Sunday, September 13, 2009

If They Didn’t See It Coming, Why Do We Believe Them When They Say It’s Over?

I wish that I was amazed that we are now standing in the litter of the past year and patting ourselves on the backsides passing around report cards stating that the “financial crisis” is on its way out and we’re on the mend. The reason I’m not amazed is that the heralds of recovery are as blind in detecting health as they were in diagnosing the disease. Allow me to be, well, blunt. We are not better. In fact, the government intervention only saved one interest for a remarkably short period of time – their own. And when the AP story “Avoiding the Financial Abyss: Success Without Glory” (Sept. 13, 2009) states that halting the “death plunge” of the financial sector was the greatest achievement of the government this year, it should come as no surprise that the ticker tape parades are not showing up in every town. It’s because the current financial media reports and speeches are to Obama what “Mission Accomplished” on an aircraft carrier was to George Bush – an untimely delusion which is COSTING HUMAN LIVES to say nothing for the larger global ecosystem! And the reason we’re not seeing celebrations is because we’re not better – in fact, we’re worse off.

WAKE UP! Realize, that in the euphoria of the first African American President, we still have 60% greater unemployment among “Blacks” (sic) as reported by the Department of Labor (15.1%) compared to “Whites” (sic) at 8.9%. And, by the way, in our self-congratulatory “recovery”, the disparity has been growing. 2.3 million people (up from one year ago when it was about 630,000) are deemed “marginally attached”. THESE PEOPLE DO NOT COUNT as unemployed and, when added to the official figures of unemployed, would push the real unemployment rate over the much-to-be-chagrined 10%. When I say the do not count, I mean it. When unemployment benefits run out or when active application for work ceases for 4 weeks, you're no longer "unemployed" in the eyes of the U.S. Government. In short, we’re thinking that some are better because we’re measuring the success of a smaller number of those privileged enough to still have a job. However, MUCH MORE OF AMERICA IS MUCH WORSE and they simply don’t count because they're not counted. By the way, the Labor Department does a nice job of expressing their sympathy by pointing out that the number of “discouraged” workers double in the last 12 months.

Treasury Secretary Timothy Geithner had the audacity of saying this past week that the banking sector was showing signs of recovery. While Audacity was a cool theme for the President’s book, you don’t gain much when the Treasury Secretary has it. Together with the President and Fed Chairman Ben Bernanke, this trinity seem to believe that each other is responsible for leading us “through” a crisis. News flash. The FDIC is still insolvent. Remember that in the same breath that told us that they still had about $10.5 billion, Sheila thanked the private capital providers for pitching in to fire sale $11 billion in distress in the past few months. Last time I checked, 11 is greater than 10.5. Which means that my multi-year statements about the liquidity of the FDIC were correct. And remember, when the trinity says that we’re fine, the recovered banking sector has no guarantee to the American depositor. So, using a metric that makes no sense to anyone, we’re better.

But wait Dave, what about Wall Street where the bulls are back. Well, let’s look at that one shall we? In what currency are we back? When is the last time you looked at what’s driving the numbers? There probably was a day – a long time ago – when investors actually invested based on management, business productivity and a desire to be part of great companies. Regrettably, if you look at the market’s rebound, it has not been based on an investor belief in the long-term growth of industry. Instead, awash with automated quantitative models which trade on fractional spreads of behavioral dynamics at the expense of “buy and hold” fund managers managing your money, the market isn’t back – the Dow Jones casino is just comping watered-down drinks to keep you playing. The inflation adjusted price to earnings ratio – which currently stands at about 18.01 (as most recently estimated by Robert Schiller at Yale for the S&P 500) is about where we were in the early 90’s. However, if you look at the precipitous decline in earnings – masked by media coverage of performance against analysts expectations which are also off a cliff – you realize that we are much worse off and headed in the wrong direction.

Bottom line, our metrics and our surveyors (or, more appropriately, diviners) missed the real problem that we still really have and are proclaiming victory over a paper monster which has just been fed the livelihoods of many people. Failing to consider people – seeing only “labor”; failing to consider the use of credit for future industry productivity – seeing only accounting games on bank balance sheets; and, failing to understand that it is industrial output and activity, not whimsical stock prices that are tests of industrial health, we’ve been led into an even more destructive maelstrom. We will not recover until we acknowledge the true disorder. And we will not heal if we leave our neighbor behind. It’s time to actually call for accountability and once called for, hold ourselves and our leaders accountable.

Wake up!



  1. “failing to understand that it is industrial output and activity, not whimsical stock prices that are tests of industrial health, we’ve been led into an even more destructive maelstrom.”


    I so agree, David. And like many, I’m having one heck of a hard time trying to figure out where the next engine of job growth will be. It seems, to me at least, that “industrial output” is a rather misleading concept, considering we’ve outsourced any semblance of an industrial base to China and beyond over the last 30-40 years. Hell, even our military has been weakened through the outsourcing to private interests.

    On the subject of stocks, what I find curious is why this year Treasury made TCE the central capitalization measurement of choice. Is it, perhaps, because with such an emphasis on common equity the Federal Reserve will have an easier time funneling tax payer funds into the equities to capitalize the Zombie consortia without Congressional interference? Is this why we've seen equities skyrocket even though the banks getting the boost are by most accounts bankrupt?

  2. Following your clarity of the FDIC's sitation.

    SEPTEMBER 18, 2009, 10:03 A.M. ET
    WASHINGTON -- Federal Deposit Insurance Corp. Chairman Sheila Bair said her agency is considering borrowing from the U.S. Treasury to replenish its deposit insurance fund.



    Which is why my account balance at the end of each and every month reconciles to +/- $0.00... and has for years. There is no insurance, and there hasn't been any in quite some time.


Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave