The World Has Cast Their Vote: The Confidence Man (Part Two)

The markets have spoken. Monday's global market sell off is telling us that Henry Paulson, U.S. Treasury Secretary, might well go down in history as another of Bush's "Confidence Men." U.S. markets opened sharply lower on Tuesday suggesting that the investing world did not believe what the economic front man to the Bush administration just told us. Based on the magnitude of the sell-off, they might well be saying that the administration is completely out to lunch.

Remember foreign policy front man Colin Powell, and his proclamations that Iraq certainly did have weapons of mass destruction? Well, Paulson may end up the next over accomplished leader, turned administrative mouth-piece, who was sold a bill of goods. After talking to "knowledgeable people in all parts of the economy" Mr. Paulson, speaking for the president, concluded that while "our economy is growing slower than expected...I am confident in our long-term economic strength." I have to wonder who these knowledgeable people are, and were they the same people Colin Powell was talking to?

If Paulson read the latest Goldman Sachs economic report he would know that the U.S. is "either in recession or headed into one shortly"(GS:US economics Analyst - Jan 11). You can't blame the guy for wanting to appear calm and collected given the ridiculously alarming news that continues to hit us daily, but his suggestion that some short-term fixes will cure what ails us is equally alarming. His advice to spend our way out of this temporary problem may well prove a ridiculous suggestion for an economy diseased from extreme over-consumption in part caused by a lack of appropriate financial oversight as well as overly stimulating monetary policy. Who ultimately will claim responsibility for America's addiction to buying stuff, made possible by cheap money and corner-store credit dealers? Though I am not quick to blame any one party, the first step in our collective healing process, as any AA member will tell you, is to admit you have a problem.

Perhaps Mr. Paulson has found his higher power, the second step, in the very smart and insightful Abbey Joseph Cohen, Goldman's Market Strategist. She may have convinced him that a "recession will likely be avoided, due to strength in exports and capital spending by corporations and governments, and thanks to a vigilant and flexible Federal Reserve." (GS: Issues and Outlooks, Dec.07) Abbey calls for a year-end S & P of 1675 (Barrons, Jan 14th 2008), but there is a lot of time between now and year end. As one of many market experts interviewed for the annual Barron's roundtable, her bullish outlook was certainly in the minority. She, too, however, is not without concern about the strength of the U.S. labor market as well as inflation.

Following Paulson's Friday remarks a short breath of faith hit the markets. The S& P hit a high of 1350, from an opening at 1333. A close at 1325 however, was not in my books, a good sign. As an ex-Goldman Sachs trader I learned from the best, and a negative close after what should have been conceived as 'good news' is a very bad sign indeed. Market prices reflect the collective opinions of the people who are buying and selling. If by some small chance Tuesday ends up a good day for the markets, it is in most part because the investing world chose to believe that the problems are now under appropriate adult supervision. If the markets perform poorly on Tuesday, as they now seem likely to, they are telling us the opposite. Now we might only guess what might have happened if the U.S. markets were not closed for Martin Luther King Day. While Americans were waiting the extra day to vote on Mr. Paulson's performance, the rest of world took a stand. Tomorrow we will have our chance. Entering in your buy or sell order is effectively casting your vote. Either things are not so bad, so hold on to your stocks and just keep on spending, or, Houston, we have a problem.

I had the pleasure of working for Secretary Paulson at Goldman Sachs and find him a very thoughtful and honest man. I hear he is not a drinking man, and thus may be not at all familiar with The Twelve Steps of Alcoholics Anonymous. I would encourage him, and the rest of the current administration, to take a look at them for inspiration on how to handle what deeply ails America. I recommend Step 4 in particular: "Make a searching and fearless moral inventory." An honest inventory of our economy is much needed. Let's hope the administration can transcend confidence games and be more fearless, and moral, in its resolve.

Comments

[dragon1]

The Fed Reserve and the Bush Admins stimulus plan to inject $145 Billion into the economy is too little too late. All that has done is tell the markets worldwide that the US has a serious financial situation underway (subprime loans,war,etc). It tells all of them that there is still more serious news being hidden here. Also the aid package will be BORROWED money, further compounding the problem and deeping the USA's debt problems. I said 2 yrs ago that your war in Iraq will initiate the financial collapse of your country. It now looks nearly certain that the USA dollar is about to be dropped as the world currency reserve....nobody will trust it or your financial integrety. Your war has cost over a Trillion dollars of borrowed money with no end in site, and you're about to ramp up increased involvement in Afghanistan. It won't be long now before the Euro is installed as the world currency reserve. Mark my words.

