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2/22/09

Wall St Media Phail

A concerted effort is underway by certain financial analysts to blame the down market on Obama’s stimulus plan. It’s all too easy to look at the down ticker and go “well ya know Wall St just don’t like this here stimulus plan nor do we like the idea of bailing out deadbeat home owners…”

It’s as if the past 8 years haven’t happened. It’s as if the last 12 months haven’t happened. As if the past 3 months haven’t happened. All they see is the political advantage to blaming the current situation on Obama. There’s little mention about how the Madoff and Stanford scams are affecting investor psyche. Hardly anyone is talking about what impact GM is having on the markets.

There’s even no mention of failing banks like WaMu, Citi, and Bank of America. There’s no mention of failed investment houses like Lehman Brothers or the bailed out like Bear Sterns. From Obama’s Vietnam to Obama’s Recession conservatives are laying the ground work for a return to power in 4 years.

There’s also this tendency for financial analysts in the media to try to coerce government into doing what Wall St wants. Their point of view tends to be “Wall St does not like this and you know if it’s bad for Wall St it’s bad for Main St as most Americans have a stake in the market”. It’s as if they want government to do whatever Wall St wants and if it doesn’t then they cry like little babies.

For the past 8 years government has done exactly what Wall St has wanted. We are living the result.

Wall St is like a junky strung out on heroin. To get more smack they will do and say just about anything. These financial analysts on TV are their enablers. Like a junky, Wall St doesn’t care if the dope will kill them in the long run; they just want another quick fix. Like a junkie, what Wall St needs is to quit using the smack. Yes it’s going to be very painful for a while but it’s the only way they will survive. Wall St needs to get healthy again so that the American People regain their confidence in the market.

Wall St has run free for the past 8 years. Bank houses and investment houses merged. Financiers on Wall St did what they do best and turned pieces of paper into something of value. They created mortgage-backed securities. Banks had millions of mortgages on their balance sheet. Investment houses now merged with banks saw the value in these mortgages and wanted to capitalize on that value.

So they bundled the mortgages together and sold off small slices of them. These slices were called mortgage-backed securities. They were touted as safe investments because they were backed by tangible assets, in this case mortgages. They were considered a money maker because as home prices appreciated the value of these mortgage-backed securities went up.

Then the banks/investment houses began overleveraging themselves. They created these mortgage-backed securities and said to the world “we are worth X Billions of dollars now”. They gave out loans to anyone and everyone. They also went on buying sprees all across the world acquiring companies and assets all with the support of mortgage-backed securities. Investors from all around the world flocked to buy these mortgage-backed securities which only caused their value to sky rocket.

Then the housing market stalled. Lenders had begun raising interest rates on Adjustable Rate Mortgages (ARM’s). People who bought homes with 0 money down and 0% interest for the first year found themselves unable to refinance their home as promised because their home did not appreciate in value. All of a sudden mortgage payments tripled. People walked away from their homes.

Mortgage-backed securities began to fall in value. All of a sudden a big bank once worth $100 Billion was now worth $50 Billion. All of the deals they were involved in (mergers, acquisitions) were no longer possible because they no longer had the money to complete the transactions. Banks stopped lending money because they needed the capital on their balance sheet just to stay afloat.

That brings us to the credit crisis in September when Bush Paulson told the American People we needed to give hundreds of billions of dollars to the banks. Bush Paulson warned that Wall St did not want any unnecessary regulations or strings attached to the bailout. They were essentially given a blank check. The idea was the Wall St bank/investment houses would start loaning money again.

They didn’t. Instead they put the money on their balance sheets and began looking for bargain basement acquisition deals. To this day there is very little evidence that banks who have received bailout money have started lending again even after all the political pressure.

Bottom line is that this current crisis was created on Wall St by banks and investment houses. Like a drug addict they are responsible for their own demise. And instead of wanting to get clean and sober they just want more smack. They don’t seem to grasp that the American People see Wall St as crooks once again. The only difference between thieves on the streets and thieves on Wall St is that one set wears ski masks while the other set prefers suits.

Wall St has always been at least 50% crooked. Like most of life we take the good with the bad. Sure there are legitimate financiers and ethical business people. But most of what happens on Wall St is creating paper with little value and turning it into something of tremendous value. The ideal use of Wall St is to raise capital for economic growth.

Company B has a great idea but lacks the capital to buy the equipment necessary to capitalize on their idea. Company B goes to Wall St who then does an offering of stocks and/or bonds. Investors get a piece of paper that will appreciate in value if the company makes money. Wall St gets paid for brokering the deal. Company B gets the capital they need to expand. That’s the simplified story book version of Wall St Americans are sold.

There is also the other side. Shady Company C sees an opportunity to dupe investors into thinking they have a great idea. Shady Company C goes to see Shady Wall St broker. Together they work the investor class and pump their “easy money” deal. Everyone buys in. Some time passes, perhaps months other times years, and eventually the scam becomes apparent. The stock crashes, bonds loose ratings, and tens of thousands of people are financially wiped out.

We still haven’t even touched on douche bags like Madoff and Stanford. We still haven’t even discussed the cooked books of Enron, the big accounting firms like Arthur Anderson that make it possible, and the offshore banking schemes of Tyco. It’s as if the past 8 years were just a dream; like we’ve all just awoken and found the stimulus bill passed and the market tanked.

Instead of coming clean with their corruption and trying to rehabilitate themselves Wall St just slaps on another coat of shellac hoping no one will notice. They get all stiff, put on their suits, and put on airs of superiority. How dare anyone question the business of Wall St? We are talking about people who manage the world’s economy. Look at them with their private jets, homes in the Hamptons, and Armani suits. How can we possibly think they did anything wrong? How can we possibly question their judgment?

We can. We should. We must. These people are nothing but crooks and liars. Until they get their house in order they have no business telling us how to run our own homes and they have no business trying to tell Obama how to run government.