom are struggling to make ends meet. A bailout bill may pass but odds are that the process will be ugly and the end result may not be to Wall Street's liking.
Some of you will remember this story from last November when the door to our current world-wide financial industry meltdown was just beginning to crack open. At that time, we were facing tens of billions of dollars in losses and write-downs, but now we have witnessed hundreds of billions of dollars of the same and the government is telling us that it will take another $700 billion to shore up the industry.
Naturally, most of the people that got us into this mess are receiving golden parachutes as they abandon or are ejected from their burning empires. President Bush has been in over his head for years and turned a blind eye, (I think blind in both eyes) see: The George W. Bush economic plan? The shame does not end with Bush, though he has shown no leadership on the subject.
Sen. Christopher Dodd, chairman of the Senate Committee on Banking, Housing, and Urban Affairs, said of the recent Fannie Mae and Freddie Mac bailout, "Americans deserve to know if this proposal will help keep mortgages affordable, stabilize the markets and protect taxpayer interests."
The entire political system is jam-packed with conflicts of interest. Here are Senators Dodd's contributors by firm and industry as reported by OpenSecrets.org:
Top 5 Contributors, 2003-2008: Citigroup Inc. $310,294, SAC Capital Partners $282,000, United Technologies $263,400, American International Group 224,678, Bear Stearns $205,600.
In my post I simply tried to make the point that government policy and leadership does affect how laws are written, rules are enforced, and the sentiments of leadership affects things even when those leaders are not holding the smoking gun. I am not giving the legislature a free pass on this either, but policy is set by the President.
During the current administration, policies that were put in place in 1975 to prevent the kinds of transgressions we are witnessing now by financial institutions were shredded by the current SEC management.
Allegations are being made by a former SEC official, Lee Pickard, who says a rule change in 2004 are what led to the failure of Lehman Brothers (NYSE: LEH, not trading) , Bear Stearns (NYSE: BSC, not trading), and Merrill Lynch (NYSE: MER).
Now we learn that rules put in place regarding capital reserves, leverage limits, and basic accounting principals were removed, eased, and modified as reported: "allowing the broker dealers to increase their debt-to-net-capital ratios, sometimes, as in the case of Merrill Lynch, to as high as 40-to-1. It also removed the method for applying haircuts, relying instead on another math-based model for calculating risk that led to a much smaller discount."
As an example, up until 2004 the net capital rule required that broker dealers limit their debt-to-net capital ratio to 12-to-1. To make matters worse the SEC is not admitting the ERROR of THEIR WAYS, but are making excuses for the failings and considering even further liberalization of the rules governing lenders and investment houses.
It is an ironic twist and one that has many conservatives in an uproar that the current administration has been so liberal with fiscal policy and fiscal restraint that Federal spending has grown out of control and the controllers have turned a blind eye to their responsibility.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.DISCLOSURE: I owned BSC and now own shares in its acquirer JPM.
President Obama will offer a middle class tax cut and raise the capital gains rate. This change will put more money into the pockets of consumers which account for 70% of GDP growth. And it will help balance the budget -- Bush's tax cuts have helped hit a record $410 billion deficit. Obama will also veto earmarks and implement pay-go rules which require a balanced budget.
These fiscally sound policies will strengthen the dollar which will help drop the price of gasoline and food. Obama will also create incentives to encourage investment in alternative energy. America knows that high oil prices enrich the enemy -- 15 of 19 9/11 hijackers were from Saudi Arabia -- our second biggest oil supplier. The sooner we can free ourselves of that devil's bargain, the safer we'll be.
For the sake of our economy, January 2009 can't arrive soon enough.
There has been so much crap thrown around about whether WE ARE in a full blown recession OR NOT that all the talk, is just that -- a lot of talk. Long time investors know well that if there is anybody left that thinks we are not in a recession than we have not reached final capitulation.
If we do not reach this level of pain, then we cannot get better. Admitting the problem is a major path to recovery. That is true for an alcoholic and our ailing economy. As long as the alcoholic keeps saying they can handle the problem, its not going away.
Our economy is drunk and falling over. You can call our current economic crises a "rose" for all I care, and for those that want to wait for the classic two quarters of negative growth to appear you can consider yourself followers not leaders. Leaders take action and try to avoid a crises. Followers, wait until there is a crises... and historians document and report on the difference between the two.
The comments on a recent blog post by Sarah Gilbert, about Starbucks retraining efforts took an interesting turn towards discussion about whether or not that company supports our troops. This seems to be a subject which elicits strong passion among many blog readers, which prompts me to ask this question of you: Does a company's position, openly declared or not, regarding support for our troops, affect your perception of that company and whether or not you'll intentionally do business with them?
This issue can be difficult to assess, because often times a company's position on the matter is cloaked, unavailable or skewed by misinformation. The comments on Sarah's blog post give clear evidence of that. Some folks seem convinced that Starbucks doesn't care about our troops, yet packages bearing its logo are reported to arrive at military addresses every day. What's more is the fact that often companies elect not to state a position regarding our restructuring efforts in Iraq. To some people, silence on the matter is interpreted as contempt rather than consent.
I must admit that my own opinions about individual companies regarding their stance on our military involvements are sometimes colored by unconfirmed email commentary and careless internet banter. That is why I generally refrain from discussing the issue. What about you? Do you base your opinions on random emails which purport to reveal a company's stance regarding our military, or do you research the topic before coming to your conclusions?
