BillBakerBlog.com

China to U.S.: "If you don't pay us back, we know a guy..."

Normally, I try to avoid blogging on the weekend (religious thing), but this one couldn't wait until Monday.

I found it amusing that yesterday, the leader of China - the weaselly despot Wen Jiabao - said he was nervous about all that money he is lending the United States.

See, the income tax that the U.S. treasury collects from all of us is just about enough to fund the heating bill in the White House, with some left over for the congressional health club. The rest of the money we need to cover our kerjillion dollar federal budget has to come from somewhere else.

That somewhere is China. It loans us money in the form of buying U.S. bonds and, someday, we either pay it back or China forecloses on us and we all start carrying around copies of Mao's Little Red Book in the glove compartments of our Buicks.

(Editor's note: The truth is, foreign governments own about 28% of U.S. debt, but I am trying to make a point here, so cut me some slack...)

Since this country was created, we have NEVER defaulted on a bond payment. So the fact that a world leader (albeit the head of a morally bankrupt government like China's) would publicly question our ability to pay our debts is somewhat eyebrow-raising.

In better days, we might tell that corrupt creep to go take a flying f*ck at the moon, but these are perilous times and the last thing we want to do is upset one of our most important loan sharks.

Luckily, we have an ace-in-the-hole:

As long as China continues to buy up our increasingly toxic Treasury notes, we will continue to buy up China's toxic products: Lead-painted toys, contaminated pet food, foul fish, all made by slave labor.

China - You keep sending that crap to Walmart and we'll keep buying it, but you have to keep loaning us the money to pay for it. If you cut us off, we'll cut you off, and then you'll have a billion and a half pissed-off unemployed Nike assemblers to deal with.

Good luck with that.

So, Mr. Wen Jiabao, ixnay on the ebtday talk and get back to funding the genocide in Sudan and brutally crushing the people of Tibet.

Haiku Friday: The Week of March 9, 2009

[Drop needle and cue orchestral music]

Daylight savings has arrived (Three weeks earlier than in Europe, just to be annoying....)

The days are getting slightly warmer. Kids are venturing outside to play on the lawn, stir-crazy from a long winter's night.

Spring arrives one week from today - a glimpse of the halcyon, carefree days of summer to come.

[Cue sound of needle being dragged across record]

Wait - this is 2009. Spring has been mortgaged, summer canceled, kids play Nintendo in the basement and, anyway, that lawn surrounds a house that was foreclosed on last autumn.

So what do we have to cling to?

Beauty. Truth. Family. Haiku Friday.

Here's a summary of the week's news presented in a form that, for a brief moment, lifts all of our spirits and sends them... right over the edge:

Hillary travels
to foreign lands near and far.
Bill brings up the rear.

Budget goes to prez;
Obama signs it and says
"NEXT time, no earmarks!"

The Forbes list is out.
Billionaires? Not any more.
Can you spare a dime?

Jamie Dimon speaks:
"Please stop blaming the bankers!"
YOU wrote the loans, chief.

Tuesday: Market up!
Wednesday: Cool - keep it going!!
Thursday: Holy cow!!!

Madoff pleads guilty,
sixty billion up in smoke.
Enjoy prison food!

Have a swell weekend and keep in mind that the G20 finance leaders are meeting in England, so don't forget to set your 401Ks back 14 years before you go to sleep Saturday night.

"I would like to borrow my money back, please."

 

I was out the day they taught banking and finance in college so somebody help me out here:

We, the taxpayers, are propping up zombie banks to the tune of hundreds of billions of dollars. We're told that the best thing those banks could do is to start lending that money out, un-freezing the credit markets, so that we can go back to buying houses, cars and flat-screen TVs. This would put people back to work making and selling all that stuff.

(Yes - I do understand that the credit markets also include commercial paper and lots of other inter-business financing that have nothing to do with consumers. It is, however, loans to consumers that caused this whole mess.)

BUT...

- Can we really borrow our way out of what is, in essence, a borrowing crisis?

AND:

- Doesn't it seem strange (or worse, stupid) that we are giving our taxes to the banks... so that they can lend it back to us?

AND:

- Who are we giving our tax dollars to anyway? The same banks that wrote the bad loans to the same people who could not afford to pay them back in the first place? Well, THAT doesn't sound like a good use of my money...

ALSO:

- Did it occur to those people who are telling us we need to borrow money from these banks in order to buy more stuff that maybe, just maybe, we don't actually need that stuff? Do people really need to buy a new car every three or four years? Maybe two domestic automakers are more than enough. Perhaps that home we're living in is just fine and we don't need the McMansion. Maybe, I don't need to finance a refrigerator with French doors and an ice maker, when I can pay cash and get a plain old-fashioned 'fridge for a quarter of the price.

