Date of Origin: September 21, 2008
Revised: April 28, 2009
Subject: “The Brink of Financial Armageddon” or, “I Want to Short Sell You My Car”
Bullwinkle would have been proud of that title… ha!
“Honey, the ATM at the bank won’t work.” That’s what the man would have said to his wife in another week or two had it not been for Hank Paulson’s plan for the United States government to buy back all of the massive amounts of bad loans that are on the banks balance sheets and place a temporary stop to the short selling of financials on Wall Street. They did this in an attempt to stop the Stock Market from crashing, and it worked... for now. The real question is, "Is this just a temporary stop to what seems to be inevitable?" Will the Stock Market still crash, only to be a slow steady burn instead of a fast fiery blaze? The true answer does not lie in the efforts of the United States Government's attempt to prop up our economy. The answer to this question lies in the hearts of man, and our willingness, or not, to abide by our own self governing moral compass. So can our society accomplish this task? Can people who only seem to become more corrupt with each generation suddenly discover the path to responsibility? Good luck answering that one.
For no better reason, I have decided to start this article from when I was just a kid growing up in a small town in the United States of America during the 1970's. I like to call it Mayberry, USA. Here’s what has been happening over the years, as well as the turn of events in September, 2008 on Wall Street…
Back when I was a kid in the 1970’s, I paid attention. Why? I don’t know. I guess I was just like any other kid who wanted to know… “Why?” What I have seen in my lifetime is the most irresponsible, self centered, greedy generation that has ever (I presume) set foot on this planet. What I expect from the next generation is what I have concluded from watching past generations gradually go to more extremes. They will take it to the next extreme. During my lifetime, it all started back in the 1970’s with the introduction of the credit card. What? You mean there was a time when people didn’t live on credit cards? Yes, there was. And we only had three major networks and PBS and they all signed off at midnight. That means they shut off the switch and went to bed and the television screen just turned to a snowy fuzz until 6 am the next day when they signed back on. By the way, they played the national anthem just before signing off, and again right after they signed back on… rare. But anyway, the 1970’s were the last time the majority of the people in this world were financially responsible. Why? Because they had to be. That’s how the world worked back then. The only loan you had was for your house. Everything else you paid for with cash. If you didn’t have the cash, you couldn’t buy stuff.
With the introduction of the credit card it was easier for the common person without much means to buy things they wanted and “get it now.” They no longer had to wait until they had the money saved up, all they needed was a job and then a credit card. One by one people began to ring up bills on their credit cards, not even caring that they were getting jerked around on the interest rates and payback schedule. If all they ever did was pay back their minimum monthly payment over the full term, they would end up paying $15,000 to $20,000 for that $5,000 shopping spree they just went on. As irresponsible and greedy as the human race is the problem got gradually worse, and ten years later individual bankruptcy filing became the norm. Yes, there was a time when only companies, not individuals, filed for bankruptcy.
Later, instead of $5,000 on credit cards, people had $50,000 on credit cards. It took every dime they had to make their minimum monthly payments. If all they ever did was pay back their minimum monthly payment over the full term, they would end up paying $150,000 to $200,000 for that $50,000 shopping spree they just went on. The numbers got bigger, but the undisciplined spending habits remained the same. And when people were allowed to file bankruptcy and start over with a clean slate, it was only a matter of time before some greedy banker found a way to let those people have credit once again. Upon finally getting a good enough credit rating to get a bunch of credit cards again, guess what happened in the 1990’s. Yup, more and more bankruptcy filings. Hey, it worked before. Why not rack up a bunch of debt again? All you have to do is file bankruptcy and it all just disappears, right? Right now it's easy to blame Wall Street and Corporate executives for being greedy, but everyone is in this boat together. How many people do you know that have gotten greedy and had to have the best of everything the could get their hands on right now? But before I get too far ahead of myself let's first continue the story of financial irresponsiblity during my lifetime.
