Market Talk #4 – Blackmail on an Institutional Scale

Posted by Tokyo MadHatter on February 17, 2009

Well, we’ve had an interesting couple of weeks. In my mind, the biggest event these past two weeks was definitely the admission that Bank of America got cold feet over the Merrill Lynch takeover and the chief executive had to effectively be blackmailed by Paulson and Bernanke to continue with the announced takeover. All this was admitted as much in the New York Times, and no body batted an eyelid.

We live in strange times, but now the citizens are baying for blood and politicians are answering the call in spades. The only problem with that is they have no idea what they are doing but conversely they want to be seen to do something.

Last week we were treated to the spectacles of the ultimate bankers’ and politicans’ showdown, at least for the English speaking world. We saw the failed chief executives of HBOS and RBS take a total skewering at a parliamentary select committee on Monday,  and then on Wednesday it was the American version, with top bankers all being summoned to a hearing in Washington. Although their tone wasn’t as contrite as their UK counterparts, and perhaps because they haven’t been nationalized yet by less obvious magic, they realize that public opinion is against the banking industry for the excesses of the past couple of decades.

Within all this extra global spending, consumers are actually paying down debt with any spare cash, in preference, to just going out and spending it. This data comes to us from Australia, which instituted its own spending package and surprise, surprise, the data shows that indebted consumers preferred to pay down debts rather than spend the money.

It could be worse, back home in Japan here, it was noticed in the 90s when the Japanese government made a similar move, a lot of the extra cash ended up in extra savings.

Perhaps the politicians are hoping that by throwing enough cash at the problem that the problem will go away, and they won’t be labeled as the lame ducks they are..

Here in Japan, the hopelessly outclassed premier, Aso, starts trying to rewrite history and mentions that he was against the corporatization of the Post Office, so effectively pushed through by his successful predecessor, Koizumi. The former premier was so flabbergasted that he could only laugh in response.

This is unprecedented in Japan’s postwar economic history; it only shows a total lack of understanding of the situation facing this country right now. Then, his politically appointed Minister of Finance gets a well deserved roasting for falling asleep at an important meeting of politicans. Good on him I say, he showed the true utility of these multilateral ministerial parties.

You may not be aware from the media at least, but the US unemployment rate is probably around 20% already, if one reads shadowstatistics.com. Extrapolates these trends a little, we are already in a depression. For most working people, we all know that, but the media is trying to tell us that we aren’t in the hope that if we don’t realize it we’ll continue spending.

One investment you should make, and this is probably the cheapest, longest lasting effective investment is an investment in your own health. A good friend is about to publish his manuscript on the subject of how capitalism and healthy societies are mutually exclusive forces and the more a society becomes engaged in capitalism, the worse it is for general health levels and later generations to succeed and prosper.

Look at the US, or any OECD nation, health and disease levels are all showing worsening trends. I rest my case.

Tags: finance, Junichiro Koizumi, politics, Stock Market, Taro Aso

Filed in Personal Finance