Wednesday, April 09, 2008

Subprime programming is now our reality show

Click image to enlarge

As editor of ValueRich magazine, I did a full-page cartoon series called Managing 2 Laugh. A recurring character in the series was Jonesy the Insult Wall Street Bull, a send up of Robert Smigel’s Triumph the Insult Comic Dog from the Conan O’Brien Show (I’m a big fan). Jonsey’s job was to basically point out the myriad insulting ways Wall Street, the financial media and government typically stiff-arm small business.

The most recent Jonesy episode was illustrated in August of 2007, when most of us were just beginning to get a whiff of how serious the subprime mortgage fiasco could get. CNBC and many other financial media outlets were still shining a rose-colored light on the whole thing, with the exception of Jim Cramer who famously exploded in Erin Burnett’s face over inactivity from Fed Chairman, Ben Bernanke and comments made by St. Louis Fed president William Poole. “He has no idea how bad it is out there!”

You could see all the sides lining up to play it to the hilt. Cramer, who claims to be on the side of small investors, was spitting and screaming for an investment bank bailout. Of course, as he actually said on the air, a big reason for this is that he was “getting calls” from buddies within the big hedge funds and banks.

These are the same hedge funds and investment banks who provided a speculative market so that mortgage companies and commercial banks could easily absolve themselves of application vetting risks by reselling the loans. They were already lobbying hard in Washington to keep tax breaks on their incredible profits. All they had to do was call their lobbyists and tell them to quickly change the pitch to “save our homes.”

Poor Ben Bernanke, who had just taken over from former Fed Pope Alan Greenspan, was caught in the middle. Being new to the position and anxious to establish his own gravitas, he probably figured he’d push back against cries for action from these large special interests, but as we now know, that wouldn’t last long.

Believe me I’m no market expert. But human nature being what it is, I saw the train coming down the track … hence this cartoon.

It’s interesting to look at the cartoon now and see where we are today … The once reticent Fed has now pumped so much money into the economy that we might as well call the dollar the peso … Bear Sterns is being acquired for cents on the dollar with government backing … former Fed Pope Greenspan crying, “It wasn’t me.” The repercussions keep a poppin’ every day.

And where does this leave us middle class small investors? Who knows? If I had to bet, my wager would run counter to what they’re saying on CNBC right now, that the market is bouncing off the bottom and we’ll be making a comeback sometime within the next year. My bet would be that, right after the election is over in November, all the Fed’s unaffordable propping up is going to go away and the bottom is going to drop further than ever. Think about it. What incentive will there be to keep it going? Wall Street’s positions will certainly be covered by then. We’ll have a new regime in Washington who can’t be blamed … human nature.

What do you think?

I think it’s time to blow the C harp and sing the blues. Xcuse me while I whip this out:
We saw this train a comin,’

Comin’ down the track.

Now that it’s done got here,

It’s hard to push it back…

No comments: