Contrary to popular belief, the nationís success cannot be determined by following the Dow Jones. Two weeks ago this coming Tuesday, Citigroup CEO Vikram Pandit proclaimed Citi profitable in January and February, and moments later the stock market took its biggest one-day jump this year. What the story overlooked was a Fed report released that same morning, revealing that derivative liabilities for some of our major banks had ballooned to a potential $587 billion in new losses. Citigroup was on that list.
Personally, the Dow Jones could jump by over 1,000 points, as it did ending November, and that would say nothing about the direction this countryís economy is really going. But when three months go by in which car sales improve each and every month, then everyone will know our economy is returning to growth and consumers are regaining confidence.
Me, I kept my Ford stock and sold the rest more than two years ago, solely because the public statements made by Wall Street executives and analysts rang so false. These masters of the universe and the financial media that covers them have long acted as cheerleaders for disaster rather than the cool-headed analysts and CEOs they should be.
What is dangerously insane now is that, even though the major factors involved in the financial meltdown still havenít been fixed, network news and financial programs are back, hawking "the brilliance of the market" as proof that the system is working again.
Why? "The wisdom of the market" just cost the world $45 trillion in wealth. That financial body isnít even cold, and yet the carnival barkers are back and trying to take us for more.
And That Explains So Much
That may sound harsh, but the individuals who have taken us down this path fit the profile of sociopaths. Doubt that? Letís look at the clinical description of people with that personality disorder.
Manipulative, Cunning and Conning: Never recognize the rights of others and see their self-serving behaviors as permissible. They appear to be charming yet are covertly hostile, seeing their victim as merely an instrument to be used.
Grandiose Sense of Self: Feel entitled to certain things as "their right."
Pathological Liar: Have no problem lying coolly, and it is almost impossible for them to be consistently truthful. Can create, and get caught up in, a complex and exaggerated fantasy about their own powers and abilities.
Shallow Emotions: When they show what seems to be warmth and compassion, it is more feigned than experienced and serves an ulterior motive. Since they are not genuine, neither are their promises.
Need for Stimulation: Living on the edge (with your money).
Callousness/Lack of Empathy: Canít feel and doesnít really care about their victimsí pain.
Sound like the wizards weíve seen on TV lately? After all, how else can one explain the fact that we invested $160 billion in AIG because of their complete financial failure ó yet they turned around and paid out bonuses well in excess of $160 million? AIG feels these bonuses are "their right," and they demonstrate no sense of the pain they have caused the American taxpayer.
So enabling corporate sociopaths is off the table ó but every trend that affects the nationís health can be followed and forecast if you track closely whatís happened inside the automotive industry.
Consider the Source First!
Over the past eight years we knew the economy was weak because of the automobile market. After all, just as Wall Street endlessly pans the "old media" as no longer a viable and important part of our society, it also considers automobile production "old line manufacturing" and another drain on our vibrant financial society. But think for a moment: Who exactly is claiming that publishing and manufacturing are "old line" industries not worthy of our investment? Thatís right ó the same folks who gave us the worldís financial meltdown.
Doesnít anyone besides me think that itís strange that AIG was so easily given $160 billion to save their failed company, but there is a massive public debate on whether or not we should bail out Detroit for one-quarter of that amount? The auto industry employs almost 500,000 people directly, and industries that directly supply their parts and raw materials pay almost that many workers.
Indirectly, the loss of advertising from the automobile industry today is the No. 1 reason the media outlets, from newspapers to radio and TV, are in trouble. In fact, the recent downsizings of the nationís communication outlets and the failure of some newspapers stems directly from the downturn in automobile sales.
Biased Perception, Treatment
The second largest drop in advertising revenue has been real estate. Sure enough, the mortgage bust was Wall Streetís most recent gift to Americans.
Now, if you think that it was just foolish individuals who signed mortgages for far more than they could possibly repay, you need to rethink that position. Because Wall Street bankers, hedge funds and leveraged buyout groups ó now called private equity because it sounds better ó also put together huge buyouts of well-established and profitable corporations over the past decade. This is identical to the mortgage fiasco, only these corporate deals are in the billions of dollars. Still, like the overpriced house with the unsustainably large mortgage, these massively overpriced corporate buyouts carry similarly unsustainable "mortgage" payments.
Much like the family whose adults both have good paying jobs but canít afford their house payment when the mortgage resets higher, these companiesí individual units still make money. But the collective group cannot make enough money to pay the massive loans they took out to buy the corporation. Again, the media focuses on the bailout debate for troubled homeowners ó but the bigger and unreported story is the corporations that owe far too much on the properties they purchased and are now renegotiating their loans because they canít service their debt.
Moreover, many lending institutions are quietly restructuring that debt so that the company doesnít go into default. Apparently, restructuring a bad billion-dollar loan on a profitable company that canít meet their debt obligations is easier than restructuring the mortgage that a California homeowner can no longer afford.
Biggest Threat: Wage Destruction
The non-stop job losses of the last 150 days are ominous. More troubling is that many corporations have cut the wages of any remaining workers; they get down to minimal staffing requirements to operate, but they still need more cash flow to repay their loan obligations. This marks the first time since the Depression that companies are cutting wages for employees they badly need to keep.
Thatís the difference between this downturn and other recessions. For in most recessions all excess workers get cut, and then when the recovery starts in earnest workers are rehired for expansion. When the recovery takes place this time around, it is highly doubtful that those whose incomes got cut will find them fully restored. This also means that those hired back will not get paid what they used to.
Wage destruction to repay loans is likely the biggest threat that remains for our future. Because if you canít backstop the wage slide, you canít stop the slowdown. Fewer workers, making less money, means a much smaller economy.
"Until you are willing to organize your friends and neighbors and literally shut down cities - drive at 5mph through the streets of major cities on the freeway and stop commerce, refuse to show up for work, refuse to borrow and spend more than you make, show up in Washington DC with a million of your neighbors and literally shut down The Capitol you WILL be bent over the table on a daily basis." Karl Denninger