March 5 2009: Toxic values and faith based quacks
Ilargi, The Automatic Earth
One in 8 US mortgage holders are in trouble, either delinquent or in foreclosure. The U.S. real estate market lost $2.4 trillion in value last year. In one year. Obama is set to spend $75 billion on a plan that is awfully bad from the outset, if only because it ignores the possibility that prices will deteriorate further, which is the same sort of blind-eyed assumption as the administration basing its budget plans on a 3.2% growth rate for the US economy in 2010. US home prices have much further to fall, and GDP will not grow but shrink in 2010. How can you possible get things right if you deliberately ignore the very real option that, first, the economy will continue to plunge and second, your trillions won‘t stop that from happening? I know, I know, I've explained it a thousand times by now, and it gets repetitive, but it also gets crazier as time rolls along.
American domestic real estate "values" (by now I use the term in a purely poetic sense) will fall at the very least another 25%, and I honestly can't see anything out there that would halt the fall at that level. Moreover, all the bail-out and rescue money spent so far has landed in a blazing black hole, and you would need to spend the entire wealth of the nation before Stephen Hawking's law of information returning from the hole would come into effect. We are simply witnessing the worst possible government policy imaginable, and down here we've been warning about that for a very long time. And I know that it would be valid to ask why I keep on repeating the same thing in the face of the fact that the present power structure can't avoid creating the worst of all worlds, that to save anything at all we will first have to live through the downside not only of the outcome, but also of the cause, which happens to be that very power structure.
Citigroup shares fell below $1 today. anyone want to bet on the chance we’ll get the money back that have been thrown in so far? Think the government will pump in more? That last one I wouldn't dare bet against. Still, Citi is no more. The same goes for General Motors. Much of the media attention today went to the auditor, Deloitte, filing a "going concern" notice on GM. That was not the news, though, we knew that last week. What was is that GM itself for the first time posed questions about its own viability. The company sold 53% less vehicles in the past year, and all the managers know 2009 sales numbers will be much worse than that. Chrysler is as dead as GM, and Ford may or may not hang in there, in a much leaner form than it had today. This will add anywhere between 2 and 3 million lost jobs to the already shocking totals we'll see by Christmas.
I for one wouldn't be surprised if that number would approach 15 or even 20 million. I just can't see any savior on the streets of the country. I do know that the Obama plans will fail. These plans are still geared towards the same unobtainable goals that were in place under previous administrations: saving what exists, and turning a blind eye to what might replace it. The idea that for Joe and Jane to be saved, you first have to ravage their savings in order to save the ruling classes. It's not that I don't understand the train of thought, it's that it's so obviously utterly misguided. In a house that falls to pieces, you don't try to fix the roof first. What is breaking down Citi and GM, and countless other corporations that are following on their heels, GE, Bank of America, Morgan Stanley, Chrysler, is not that the consumer markets don‘t function as they did before, that people spend less money. What is tearing these companies to shreds is the excessive debts and obligations they have loaded on their once-invincible but now aching backs.
They would have ceased to exist even if our modern times of exuberance would have lasted and endured. There is a point where, when you need to grow faster and faster just to meet your payments and other needs, you can't grow enough anymore. That's not just the problem for banks and carmakers, it's the underlying issue for our entire economic system. A constant growth rate will never be sufficient down the line, you need your growth rate itself to grow. Our society depends on exponential growth. And that process stops somewhere. It's the same as the reason why your body stops growing around age 20. If you would grow to be 10 feet tall, your bones would break under your own weight.
There are limits inherent in any and all systems, and ignoring laws of physics doesn't mean they go away. When Glass-Steagall was repealed, and when Larry Summers, Tim Geithner, Phil Gramm and Robert Rubin managed to stop regulation of securities, Wall Street banks in effect obtained permission to grow as in the physical world only malignant tumors do and can. And we all know from observing that physical world that these tumors, if left untreated, will grow until they kill their host. America is the host to General Motors and Citigroup, to Chrysler and Bank of America. Instead of seeking treatment, the country seeks to deny the harmful and lethal effects, or even the very existence, of the cancerous growths in its body politic. And economic.
If we stick to this metaphor, it's not that hard to see where it goes. At some point, you, or we if you will, need to make a choice. You either choose to lose your life, as when you don't seek treatment, or you choose to risk losing your hair and feeling real sick for a time, as when you go in for radiation and chemo-therapy. Our societies as a whole are stuck in denial mode so far. Looking at the Obama, Geithner, Gordon Brown et al responses, all I see is an attitude that says: we don't need treatment, we can beat this by ourselves, on our own.
And while miracles may have happened at times while humans have roamed this earth, it's an insane and irresponsible gamble to take when you are a President or Prime Minister or Treasury Secretary and you hold the welfare and potentially the very lives of millions of people in your hands. That's simply inexcusable. Still, looking at what happens to our economies and the actions, worth trillions of dollars, that are being taken, all I see is continued denial. It's impossible to let GM and Citi go, we can't live without them, that's the prevailing drive.
Well, they're going no matter how fiercely you try to deny it, like so many organs being amputated from your disease-riddled body. Toxic assets cause diseases. It's up to us to decide whether they will finish us off as nations and societies. So far, we have made all the wrong decisions. We couldn't have been more wrong if we had tried. It's time to get a true diagnosis, and stop listening to faith based quacks and tea-leaf healers, to rid ourselves of Geithner and Rubin and Summers and Bernanke. Unless we have a death wish. Do we? Do you? It's time to face that question for real.