During this time of greed and lust on everyone's part the one thing people had was their homes, so many began to take out home equity lines of credit, and there instantly appeared a number of greasy banks that would give people a credit line up to 125 percent of the value of their homes. So now what do you suppose those irresponsible people did who grew up having no money, yet somehow found a way to get into a house? Yup, you guessed it. They got that 125 percent home equity loan so they could buy other things they couldn't afford. They spent all of that money along with racking up $100,000 on their credit cards. Hey, they just had to have that new car… and that big screen television… and that boat… and the best of everything… right? Even if they couldn’t afford it. They didn’t care, they just wanted to have fun, which led us to where we are now. So the next time you hear that the Government is the problem, realize that the Government is half of the problem, and that the immorality of society is the other half of the problem.
Because of the financial irresponsibility of this generation and their unwillingness to accept the moral responsibility of paying their bills, not to mention the greed of financial investors who maxed out their investment loans, massive amounts of houses began to be foreclosed upon. The amount of real estate for sale and the percent of the real estate that was financed accumulated to a point where suddenly there were no buyers for all of the properties that were on the market. Or if there were buyers they couldn’t get qualified for a loan because they had a lousy credit rating from all their years of iresponsible spending on their credit cards. Real Estate investors began to get stuck with too many properties they could no longer flip and sell for a profit, so that forced even more bankruptcies and more foreclosures. All of these bankruptcies and foreclosures left a massive amount of debt on banks balance sheets, so much so now that they could not just simply absorb that debt like they did back in the 1970’s. Now the banks had to find themselves being forced into bankruptcy like so many did during the 1980’s after the first wave of bad debt hit the system. So the next time you want to blame it all on the Wall Street bankers, realize that they are only half of the problem and the immorality of society is the other half of the problem.
When the market turned south in September, 2008 and all of the multi-billionaire investors on Wall Street began to see they could make money by short selling banks they began to do exactly that. What is short selling? It is the exact opposite of buying stock. Normally you purchase a stock and then sell it at a later date. Short selling is when you sell the stock first, and then buy it back at a later date to cover your sale. I’m not a fan of short selling, because I think the system would work just fine without it. Why I’m not a big fan… well, because I can’t go out and sell you anything else before I own it. Hey, I’ve got a brand spanking new car I’ll sell you… by the way, I haven’t purchased it yet myself. I’m going to buy it at a later date, but it will be yours for now. Hey, what am I thinking, I can’t do that? Yet, you can do it on Wall Street and there are many who argue that it is a vital part of the system. I say that’s a bunch of baloney, if I can’t sell a car before I buy it, no one should be allowed to sell a stock before they own it. But then, that’s just me being practical.
The reason that so many of the large investment firms collapsed back then was because they were sold short on Wall Street by greedy multi-billionaires who manipulate the stock market so they can make money. If you don’t believe they are that greedy and selfish, or capable of such market manipulation just ask yourself this question… Have I ever played the game of Monopoly with a cheater? Guess what, take off your rose colored glasses, not all of the world is good. There’s more evil here than you can shake a stick at and it has permeated society, yet most people when asked would say that the world in general is good. Lord only knows what that definition of good is. I say if the shoe fits… the shoe fits.
But hey, our society has taught us that we are alright… that everything is alright… that anything goes… if it feels good, do it… do anything you want to do. It’s all about you. Well this housing bubble is the perfect example of how life is not just about us and how the choices we make affect not only our lives, but the lives of many, many people. After all, somewhere at some time there was the first person to claim bankruptcy and our court system let them get away with it. That’s all our society needed to open the door… or rather, the gate. That’s an old farmers joke when all the cows had gotten out. Well now I see our housing market crash and I see people saying, “What’s going on?” From my perspective I like to say… “Who opened the gate?” The answer is, we all did.