[AnnaList]

Let me say that I am not a "trader," nor an economist,but I do know the difference between dollars and dough-nuts. When I heard Paulson speak,I wondered, "What?" When asked about the disparity between the U.S. and Chinese currency, he said,"It is only part of the problem. He then gave a tortured answer describing the structural economic differences. China, he said, has a strong economy and a high savings rate. The problem is that the U.S. Economy is driven by "consumption," a word that seems to have replaced, "the working class," and our savings rate is nill. So,where is the logic? When "consumers," are tapped out(reasons known), then there is no money to drive the U.S. Economy. The .75 cut in interest rates not only negatively affects my few dollars in savings, but it also drives up the price of oil, and consequently, everything associated with it. The Stimulus will have a psychological inpact, while "the powers that be," seek other solutions. On the Congressional side, I've heard the word, "trigger" used as one of the FOUR "T's." In my mind,a "trigger"is a mechanism designed to kick in as it becomes necessary. It suggest the need for future injections into the economy; perhaps, throughout the Bush term. "YA' THINK?
The best interest of the country seems to have taken a back to special interest in Bush's appts. Now, we are faced with problems that will take a very long time to resolve. It seems that many of the large corps.have already given up on the U.S. They seem to be focused on the growing economies of India, China and an uptick in THEIR population's living standards to market their products. Furthermore, the drop in the Asian mkts., resulting from bad mtg. investments, means they may no longer be willing to act as "Lenders" to us. Worse yet, our Mfg.has gone to China, the Services have gone to India, and cheap labor has taken over the Hospitality, Agriculture and much of Const. What's left? Folks,we're in for a bumpy ride!

[KRANKY]

"Bonfire of the Vanities" meets "Barbarians at the Gates".

Want a solution?
"Blood in the Streets" has to be more than a cliche.
The criminals at the top in every organization and strata finally must be made accountable....and their saying that they are sorry is just not good enough.

[realpolitic]

This administration has always been more concerned with "staying on message" than with telling the truth. The awful response after 9-11 when we were told that the sites were safe to work at confirmed this fact. Later Christine Todd Whitman, then EPA Secretary, admitted officials knew they were not and she was pressured to stay on message. This administration is a disaster and taints all who work for it.

[Pdubya]

if you think this is a partisan issue, you're hopelessly naive. the plutocracy has undermined our economic freedom and sovereignty for 50 years plus. slow and steady gets the prize.

[kells1001]

The credit crisis is a giant snowball going down hill. The cycle of spending on borrowed money cannot be stopped because it must be fed to keep from bottoming out. Once again the fed will help us feed on more debt to put off the day of reckoning especially for many middle class Americans who will be calling on their mortgage brokers tomorrow.

[curiousasheck]

My concern it there will be a whole continent full of bankrupt, re-poed, and idle former WalMart shoppers, many of them with half of their skin tattooed and many of that bunch all revved up to "roll heavy and gun up" against the folks who screwed them.

[Hoelder]

You must be kidding me! Ever heard of something called greed. Now we are going to blame the men on the street for spending after the President told them to do so. The President then showed how to do real spending. The fat cats got the breaks the masses foot the bill. The Fed had to lower interest rates for the mere fact that itself needs to borrow a whole lot of money for the next gift of the administration to the industries that do not need it: Trickle down does not work! Greed consumes the top so much that they catch any drop of money not to trickle it down. It is really amazing what kind of excuses justify the greed of the few. There needs to be a free market, but not the one we have now.

[Rule Of Law]

I have to say that the Government doesn't make the money--The Fed does and it holds all the power. It is privately owned, and as Amshal Rothschild said--"Let me issue and control a nation's money supply, and I care not who makes its laws." To put it any other way is just a tail wagging the dog story.

Goldman Sachs--the same folks who made money 3 ways off this mortgage malfeasance--First purchasing the mortgage based debt, second packaging it into securitized equities which they sold all around the world, and lastly, by shorting the market against their own products while the melt down was in progress. Those guys?

The same Goldman Sachs that had such a profound impact on the creation of the First Great Depression? Those guys? And not to point the finger just at them, but our Sec. Treas. is an alum, and it don't look good for him...

Many of the financial posters here have never believed the economy is either a free market or honest or controlled by the government in any way--in fact just the opposite. This Depression is happening as planned. The players have been at it for years. And our "votes" tommorrow will not mean a thing! The debt train is rolling, the Finance Industry's mouth piece at the Treasury is reading his lines like a pro, and if you do not physically own gold, silver, or other products with an inherent value, or have offshored your assets as the major players do, you are looking at some rough times ahead.

"“The money powers prey upon the nation in times of peace and conspire against it in times of adversity. It is more despotic than a monarchy, more insolent than autocracy, and more selfish than bureaucracy. It denounces as public enemies all who question its methods or throw light upon its crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe.” -- President Abraham Lincoln."

[musselmanm]

You know, a recession always starts when the middle class Americans cannot afford the products that are intended for those consumers. The current mess has already gotten so bad that the middle class cannot even afford lead coated products at Walmart from China. The free market has priced itself out of its customers.

[LiberalMathProfessor]

Time for a curmudgeon to look everyone in the eye on the right side of the aisle, and many in the middle and some on the left, too, and say "You hadn't been paying attention, had you?" The certified conservative Republican writer, commentator and thinker, Kevin Phillips admonished several years ago, I think in the nick of time to have gotten rid of Bushboy in 2004, that neither Bush Dad nor Bush Boy has ever been either Republican or Conservative, and that the sooner we rid ourselves of the Bush family altogether the better. And this was bascially all in the preface to his book American Dynasty. Now, I am a certifiable liberal lefty and I read all of what is available, so how come the so-called conservative Republicans and the idiotic undecideds and the fools in the middle and on the left who actually voted for this monstrosity didn't get Kevin's warning in time? The world is teetering and it is BushBoy's fault, and that of his defective retinue to include Rove and company, and we probably need to round them all up and get them out of the way so that someone, somehow and begin to put the fix to things, eh? I suppose a moral is.... next time make sure that your candidate has verifiable credentials, not limited to that they "supposedly" had been in bidness and can say "Praise Jesus," but better yet, make sure they have LOTS OF hard, relevant public service experience (which excludes Governors from our States with the weakest of Governorships, such as Texas) and know LOTS about the law, civics, and our Constituti­on!!!!!!!!­!!!

[avidobserver]

"At the same time, Vice President Cheney has become the poster boy for a total lack of oversite by the government has he arrogantly presided over the most massive display of war-profiteering in our history.
Even the fact that he once headed (and still profits from) the most egregious corporate example of this treasonous activity--­Halliburto­n--has failed to raise the ire of either the public, Congress or (most tragically) the media."

I couldn't agree more! It boggles the mind why no scrutiny has been paid to the most effective corporate lobbyist - the Vice President of the United States.

[csavage]

Believe it or not, there are places where things are MUCH, MUCH worse-like Zimbabwe, where a tube of toothpaste is now 16.8 million dollars. And, unless you are retiring tomorrow and cashing out your 401k, hourly, daily, weekly or even monthly fluctuations in it's value will not affect you IN THE LONG RUN-our stock market has gained value during the entirety of it's existence, even in 1929 and 1987. Bush is hoping that handing out checks will help his party as a symbolic gesture, just like it helped in 2001. He's dealing with a population that has consistently voted against it's best interest for years, hasn't he?
I think it's completely humorous, in an ironic sense, that the "small government, self reliance party" is the only one to hand out government sponsored bribes-and then revile FDR for the New Deal-people actually worked as part of the New Deal....and still the American populace will not call the repubs out! Amazing!

[gerrylong]

Why this jerk (Bush) is in the White House and not in Leavenworth Penitentiary is beyond me.

Thanks to chickenshits like Nancy Pelosi the flake still rides high.

[BetterDeadthanRedState]

This is all a result of a very cruel god's attempt to shake loose those obstinate and clueless 20-some percent who still give W an approval rating.