I have few rules in life but one of them is as follows: whenever a fellow PIC writer who recently broke his neck makes a request, I honor it.  So…

Welcome back to The Investor's Coroner, an attempt to make both sense and fun of the current global markets and inform you of the happenings in the international marketplace while simultaneously breaking off jokes like a chipped vertebrae. 

It is a goal of the Investor's Coroner to make you laugh, help you learn and just generally get fiscal with it. 

Moral Hazards, Government Intervention and an Ugly Fannie Pack

If you don't know what Fannie Mae is or does, click on this here Wikipedia entry.  I know I'm being lazy but dammit, the IC takes a lot of words and I would just be cutting and pasting most of that anyway.

Okay, now let's recognize some ironies.  The United States Government has deemed Fannie Mae too big to fail.  This means, essentially, that if Fannie Mae were to go under, it would take a large chunk of the economy with it.  People would lose jobs, homes, mothers, aunts, uncles, dogs, cats and quite possibly all their Led Zeppelin albums (yes, even Houses of the Holy) or so the government tells us. 

You see, Fannie Mae guarantees loans. 

Let's stop right there and remember what the old man always says: There are no guarantees in life. 

So Fannie Mae, the company that guarantees loans, can't guarantee loans anymore because it's busted.  Which is to say that it does not have the financial backing to insure that banks (not people) will have the capital (cash) to keep offering loans to people at reasonable rates.  So the government agreed to come in and use 200 billion of your dollars to guarantee Fannie Mae's survival. 

Again, let us all remember that there are no guarantees in life. 

If Fannie were to collapse, banks would lose money, loans would no longer be guarantee-able (a laughable concept invented during the Great Depression) and as such, interest rates would rise and it would become more expensive to loan money, resulting in less loans.  The less that people get loans, the cheaper the products people take loans out on (homes, cars, boats, gambling debts, etc) become.  That's really not as bad as it sounds for the American people, but it's horrible for the banks, which would undoubtedly fail.  Failed banks, however, would eventually be replaced by new banks because innovation gets dictated by the free market and life moves on. 

But the government doesn't get any piece of the action that way. 

So, to protect you from the natural cycle of the free market, your leaders use your dollars to "save" you from failure.  In essence, the government is stealing 200 billion from us to "protect" us from an economic collapse. 

You may need an analogy here.  Let's use a food metaphor because I'm hungry. 

Let's say that you ate in a restaurant and were unable to pay.  You are Fannie.  You promised you would pay for your food and then you were unable to do it.  The restaurant owners tell you that you can work off your meal by doing dishes (raise your own damn capital) or you can simply not pay while they call the cops (declare bankruptcy).  You decide that you don't like either idea so you pull out a gun and rob the patrons of the restaurant.  If the patrons don't pay you, you will kill them.  So in essence, you are saving and protecting the patrons.  From you. 

That may be somewhat of an over-simplification, but it's still generally accurate (at least in my half drunken opinion). 

The government has essentially printed a ton of money to bail out many investment firms in an effort to help the economy.  Except it didn't work. 

Why didn't it work?

Well, for one, having the government insure companies creates a moral hazard, which is to say that the investment firms have no incentive to avoid risk because they know they can always get bailed out by Big Brother.  With no incentive to avoid risk, there is no reason to raise capital.  With no reason to raise capital comes more debt without fear of bankruptcy.  Much like a great welfare system encourages unemployment, a great bailout system encourages unnecessary risk-taking.      

But even the American tax payer runs out of cash eventually (have I mentioned there are no guarantees in life?).

Lehman Brothers, AIG and the Motivation of Failure 

Lehman Brothers and AIG, unlike Bear Stearns and Fannie Mae, apparently didn't lobby (bribe) congress well enough.  And as such the government is not bailing them out.  For the next few years (we hope) the government will stop bailing out industries because, well, we're running out of credit. 

There is a strong suspicion in the rest of the world that the United States government won't be able to back up all these failed investment firms, and as such will have to tax its people more, keep printing money (real inflation-the cost of everyday goods-is around eleven percent right now), causing even more of a decrease in the value of your money.  When that happens, countries and institutions that hold dollars as investments will dump them on the open market and, because the dollar leads the charade that is a fiat money world economy, the value of all other currencies would fall and, because of the way the game is played, the wealthiest point one percent of the world would be faced with one kick ass buying opportunity. 

You see, the richest of the world love economic collapse.  It turns the world into one giant garage sale for them. 