Back to Wall Street. First of all when you get a mortgage to buy a house, the loan comes from your local bank, who then sells it to a national bank so the local bank can have the funds to sell another loan to another customer. The national bank then sells the loan to a brokerage firm who ends up keeping it. The collapse of these brokerage firms on Wall Street was brought about by two things. First, the irresponsibility of society, allowing bad loans to happen all for the sake of a fast buck. Most of these bad loans that were defaulted on were in the ownership of the brokerages on Wall Street. Now they had losses on their balance sheet because they bought bad loans that some bank had pawned off on them. Secondly, their collapse was brought about by short sellers on Wall Street. Had there been enough stringent rules on Wall Street (which there used to be but somehow over the years they just magically vanished) to keep short selling from getting out of control, there are many who believe this problem would have worked itself out of the system over time and never would have reached the extreme that it did. But because greed is greed, and a few multi-billionaires realized that if they began to beat down on a financial stock badly enough they could potentially make one of the biggest steals in the history of the stock market, naturally they said, “Let’s go for it.” It's all about me, right?
So how did they do it? First off, a financial company can only handle so much risky loans. The amount of risky loans they can handle is all based upon the value of their company. If the value of their company ever declined to a point where the company no longer had the value it needed to be able to handle the debt load on it’s balance sheet, the company would be downgraded on Wall Street and people who were not sellers of the company’s stock would now become sellers of the stock, thus pushing the stock down further. Eventually the stock would hit the point of no return, where the company did not have the means through their projected future earnings to be able to recover from the position they now find themselves in. What’s that you say? Cut them some slack? Give them time, give them a chance, they’ll pay it back? It’ll get worked out? Sorry buddy, that’s not how Wall Street works. From that point it gets easy for the short sellers. Just simply hold on and watch the company’s stock price retreat and watch the company fail. In fact, dance in the middle of the streets as you watch what you created happen, because after all, life is all about you and you’re making money hand over fist so by all means, party on, right?
Well, when these hedge fund managers, mutual fund managers, and multi-billionaire investors realized that the financials would probably recover if just given time, they were saddened because it meant that over time they would have to wait it out in order to make a really slow billion. But when they realized the financials were just close enough to the edge, and that they had enough means to start short selling the financials all at once and beat their stock price down by chasing all of the buyers away they saw just how much money could be made, billions and billions. They began short selling one financial at a time like bullies in the school playground to the point where the company was downgraded and was no longer capable of retaining their triple a quality rating, and could no longer be projected to have the means through their future earnings to be able to recover. This would push the company to the point of no return and they didn't even have to try anymore. The stock price just went down on it’s own from there.
You see, if the mega-investors would have bought the financials when they hit a true bottom back in July, 2008 they would have began making a slow billion over many years, and a lot of people would never have head of Hank Paulson. But when they saw that we were just close enough to the edge of the ravine, and all they had to do was sell short enough shares until the company was downgraded, they realized they could make billions and billions right now and not have to wait years for just one billion. So what did they decide to do? They snuck up behind the financial as it stood next to the ravine, and as the financial began to turn around… they pushed the financial over the edge of the ravine… all for the sake of a fast buck… by people who were already multi-billionaires… people who supposedly already have it all… yet they don’t mind pushing the entire world economy over the edge all for the sake of a fast buck right now. You can sum it up to two basic things… power and greed. Ask yourself this Mr. Mega-Investor. If in your attempt to make the fastest buck you ever earned you bankrupt the entire world economy, what good did you just do youself by pounding the economy into the ground and making your money useless as a result? Sure, you now have more of it, but all you can do is wallpaper a bigger room than the next guy.
Fortunately when Hank Paulson realized the short selling of financials was not going to stop he rounded up all the big shots in Washington DC for a number of emergency meetings, of which the final meeting came with a bi-partisan agreement on Capitol Hill to do whatever it takes to get the economy moving again. Paulson proposed a bailout plan of the banking system, just like the good old US Government did back in the 1980’s crunch… you remember… the first wave of bad debt that the US Government bailed us out of? At the same time the SEC finally steps in and bans the short selling of financials for ten days… and then talked that the ban on short selling financials may be extended longer than that.
