24 trillion ways to break the bank

The crisis in the United States is reaching a silent boiling point in the struggle between the citizenry and the largest banks.  Revealed today in a story breaking across various news agencies, the United States has potentially indebted itself by nearly $24 trillion dollars through various bail out programs since 2007.  This is effectively bankrupting our entire country and if allowed to continue will ruin any chance of a sustainable recovery.  We are already on the heels of a major change in how we live, work and save money.

Debtor nation

If this amount of debt is incurred on a federal level it is twice our GDP.  That is completely out of bounds with any kind of spending plan that is sensible.  It puts the creditors of our nation in to a very difficult position, because they understand we’re debasing the world’s reserve currency to buy our way out of a financial catastrophe instead of facing the pain and making constructive changes.  These $24T in financial commitments could literally strangle our nation’s economy for decades.

Some things never change

Wall Street is back to its old tricks.  Goldman is making “record profits” amid a crisis where its competition conveniently perished under the watch of former CEO Hank Paulson as Treasury Secretary.  Now Morgan Stanley is repackaging subprime mortgage debt as AAA while JP Morgan, Barclays and others are leasing supertankers full of crude oil.  All of these actions are benefiting the banks at the expense of tax payer dollars that provided the cushion so that these companies could continue to sustain their existence.

Time to wake up

Most of the time people turn off the TV, put down the newspaper or close their browser when they encounter the intentionally dull financial news.  They want to focus on the here and now, not projections of profit or bailout recapitalization.  It’s understandable that in a functional society people would have the luxury of ignoring the banking system because they have some implicit trust, a notion of safety, about where their money sleeps.  This relationship should no longer be taken for granted and the institutions holding the dollars we cherish as our future savings may be participating in the largest, most sophisticated power and money grab the world has ever seen.

The Treasury plan’s lack of detail disappoints

The US market had its worst day in 2009 on account of the Treasury’s lack of direction and specifics in their plan to assist ailing financial institutions.  The Dow shrugged off 8000 and the S&P lost the key area of 850.  The only encouraging signs are some end of day short covering in to the oversold condition that was created and that the S&P 500 is still hugging its uptrend line from the Nov ’08 lows.  Other than that the picture looks quite bad.   Geithner had been expected to reveal details and even figures, but instead the market received more rhetoric and promises.

Bad bank scrapped

According to CNBC,  “The Obama administration’s wide-ranging plan to stabilize the financial system no longer includes creating a “bad bank” but will still contain measures to encourage private firms to buy up toxic assets from financial institutions, according to a source familiar with the plan.

In addition, funding for the bank-rescue plan is unlikely to exceed the $350 billion currently available under the TARP, this source said.”

Don’t own a GM or Chrystler car? Too bad!

You’re being billed for one anyway!  That’s right, the $15B auto bailout seems likely to pass and be signed in to law, using funds for the DOE’s energy efficient vehicle program to instead bail out the very non-energy efficient American auto makers.  I am personally opposed to assisting any enterprise that cannot sustain itself in a free market.  This decision is not going to save the auto industry, but instead it’s as though the US government has bought some time for the auto makers to show us they can fail again.

The markets reacted positively overnight, with Asian equity indexes rallying and US futures shooting up about 1%.  The key number of 900 on the S&P 500 has again been flirted with and will be important to watch throughout the day.  The traders I’ve spoken to seem to think that the bail out was already priced in so we’ll see if the optimism lasts today.