Wouldn't it be better if we cut out the middlemen (the U.S. Treasury and the banks) along with the interest charges and just bought the stuff we really need and can afford, and avoided the rest?

Ah - but that's not the American way now, is it? We buy now, pay later.

Well, it's later. Much later.

"We Have Met the Enemy and He is Us." - Pogo Possum

Graph: NPR, Credit Suisse

I just finished listening to the "This American Life" podcast from last week about the banking crisis. For those of you who don't listen, This American Life is a truly great public radio show. Its coverage of the sub-prime banking crisis has been absolutely brilliant.

During the show, the reporters paint a pretty scary picture. Among the many things they discuss is a data point in today's economy: The ratio of household debt to gross domestic product (GDP). Basically, it shows that we owe exactly as much as we can produce in this country. We owe $13 trillion dollars in a $13 trillion economy. We are leveraged up to our eyeballs. The significance of the chart (which you can click on to enlarge) is put in perspective here by Columbia professor David Beim:

"The problem is us. The problem is not the banks, greedy though they may be, overpaid though they may be. The problem is us... We've been living very high on the hog. Our living standard has been rising dramatically in the last 25 years. And we have been borrowing much of the money to make that prosperity happen."

This has only happened once before in American history: 1929.

Getting out of it is going to take painful sacrifice, as anyone who has clawed their way out of too much debt can tell you. And, the longer we wait to face the inevitable, the more painful (expensive) it will be.

So, bend over and grab your ankles...

Stock Market Capitulation: Are We There Yet?

"Capitulation" is a term that investors use to call the bottom to a bear market. When everyone just throws in the towel and sells everything, that's capitulation.

The problem is, according to some, that we are not experiencing capitulation if we are still asking about it. In other words, it ain't over 'til it's over. You can't observe capitulation when it is happening.

Think of it as sort of a mix between quantum mechanics Heisenberg's Uncertainty Principle and Yogi Berra.

Bottom line: As long as we're thinking the stock market can't go any lower, it probably can. The minute we stop paying attention and go for a walk or watch "American Idol", the market will, in all likelihood, make a roaring comeback while nobody is looking.

Now get on with your life.

Happy Birthday, Baker Blog: Celebrating 3 Years of...Typing

This week kicks off the international celebration commemorating the third anniversary of the founding of this blog on March 14, 2006.

As with any birthday, it is so gratifying when others reach out with their good wishes and I was pleased that some of the world's leading lights in technology, politics, business and entertainment have chosen to do so. In fact, many of the same people who have found their names on this blog have been effusive with their comments.*

 Allow me to share a few:

• "He writes about as good as we treat our customers." - The airline industry
• "I'm not sure who he is, but make sure he knows and writes that I am not a socialist. " - President Barack Obama
• "One would think that after three years, people other than his mother and mother-in-law would read his blog." - Bill Baker's wife
• "Three years? Really? Never heard of it or of him, to be honest." - Senator Chris Dodd, Connecticut
• "I plan to drive one of our new hybrid prototype vehicles that we plan to sell in 2043 all the way out and deliver my congratulations in person, if you catch my drift..." - GM CEO Rick Wagoner
• "F*ck him." - Former Lehman Brothers CEO Dick Fuld
• "What Dick said." - Former Merrill-Lynch CEO John Thain
• "See? Free speech isn't all it's cracked up to be, now, is it?" - Chinese Premier Wen Jiabao
• "Does he want to work for Treasury?" - Treasury Secretary Tim Geithner
• "That blog is a mess. It is a shining example of our failing education system in this country." - House Speaker Nancy Pelosi
• "I'm just getting on the Internet for the first time, so I haven't had the chance to see what this 'blog' craze is all about." - Former president George W. Bush
• "I invented the Internet for THIS???" - Tim Berners-Lee

* Every single one of these are made up. None of these people ever contacted me or said any of these things. Except possibly John Thain, but all his emails go to my spam filter.

Citigroup - "Taxpayer bailout: $45 billion. Stupid f-ing marketing: Priceless."

Photo of the week has to go to my friend and colleague Glenn Rossman, who took this shot of a Citibank ATM that he was using:

"A share of our stock sells for less than a can of soda, taxpayers have propped us up to the tune of $90 zillion dollars, we're pretty much a federally owned bank, our balance sheet has more toxic waste on it than Love Canal circa 1979 and the New York Stock Exchange is getting ready to kick us to the curb - but yeah, your money is juuuuusst fine."

BTW - for those of you looking for some "walking around money" this weekend, Glenn's bank card PIN is "Bosco".