What happened during this time is that the US Government started buying all of the bad loans on the balance sheets of all of the financials, thus leaving the financials with a clean slate… you know, kind of like the bailouts that people got for all those times over the years they filed bankruptcy. Guess who’s stuck with the bill… the taxpayers! But then, you could argue that’s who started the problem back in the 70’s when credit cards were issued. Hmmm, I guess we do reap what we sow. So the next time you're thinking about disregarding your moral compass, think about that one and think twice. But for now, temporarily you can rest assured, there will not be a run on the banks and we will not have another great depression. At least not for now, but it will come back around again someday in our lifetime. Remember it started in the 1970’s, then there was the crunch in the 1980’s. Then we got back on track only to start over doing the same thing again in the 1990’s, only to be faced with being on the brink of the great depression, part two in 2008. Guess what, the first one, the 1980’s was just a small wave. The second, this one, was a 50 footer surf’s up dude, Hawaiian wave that could have destroyed everything in it’s path with all the help it was getting from the big boys on Wall Street jumping up and down trying to make the wave even bigger. But for now the US Government seemingly snuffed it out. But when have you ever known government to get anything right? The next time this happens… hmmm… let’s just do the math… 1985 or so to 2008... Roughly 20 years… OK, now 2008 plus 20 years or so = 2030?
And that’s only the stuff caused by the selfish, fiscally irresponsible good ole’ (or rather… evil ole’) human race. I did not bother to include all of the financial irresponsibility of our good old congressmen and senators in Washington DC. Yeah, funny how they choose bipartisanship in September, 2008. Only when we were pushed to the brink of facing a global financial Armageddon, the Great Depression Part II, do they stop their political finger pointing, blame games and name calling. How immature and selfish. I didn’t mention the financial burdens on medicare and social security and who knows how many programs that are filled with pork to line the dirty back pockets of the world… and who knows what else. It may not even be 20 years before the next wave of bad debt… which will more than likely be a veritable financial tsunami caused by the next generation of financial irresponsibility… one of such massive size and strength there’s no way to stop it from happening.
What? Maybe I should run for President? Get someone in there who is one of us? Someone who gets it? Hey, I’m not that smart, I’m just a guy who sticks his finger in the wind to see which way I think it is blowing. I'm just a guy trying to better myself in a responsible, honest way. By the way, don’t tell me it isn’t possible for me to better myself. I started out life with a beat up old Chevy Nova that I bought from my brother for $500 and only about $500 in cash in my pocket. In college, I lived on peanut butter and jelly and hamburger helper and cookies in the mail from my sisters and mom. Somehow, class clown and all, I managed to make it to where I am today by being financially responsible and never having to file bankruptcy. Call it luck, call it reaping what you sow. Call it what you want, but at least I can enjoy life with a clear conscience.
Who am I? Yeah, I’m some guy who has all… who was handed all… was given a silver spoo… who never had anything hard… who… Nope, I’m not that guy. I’m just a regular guy who started out life as a bagger in a grocery store and has had it rough like everyone else, and is trying to pull himself up just like everyone else in this world. I just chose the path of financial responsibility and morality and followed after God. As a result God has blessed my life, in some ways with his intervention, and in other ways, by just teaching me the simple truths about this life… oh yeah… and I just happen to choose to apply those simple truths to my life rather than ignore them or choose not have any faith in the possibility of attaining a better life.
So what’s the point of all this? I really don’t know. I would like to say that I would hope to inspire people just to simply be more financially responsible after reading this article, but I’m also the kind of person who doesn’t believe that something like this article would ever make a hill of beans of difference in the world. I would also like to believe that this might just wake a few people up to the realization that we could be on the brink of the next Great Depression and that people might just wise up and get their lives straightened out, but maybe that’s just wishful thinking from a guy who actually gives a rip about society. Hey, the facts are the facts. We brought these financial problems upon ourselves twice in my lifetime, and we’ll more than likely do it again someday. A wise man would save and prepare himself for the future instead of sacrificing his future to buy the next bling thing to hit the market place.
