Have All The Bells Tolled Yet?

As a magazine, I have often heard BusinessWeek Magazine called “too bullish”, a “Chamber of Commerce” booster and a few other things that suggested it was not reliable on the downside. Well, you can take that all back this week. (Dec. 1, 2008)
Headlines ran from “Toxic Assets: Still No Takers” (housing securities) and “Cruel Christmas: How Many [retailers] Will Fall?” to “A [government] `Guarantee’ May Not Be Worth Much” and “America’s Lifeline – Exports—Is Fraying Fast”. On the cover is the caption to a picture of a wolf: “The Subprime Wolves Are Back and they’re feeding off the bailout.”
Jack and Suzy Welch spend their back of book column suggesting that the best thing General Motors and Chrysler can do is go bankrupt and combine. That’s definitely not too bullish, and none of it sounds like a Chamber of Commerce puff piece.
I caught a blurb on National Public Radio Friday morning when they were interviewing Senator Dodd about the bailout—specifically the $300,000 that’s already been handed out to various financial institutions. The idea was—and Congresses’—mandate to the Treasury was to kick start the lending process. Get banks to start putting out more loans.
Dodd said Congress (on both sides of the aisle) is very frustrated. Loans are not being made. Credit is as dead as it was last month before the bailout. What Dodd said he believes is happening is that instead of using the cash they’ve received from Uncle Sam to make loans, banks are sitting on to tide themselves over the rough patches they see ahead.
He strongly hinted that some banks have not yet been altogether candid in reporting how badly they’ve been stung by huge investments in subprime loans. These banks are using bailout cash to postpone the evil day when they have to give a full report and take their lumps.
They are doing this in the desperate hope that before the dies irae comes, things will return to “normal” and they will be able to unload their subprime holding to some other investor, bank, governmental entity somewhere and never have to take a loss on it.
That is, in all likelihood, absurdly wishful thinking—but it is doing two bad things. One, it is tying up the bailout money that was meant to give the economy a nice start. Two, it is just putting off a major day of reckoning that will have to hit with all of its negative force sometime. A good argument could be made, “Better sooner than later”, but these institutions intend to hold out as long as possible.
You could argue that Paulson and his bailout, however unwittingly, have just been enablers for a bunch of fiscal drunks who don’t want to sober up. That’s going to be bad for us. It looks like we’re going to take a major double whammy early in the New Year as it is.
Several retail chains look like they will be holding their final “After Christmas Sale” in January, and it looks like very nasty things are going to happen in the automotive sector at about the same time. The way the banks are playing it, we could get hit hard in the financial sector soon after.
Supposedly Paulson’s bailout package was going to get the credit/financial mess cleared up before the end of this year. Not if Dodd’s right. And from everything I’m reading, no one has any clear idea how much anybody owes to anyone else right now. That, as much as any Soviet threat in the 1960s is a genuine cause for concern!
(Oh well, maybe George Bush can do what he did after 911. He can go on the air and urge all Americans to support their economy by going out and spending. It seemed to work then. Or, is that partly why we are in such a pickle now?)
The poet John Donne wrote: “…never send to know for whom the bell tolls; it tolls for thee." By coincidence he wrote that in 1624 just as the first English colony in America was finding its way out of a very nearly lethal depression (they had resorted to cannibalism to survive).
If he wrote today, Mr. Donne might better put it: Never send to know for whom the bell tolls, just find out if it’s the LAST bell.