Haiku Friday: The Week of March 2, 2009

 

Just once, I would like to come to Haiku Friday with nothing - no bad news, no economic crises, no double-digit percentage losses in the stock market. I guess when all the stock market averages go to zero and everyone has been laid off, we'll have a nice, boring Haiku Friday about... grass.

Until then, here's what this blog sees at the top stories of the week, condensed into haiku suitable for needlepoint, framing and displaying in a child's room or front foyer:

McCain rails: "No Pork!"
$8 bil in the new budget.
Dems say: "We want ours!"

March stocks? More bad news.
Dow falls below 7K.
Stuffing my mattress.

Stocks crater worldwide.
Obama says: "Time to buy."
Uh... yeah. Not just yet.

China's Congress meets.
"Sell more poisoned toys and milk,
then lie about it."

Accountants say that
General Motors is toast.
Honda, anyone?

8.1 percent -
That is a lot of lost jobs.
Congress should be next.

I leave you with this comforting thought as we head into the weekend:

Daylight savings begins Sunday. That means the politicians, bankers, bureaucrats, traders and CEOs have a whole extra hour of daylight to come up with new ways to... well... whatever it is they think they are doing to us.

Hasta la Monday.

Financial Crisis: Has Anyone Committed Harakiri Yet?

Question: In this entire financial meltdown, has anyone in a position of power come out and said "I'm sorry. I screwed up."?

The list of people who might consider doing so is long. For starters:

• Allen Greenspan
• Bernie Madoff
• Christopher Cox (fomer SEC chairman)
• George W. Bush
• Henry Paulson (he should apologize twice - for his Goldman-Sachs and his Treasury tenures)
• Senator Chris Dodd and his good, good buddy...
• ...Angelo Mozilo (Countrywide Mortgage)
• Representative Barney Frank
• Everyone who lied on their sub-prime loan applications
• Franklin Raines (former CEO of Fannie Mae)
• Speaker Nancy Pelosi
• Stan O'Neal (Merrill-Lynch)
• John Thain (Merrill-Lynch)
• Jimmy Cayne (Bear Sterns CEO who couldn't be bothered to leave his bridge tournament as his company was going down in flames.)
• Dick Fuld (Lehman)
• Sandy Weill (former Citigroup CEO)
• Charles Prince (also former Citigroup CEO)
• Vikram Pandit (current Citigroup CEO. Here is what he had to say about Citigroup exactly one year ago. Why does this tool still have a job???)

This list is obviously endless. Feel free to add your suggestions in the comments.

And where are these people now?  Many of them are still in huge positions of power (Dodd, Pelosi, Frank, Pandit), and others I am sure are living comfortably in their Manhattan or Georgetown townhouses, coming up with new ways to game the system.

The only ones on that list who are not living the good life are the people who lied and who are now are being kicked out of their houses in foreclosure. Too bad for them, except that they are taking the rest of us down with them.

It is just galling that so far, no one (that I am aware of) has stepped up to own this mess. And many of the same people who helped create it are now saying "Trust us. We know what we're doing to get us out of this."

The very least these people can do is to GO AWAY and never bother any of us again. Is that too much to ask?

Business 2009: Welcome to the Bizarro World

"Grampa, tell me about how capitalism used to work."

"Sure Sonny-boy. Back in my day, companies made stuff and then sold that stuff at a profit."

"Wow, Gramps. That's sounds swell."

"It sure was, Sonny-boy. It was a golden time."

-----

Today, AIG reported that it lost $23 PER SHARE (that's $62 billion) in the fourth quarter of 2008. As of market close, AIG shares sell for less than half a buck. It used to be that, maybe a company had a bad quarter and its $23.00 stock lost .40 cents a share.

But this is 2009.

AIG has received a total of $163 billion in bailout money. They'll probably get more. The whole company has a market capitalization of about $1.2 billion. Picture the $161 billion difference as dandelion seeds - scattered to the wind, never to be seen again. (Except maybe that a few new dandelions may grow, but who wants AIG's dandelions on their lawn anyway? Especially since the house is in foreclosure.)

I am wondering what the BTU content of that $160 billion would have been if it was all in one dollar bills and we set it on fire instead of donating it to AIG. Probably could have provided heat for most of the financial district for a good portion of the winter.

By the way - I find it hysterical that AIG, in its press release, blamed "severe credit market deterioration and charges related to ongoing restructuring activities" for its loss, rather than the true reasons:

- Greed
- Hubris
- Stupidity

The sentence should read:

"American International Group, Inc. (AIG) reported today that a colossal lack of thought, combined with a sociopathic disregard for common sense and our fellow man, plus a complete abdication of corporate responsibility and a massive helping of "the rules don't apply to us" attitude contributed to a record net loss for the fourth quarter that is so big, you would think that this company was being run by trained cockroaches."