Here's an item that's so laced with irony it defies comment -- I can't come up with a metaphor that does it justice. It's sort of like rearranging deck chairs on the Titanic, but it's much, much, much more pathetic.
President Bush's 2009 budget is expected to lead to a deficit of more than $400 billion. But not to worry, our fearless leader has a plan to cut back on spending.
According (subscription required) to the Wall Street Journal, "In years past, the White House's Office of Management and Budget distributed about 3,000 copies of the budget free to media outlets, congressional offices and elsewhere in the capital. This year, those folks must buy a printed copy or access one free online."
Members of Congress can get a copy for $67.50. Ordinary taxpayers hoping to get the details on how their elected officials plan to waste their money and then some will have to pay $213 -- or read it online.
The plan will save taxpayers an estimated $1 million over 5 years.
So $400 billion divided by $200,000... The President has found a way to shave off 1/2,000,000th of the projected deficit for 2009 that will be passed on to future generations.
Since September, the Fed has cut rates from 5.25% last September to 3.50% and it's poised to cut them an additional 25 basis points today. Moreover, the House last night passed a $146 billion economic stimulus package. The problem with all this is that with inflation raging and consumer spending weakening, the cure could be worse than the disease.
This sequence of events brings back memories of the chorus that led us into war in Iraq. We heard mournful dirges about Weapons of Mass Destruction (WMDs) and Saddam Hussein's ties to 9/11. The cresting of national fear unleashed a war that's killed almost 4,000 soldiers, over 80,000 Iraqis, and cost $1 trillion. Meanwhile, it turned out that the WMDs were an illusion created by Douglas Feith, a Cheney aide, and there was no Saddam Hussein tie to 9/11.
The beauty of creating a policy based on no evidence is that in the right hands this very lack of evidence can be spun to reinforce the need for the policy. The political genius of this White House is its ability to turn an argument's weakness -- the lack of evidence for a desired policy outcome -- into a strength. In the case of the liquidity measures, there is scant evidence of a recession. And that lack of evidence has been turned into the basis for all the rate cuts and stimulus.
Want to know how much the Republicans are the creek in this presidential election? A Bloomberg News/Los Angeles Times poll found that voters believe Democrats are better able to handle the economy than President George W. Bush by a margin of 51% to 29%.
Moreover, more than two-thirds respondents said they believed the economy was doing badly, up from 56% in December. More people -- about 80% -- see a recession as likely, up from 71%. A Wall Street Journal/NBC News poll found similar results.
Is it any wonder that President Bush buried the bipartisan hatchet and worked out a fiscal stimulus package?
Wouldn't the economy have gotten more of a kick if unemployment insurance was extended?
That issue will be hotly debated when the bill gets to the Senate. Sen. Max Baucus, the chair of the Senate Tax Committee, told the Wall Street Journal that leaving it out was a "mistake." Let's hope the new spirit of bipartisanship in Washington lasts a little longer.
But I wonder whether sending tax rebates -- mine would be about $1,500 -- will really stimulate the economy? Odds are pretty good that my wife and I are going to wind up handing a lot of that money right back to Uncle Sam which isn't very stimulating if you ask me.
George F. Will, a man so WASPy that he would be cast as a conservative TV pundit if he wasn't one in real life, is downright depressed about his beloved Republican party.
Writing in the Washington Post, Will said "Nov. 4 could be their most disagreeable day since Nov. 3, 1964. Actually, this November could be even worse, because in 1964 Barry Goldwater 's loss of 44 states served a purpose, the ideological reorientation and revitalization of the party. ... Today, all the usual indicators are dismal for Republicans."
Among the problems cited by the bow-tied commentator:
More people identify themselves as Democrats,
independents are sympathetic to the Democrats,
Democrats control the majority of seats in states with 303 electoral votes,
Most Americans believe the country is on the wrong track,
Today, the President-elect is meeting at the White House with the current President. No President in U.S. history has left his successor with two long wars with no end and an economic depression. That is until the current one. But George W. Bush has more trouble in store for his successor. And he's piling on the problems in his usual secretive manner -- hoping nobody will notice.
We have finally reached a point where all denial is gone and we are ready to admit the error of our ways. Sure, there were plenty of folks ringing the alarm bells years ago, but universal acceptance of the fundamental economic calamity that faces us from every corner of the world, and every person with two cents to rub together, has just now taken hold.
If the government is finally willing to admit that we are in some deep crap and Warren Buffett is willing to make the call to arms himself, a non-Bush supporter, then the members of Congress that can't find some satisfactory compromise on the $700 billion appropriation are screwing up! 
In perhaps the shortest press conference on record
Some of you will remember this story from last November when the door to our current world-wide financial industry meltdown was just beginning to crack open. At that time, we were facing tens of billions of dollars in losses and write-downs, but now we have witnessed hundreds of billions of dollars of the same and the government is telling us that it will take another $700 billion to shore up the industry.
In one of my recent rants I blamed the Bush administration for some of what ails us (
In November, Barack Obama will be elected president. People are fed up with George Bush and the Republican candidate wants to continue his policies -- 
The comments on 
Here's an item that's so laced with irony it defies comment -- I can't come up with a metaphor that does it justice. It's sort of like rearranging deck chairs on the Titanic, but it's much, much, much more pathetic.
Since September, the Fed has cut rates from 
Want to know how much the Republicans are the creek in this presidential election? 
George F. Will, a man so WASPy that he would be cast as a conservative TV pundit if he wasn't one in real life, is downright depressed about his beloved Republican party.
Best & Worst in Money 2008: Most shocking financial collapse
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