November 2008, a year ago today
Last November fear from the financial collapse shocked the spinal cords of citizens around the World. Banks, insurance giants, automakers, even Bennigans that were too big to fall, fell. The sky was falling, and the world stopped spending money. I had friends, whom I greatly value their opinion, were literally converting cash to gold, and burying it for this preconcieved D-Day. It seemed Mad Max, Tina Turner, and even The Thunderdome all had a call into their lawyer getting a quote on a Chapter 11 vs C 7 bankruptcy.
Scary, scary stuff was in the air, and I’m wondering what has really changed a year later? Dow Jones has nearly doubled from it’s lows fall 08, fuel is still tinkering on the North end of 2 bucks, loans are a bitch to get approved, failed banks are still surfacing, and the fear around those ‘in the know’ is the commercial real esate balloon pop.
This post is not an answer, it is more a document of my observations. What in the hell is next? That’s the question. Unemployment +/- 10% is a catastopohe in it’s best form. GM is clearing it’s lungs for another toke from the money bong, and the banks….THE BANKS….have marching orders from their in house Venture Capitalist (The Fed) to stop adding commercial real-estate backed loans to their’ bucket’. Bucket of what? Bucket of assetts, bucket of chicken, bucket of reality? If the FED/FDIC are indeed starting to ‘red-line’ real-estate assetts to re-align an insured lenders liquidity, then you aint seen nothing…yet.
I’m a “car guy” right, so here is my skin in this arguement. May 2008, oil went to mid 100’s. The cost to operate a 5000+ vehicle exceed 50% of it’s drivers disposible income. I was sitting at my office late on a Friday night role-playing about the effect this newfound reaility would have on the auto industry and economy. I finally came to the conclusion, phoned a close friend and my banker at the time and said “hey man, this gas thing is a problem, like a problem problem” He immediatly replied “how big” I answered “it’s over, we haven’t seen it yet, but it’s coming and it’s over”. After a 15 second pause he said “John, I’ve been running those same calulations myself, and I hate to admit it, but you’re right…this is going to be the knockout punch to the stroke victim.” And I’ll be damned if just a few months later most of the ditch caved in. We all know how the car crisis was handled, but here comes the Real Estate bust.
Real-Estate is more of a currency in my mind than dollar currency itself. Real Estate is the standard that Gold is harvested from to begin wtih. Real estate is the stuff the factory quit making a while back. There are 3 core values in any economy that give it life. Fresh water, fresh air, and old real estate. Red lining real-estate assetts as ‘worthless’ in today’s economy becuase of fear, will have the same long term effect that the NCAA’s death penatly had on the SMU football program. Anyone recall late 1980’s Resolution Trust Corporation, I rest my case your honor.
So the economy was supposed to implode over the past twelve months, but it did not. The fundamentals are such that it did, but we survived our fiscal stroke with a gov’t credit card. Literally, that’s what happened. We took our financial problems, and just said CHARGE IT. The transaction cleared, the dollar will be devalued systemically becuase of it, and serious arrhythmia is still reporting daily. My question is “did we/they pull it off? Did this massive defibrillator Visa swipe actually buy us enough time to repair ourselves over the next 15 year cycle? Did the country sort of just go through it’s own personal Chapter 11 in an odd sort of way? Charge the AMEX black with a few trillion, and then say ‘we’ll catch you on the flipside’, but to whom are the true debtors of the paper now, and what is their lien position?
I suppposed my message here is that if we did not implode over the past twelve months, then we will somehow limp through this economic crisis without revisiting Hooverville’s and start building the World’s largest damn again in a desert somewhere. Did Amercia do as Charlie Daniels, and bet a fiddle of gold against our soul. Unfortunatly, I believe the answer is yes.