Posted on 03/15/2009 1:17:18 PM PDT by NEWSHOUND
Last Week the banks were in fine form, driving the stock market rally. Suddenly, they're telling us they are doing much better and don't need any more government money - at least not right now. In fact, some of them are saying they wish they hadn't taken those TARP funds in the first place. Even CitiGroup is up 50% from its stock market low and says that now (after a 45 billion dollar infusion of cash from the government) it is one of the best capitalized banks in the world. Amazing!
On Friday General Motors started telling us that they didn't think they'd need any more government money, but at the beginning of the week their independent auditors were telling us that bankruptcy at GM was almost inevitable. Huh?!
What a happened? Was it something we said? Then let's say more of it! Or is there something going on under the surface that we're not yet aware of that is driving this new-found financial success and fiscal responsibility.
Obviously there has been a sea change regarding 'taking the government cheese'. I'm guessing that either Tiny Tim Geithner from treasury or the TARP Oversight Committee is suddenly attaching some really unattractive strings to the shower of money they've been throwing at the banks and industry.
Up until now Tiny Tim has been the Treasury Leprechaun with his Pot of Gold, showering his riches on anyone who would take them. But it seems that change is in the wind. What I'd like to know is what kind of change would make the banks and the auto industry start shaking in their boots and pushing themselves away from the government trough?
Was it the specter of Nationalization? I mean REAL nationalization, not just de facto nationalization. The kind where the government actually takes over the day to day running of the whole shebang, leaving the high-paid executives out in the cold.
Or could it be that the TARP and bailout recipients are suddenly being forced to reveal where all the money went from the previous go-rounds? Or maybe it was the sight of Bernie Madoff being shuffled off to jail while Bank of America is being pushed to come clean on the Merrill Lynch bonuses. Whatever it is, it seems to be a sobering experience for all concerned.
For everyone, that is, except the government. They're still spending like drunken sailors (if you'll pardon the insult to drunken sailors). Congress gave up its cost of living increase this year (about $3,000 per Congressman) to make a show of fiscal responsibility. But it left in place the mechanism for future increases. Oh, and FYI, while they postponed any salary increase they voted to triple the MRA expense allotment given to each Member of Congress instead, raising it from $30,000 per year to $90,000 per year. Nice deal if you can get it. Just let me know where I can trade a $3,000 raise for for $60,000 'allotment' and believe me, I'm there.
Government just doesn't seem to be getting the message. Congress is already talking about the NEXT bailout package. Our expenditures are now 15% of the GDP (versus the historical highs of about 10%), and we are making fiscal policy that will guarantee out inability to grow our way out of the debt we're leaving our children. In order to finance this fiscal bonanza we have been selling our debt in the form of T-bills and Treasury bonds to any investor (foreign or domestic) who will buy them.
But China (the biggest holder of our debt) is starting to get concerned (can you say default?), and that concern is causing them to become uncharacteristically blunt. They are now referring to their investment as what it really is: a loan to underwrite our wasteful spending. They're calling for us to be 'honorable' (Congress? Honorable? What an oxymoron!) and protect their capital. Sounds like we're starting to make them really nervous.
And they aren't the only ones getting a little weak-kneed over the size of stimulus expenditures. Tiny Tim has been urging the G20 to ante up for another round of world-wide stimulus. From the U.S. Government's point of view that makes perfect sense. After all, if ALL of the world's economies are tanking at once, then there won't be any safe havens for capital to escape to, ergo it will have to stay put. But the Germans and the French aren't willing to climb on board for another ride on the fiscal train to nowhere. In fact the Germans are already looking for ways to ease out of their stimulus spending in order to get back on track with sustainable expenditure levels.
But here in the U.S. it seems that the train is picking up steam, and we just keep shoveling in dollars to keep it rolling down the track. The problem is that the bridge may be out up ahead.
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