Haiku Friday: The Week of February 23, 2009

Another momentous week (they all seem to be, don't they?)

What better way to memorialize the news of the times than to boil it down into a series of 17-syllable gems of east-Asian poetic artistry. Or, in lieu of artistry, you get what I've written below:

Barack talks to us:
"It's going to be fine, but
prepare for the bill."

3.5 trillion.
That is one big, fat budget.
Who will pay for it?

GM reports loss.
Thirty-one billion last year.
Time to pull the plug.

Rocky Mountain News,
shutting down today, for good.
The news is dying.

Bye, February,
a very bad month for stocks.
March - treat us better.

And so it goes. Monday starts a new month and a new opportunity for us (well, not me personally, but people I know) to throw around trillions of dollars as if it were Monopoly money.

And through it all, I'll be right here documenting it by perverting an ancient and beautiful form of Japanese culture.

Now, go kick off the weekend with a stiff sake.

Market up 4 percent! Recession Over! The Stimulus Worked! Conspiracy Suspected!

In a heart-warming reversal, the major U.S. stock indices advanced about four percent today.

Since we live in the age of 24-hour news cycles and "instant commentary", I thought I would get the party started by offering some analysis and by accusing the Obama administration of using some of the bailout money to step in and buy stocks so the president would not have to go on TV tonight staring at the ass-end of a sub-7,000 point Dow.

While we're at it, let's accuse Louisiana Governor Bobby Jindal, who will be giving the Republican response tonight, of being an Islamic terrorist.

"How so?" you ask.

"Who cares," I say. He's got dark skin and a funny name (his actual first name is "Piyush"). That was good enough for some people not to vote for Obama, so it's good enough for me to slime Jindal even though, in truth, he is articulate, sincere and Christian (just like Obama.)

Hey - this is easy! And here I thought Rush Limbaugh had some talent!

Party like it's 1999 (or '97, even)

Image: Paramount Pictures

The Dow closed today at its lowest level since 1997.

That was before the dot.com boom. Yes, before you could buy dog food on-line and before eBay made up the story about Pez dispensers and, in fact, before eBay went public.

It was also before Yahoo's stock price ran up to $100 (it's now at $12).

Before BellAtantic merged with Nynex and then merged with GTE to become Verizon.

Before the Feds sued Microsoft for being a monopoly and just about the time that Steve Jobs came out of exile to revive Apple and looooong before Madonna hit the wall.

Before I met my wife.

Yes, that was all a lifetime ago.

But, if you look at the Dow, we've not budged an inch. I think I'll drown my sorrows with Elton John's Candle in the Wind or by watching Academy Award Winner Kate Winslet in Titanic.

Seems about right.

Fortune 500: What Difference Will a Year Make?

 

Image: TimeWarner

It's still a couple of months off, but the Fortune 500 comes out every spring in April. Should be interesting this year.

The companies are ranked by revenues. Watch the for the headlines as our global recession re-swizzles the Fortune 500 rankings.

Last year's top 20 included GM, Ford, Citigroup, Bank of America, AIG and Goldman Sachs. Also of note - Exxon, Chevron and Conoco were all in the top 10. Of course, oil was at about $110/barrel as well. Today? $40

The question is: Will everyone stay in the same position relative to each other, in line with the new economic realities, or will different companies bubble toward the top of the list?

Also, when sorted by profits and market-cap, well, then we know that most everything will be different. EXCEPT - One thing is for sure. Last year's #1 - Wal-Mart - isn't likely to be dethroned.

Just for perspective sake - last year in mid-April, the S&P 500 was around 1330. Today - 750. Of course, a lot can happen in the next two months. We might be well on the road recovery, with banks lending, cars selling and houses appreciating.

Or not.

Haiku Friday: The Week of February 16, 2009

Welcome to the second edition of "Haiku Friday" - an attempt to sum up the week's most important news in as few words as possible. This feature was inspired last week by my wife, who says I have diarrhea of the fingers when it comes to blogging.

So, without further delay, off we go...

Detroit needs more cash:
"Our cars suck and no one buys them!
Thanks! See you in June!"

I lied on my loan.
Now, I am under water,
drowned in my new pool.

Lied on your mortgage?
Don't worry, we'll bail you out.
A Spring free-for-all!

Stock market tanking;
Banks are insolvent - no cash.
Toxic assets, gloom.

And, lastly:

Oh, Canada, eh?
Obama stops by for lunch.
Hockey? Not this trip.

That's all for this week. Until Monday, bye-bye and buy bonds.