Naked Short Sellers and Golden Parachutes

This has been some week-- and it is only Wednesday!

Monday folks awoke to find that some Grinch had stolen Merrill Lynch, and Lehman
Brothers had sunk in the night as well. Billions and billions of dollars had vanished
from various investment banks and people's retirement accounts. And the latest
is that the government will bail out insurance titan AIG with 85 billion dollars.
According to The Wall Street Journal and other financial publications, financial
speculators known as "naked short sellers" (no, nothing dirty) were hoping for more failures so they could profit from the declining prices-- "shorting" stock they had sold but didn't yet own.

Some late night comedians made light of the collapse of three major financial institutions
in three days-- in the wake of the bail-out of Fannie Mae and Freddie Mac (see prior
blog), and after the loss of Bear Stearns and failure of banks like Indymac.
Craig Ferguson was kidding that the Wall Street moguls would have to do with a few fewer
luxury sports cars. But the reality is what happens on Wall Street doesn't stay on Wall Street--
it affects the whole nation.

So firms that had survived the Great Depression, world wars, recessions, crises,
9/11 destruction, just fell apart like a house of cards in a Texas hurricane.
McCain suggested a federal panel look into the matter (THAT is sure likely to
put money back in people's pockets), and Obama had few concrete suggestions,
either. Neither candidate, to be frank, has much experience dealing with economics.
One was a career naval officer, the other a community organizer and law professor.
Neither has ever run a business (marrying someone whose father distributes beer
doesn't count). Neither really understands what it is like to wake up each morning
and start the day with a blank slate and an empty til and end up at the end of the day
with enough to break even and maybe a few dollars profit.


The current President is the first Chief Executive with an MBA-- from Harvard, no less.
Of course, he seems to be a fine example of "failing up," moving up higher and higher
with each successive failure, and even being re-elected after four disastrous years.
And the folks who managed to destroy Fannie Mae and Freddie Mac have been promised
golden parachutes of millions and millions of dollars (what incentive do executives have
to do the right thing when they end up rich no matter how they screw things up?)
But it seems to me government bail-outs are not really the answer, particularly when
it isn't really the government that is bailing out these financial institutions-- it is you
and me, with our taxes.

People ask me how this will affect real estate. It will affect real estate, just as it will
affect whether kids in public schools will get enough crayons to draw (probably not).
The government doesn't have unlimited resources, so if trillions are going to a useless
and endless war in Iraq, and billions are going to correct corporate blunders, there
wont be much left for frills like health care, education, transportation, environment, etc.
You know, frills like life, health and happiness.

It seems ironic to me that a conservative Republican administration is nationalizing
private corporations faster than you can say Marx and Lenin. I understand the need
to try to save major financial institutions and unfortunately a lot of good and smart people are being hurt by the blunders of a few-- but those that are most responsible
for the failures and irresponsible decisions are not being hurt as much as the thousands of employees who have been working hard and doing their jobs.

Life will go on, no matter how much the Dow Jones and Standard and Poor's indexes drop.
The sun will come up tomorrow, the moon will be out at night. But it seems unfair
to me that Big Business and Big Government have met like a Skull and Bones
frat gathering and have decided where billions of dollars will be spent, and how we will
all be stuck with an enormous bill for the folly of cocky financial folks who gambled
and lost.

Nobody consulted me about these bail-outs. And yet money is being taken out of
my pocket as if I were being gently mugged.

In the meantime, I still have a roof over my head, and no matter what happens
in the stock market, I still have a home, and it has been the best investment I ever made.
And, unlike a stock certificate, it keeps me warm in winter and keeps the rain out
in a storm. And it is unlikely to disappear over a week-end because a bunch of
dark-suited men met in a room and decided I was expendable.

-end-