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Whew! When I went on vacation the DOW Industrials stood at 11,143...I started writing this blog about an hour ago and the DOW was down -249 for the day...the bulls have just stepped in and DJIA has climbed from -612 to -498 for the day. What a difference a vacation has made!!
I have witnessed for 27 Yrs., the assault on, and the attempted destruction of the middle class. The PATCO strike August 3rd, 1981, and it's subsequent busting by then President Reagan, and eventual desertification was a watershed moment for the middle and working classes. It clearly illustrated who was in charge of the country...big business. I have always held both parties responsible, and both parties and all administrations have clearly presided over this destruction of the middle class.
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And make no mistake...I am a capitalist. I want everyone to become wealthy, in whatever way they wish to define it, material or otherwise. And I want Corporate America to prosper, thrive, and provide good livings for anyone willing to work.
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The facade of the middle class was kept alive by a constant round of refinance and borrowing...education, lifestyle, market speculation, retirement planning, vacations and so much else...just squeeze the equity out of your home. Invest, it can only go up. 2Yrs. ago I told one of my friends that historically, median home values shouldn't escape more then three times the median income. And off the values went, to the sun, it seemed.
Everything financial crashes back into it's base, and no tree grows to the sun. Lending institutions were more then happy to fuel this orgy. A feedback loop was created between appraisers, lenders, sellers, and buyers. Pushing up home values to meet the lenders targets, fault the appraisers. Underwriting loans that shouldn't have been granted, fault the lenders. Believing it could only go up, fault many.
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Wrap it, sell it, buy it, insure it. Heck I'll insure it (call it a bet) even though I don't own the security...balance sheet cranked 60 to 1, heck, I'll buy more insurance (CDS's). Can't make your Mortgage Payment? Uh Oh!
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Now this Daisey chain of counter party contracts begins to unravel. Banks need to sell assets to shore up captial requirements. Balance sheets turn toxic, and no one knows each others debt problems (no transparency). Investment banks are collapsing and credit markets lock up. Federal intervention has already begun, too late?
This is such a simplistic view, books will be written about this collapse for years. No one understands this market in its entirety, and professional traders are getting blown out constantly. But we do know this:
- The U.S. and world economies are contracting.
- Credit markets have locked up.
- Americans are closing their wallets.
- Corporate America is hemorrhaging red ink.
We have needed to invest in Americas infrastructure for so long. Instead we have allowed lobbyist and partisan politics to control the data and money flow in this country. And look at the results. A few days ago, Peter Orszag, the head of the Congressional Budget Office, reported to congress that 2 Trillion Dollars have been lost out of pension funds and 401k's this year. 700 billion to shore up balance sheets. The Fed has opened it's window for commercial paper. This is Trillions!!! Wouldn't that have been better spent on education, health care, small business loans, scientific research, etc.
As I see it, this full fledged feeding frenzy on the working stiff has not only trashed the dreams and retirement prospects of the us all, but also rends the fabric of finance and business in this country. I truly hope this does not result in jingoism, protectionism, or unfair discrimination against people who need to cross borders to make a living. These plagues of the heart deepened the Great Depression in the 30's, and will surly exacerbate any problems we, as a nation, may face. The faults will be found as this financial mess unwinds, but those faulted will not be found among people who just want to work, own a home, and be part of the American Dream.
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The DOW closed -678 this afternoon.
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