By the way, my position on the Financial Rescue Package lies only in the fact that there seemed to be no other choice. It's the only thing that could have been done to stop the greedy short sellers from bankrupting America and the rest of the world. As fast as the market was heading south, in a very short time we would have been toast. Other than that, I don't support any move towards socialism. In retrospect, I now think maybe letting the financial system collapse might not have been a bad thing. We all need discipline somehow, and we can't discipline the spending habits of people if we keep bailing them out all of the time. Give a crying baby what he wants and you reinforce their behavior. They only cry louder and longer the next time until you give them what they want, or until you break them. Maybe our financial system needs to be broken to teach a few people a lesson or two. Maybe we need to get rid of the credit system and go back to the gold standard and cash system. After all, it worked back then and now it's not working. It's simple logic. If you don't have cash in hand, you can't buy anything. If you don't have credit, you can't run up bad debt and bankrupt society. Sure you should be able to get a loan for a house or property, but nothing else. And you have to put twenty percent down in order to buy the property. That way you have a vested stake in the property that you don't want to lose, which motivates you to pay your mortgage. By the way, that's how it used to be when I was a kid, and it worked.
Personally, I'm a believer that a global financial disaster is headed our way. No matter how it gets here, it's inevitably coming. After all, America and the rest of the world just put a giant band-aid on the problem and did not fix the problem. America nor any other country can fix the problem. Why? Because the problem lies in the greedy hearts of man and their unwillingnes to govern themselves with a moral compass. The only one that can fix that problem is Jesus Christ because he is the only one capable of changing the hearts of man. And since our society wants to thumb their nose at God and deny his existence, they will be content with this band-aid for now and continue on their merry little self centered, self gratifying lifestyles until the tsunami of financial disaster comes our way. Then they will cry out, "Why is this hapening?" DUH! It's plain and simple people. Society turned it's back on God and society is reaping what it has sown. God didn't inflict this upon us, we inflicted it upon ourselves.
This disaster was not caused only by Wall Street, evil bankers, or evil investors, although some portion of it surely was. This disaster was not caused only by the Obama administration, although the massive debt they keep adding to the pile will surely come back to bite us someday. This disaster was not caused only by the Bush administration, although some of it may have been. This disaster was not caused only by the Clinton administration, although some of it may have been. This disaster was not caused only by the first Bush administration, although some of it may have been. This disaster was not caused by the Reagan administration, although however much I may doubt it, some of it may have been. This disaster was not caused by the Carter administration, and while much of it probably could have been, more than likely only some of it may have been. Throw in a bunch more administrations and you can see that they all played a part, but the fault lies not with the Democratic or the Republican party. The fault lies within the hearts of man and his own personal greed and selfishness, and since both parties have some form of corruption, both parties whether it be on the level of the President, Governor, Senate or House of Representative level are responsible. The fault not only lies with politicians, Wall Street investors or bankers, it also lies with Main Street and every day people who choose greed over morality. Because when it comes right down to it man is responsible for his own problems that he inflicts upon himself.
And I sure would like to say that there are no evil people in this world, that we all just simply need to join hands and sing “Cumbaya,” or “Everything is Beautiful,” (or my personal favorite, the “Yahoo Do Re” song that all the Who’s in Whoville sang even though the Grinch stole all their Christmas presents) and that this will somehow magically make the world a better place if we do, but the truth is as long as there is evil in the hearts of man we will be forced to live with things like this happening. Truth is… I don’t even know why I wrote this… all I know is my mind started buzzing in the middle of the night with this story… and those who truly know me well, know that that’s a dangerously scary time for me where many truths have hit many bullseyes dead on. Don’t ask me why, it just happens that way. I like to think it’s just a little bit of insight, and my practical side coming through.
If anything, you at least know why we almost got smacked upside the head with a second Great Depression and you know how we might never see it in our lifetime if everyone chose to be financially and morally responsible… Yeah, and did I mention I have a new car I’d like to sell you? By the way, I haven’t bought it yet. I’m going to do that later. But I’ll sell it to you first. Trust me, you’ll like it, it’s a good car… Brand new. Just pay me for it now and I’ll buy it back from you later. Oh, and don’t pay any mind to those sirens you hear. They’re coming after somebody else.