Allow me to explain:

Let's say that your money is worth ten percent less than it was last year thanks to inflation and the increased cost of goods.  We can say that ‘cause it's true.

We can also say that you're making the same amount of money.  So your employer, essentially, is paying you less in real wealth. 

Now, let's say you are a leading company. 

Seriously, say it out loud. 

Depending on the kind of leading company you are, you are passing on the inflated costs of your raw materials or services onto the consumer and/or you can afford to ride out the bad times by keeping your prices lower than your smaller and weaker competition.  In the first example, you're making a lot more money while saying everything's the same (or even claiming to be losing money).  In the second scenario, smaller companies are failing because they can't afford to compete with you because they can only operate for a short while in the red.  So, while McDonalds keeps its costs the same and takes a slight decrease in profits, Joe's Hamburger Shop goes out of business and is replaced by-you guessed it-McDonalds, thus increasing their market share. 

The rich get richer, the poor get screwed and the amazing power of world socialism marches on through the beauty of inflation brought on by government intervention. 

On the bright side though, I mean, how can you not love the dollar menu?

Wow, I'm hungry. 

Anyway, the United States (the people, not the government) can no longer afford to keep bailing out the rich friends of the politicians lest those countries to whom we owe billions call us on our loans and essentially take us over, so the US government has to yield (just a little) to the free market. 

And that's where we are right now.  Our currency's inflated, our economy is stretching thinner by the day, our government has wasted our money bailing out investment firms that made their own beds and couldn't lie in them and, in case you didn't hear, Casey Freeman broke his freaking neck. 

Coca Cola and our new Overlords

Coca Cola is trying to make headway in China.  I wish them the best of luck and all that but trying to work with the Chinese market is like playing a game with a kid who makes up the rules as he plays.  The giant beverage company is trying to purchase China's Huiyuan Juice Group but are facing nationalist opposition from representatives of China's national monopoly laws.  Which is all well and good except for one interesting caveat: no details have been provided about the laws.  Companies must conform on a case by case basis to rules that aren't written anywhere in any language. 

You have to have one strong economy to have balls like that, eh?

Protecting your Big Dumb Freedom

A civil rights organization is suing the City of New York for using cameras to run every license plate in the city. Whenever rights are violated in the 21st century, it's all in the name of fighting terrorism.  But, as the man says, "Those who would give up personal freedoms for temporary safety deserve neither."    

I know this doesn't have too much to do with the economy, but I figured I'd take a little time to quote from one of my favorite movies:

"They'd rather be alive than free, I guess… poor, dumb bastards."

Best Buy No Longer thinks the Internet is a Fad

Best Buy, like many retail companies, is slowly being choked to death by the claw-like hands of the internet.  So they bought Napster for a little over a hundred million dollars in an effort to provide music online to their customers and compete with iTunes.  Napster has over 700,000 subscribers and a decent brand name so, though this is hardly a solution to Best Buy's problems, it's better than a broken neck. 

The IMF thinks you're Dumb

The International Monetary Fund (motto: funding dictatorships since 1948) has a managing director who neither manages nor directs.  Which makes sense because the IMF is not a fund.  Anyway, dude thinks the economy will get worse before it gets better.  With insight like that, it's no wonder he's in a position to steal hundreds of millions of dollars a year. 

The US Government thinks you're Dumb

The United States government is considering a fifty billion dollar stimulus package.  You know, ‘cause the last one worked so well.

Newspaper Group Bitches About Inevitable Future

The World Association of Newspapers (motto: really, we're still relevant) is challenging a proposal between Yahoo and Google wherein, essentially, Yahoo would use Google's ad system, which would cause a serious increase in the cost of Yahoo's ad services while also increasing the amount of revenue flowing into online advertising (thus decreasing the amount of revenue going into newspaper advertising).  As much as I hate monopolies, I have to say that WAN's bitching here is the business equivalent of an old man kicking kids off his lawn for playing that darn rock music. 

S & P 500 will Never Forget

Yesterday was history, party people.  The S & P 500, a rather important indicator of market strength, fell 4.7%, its biggest fall since the day the market opened after 9/11, almost seven years ago to the day.  Kind of makes you nostalgic for the good old days, huh?

Oil and Ike Collectively Kick the Baby

Crude oil has fallen to around $100 a barrel but savings have not been passed on to the pumps because of refinery trouble resulting from Hurricane Ike and because your local gas station owners are big, fat jerks who totally deserved to have those candy bars stolen from them. 

I mean, gas prices should fall significantly in November when hurricane season ends.  Yeah, that's what I meant. 

New Innovations Still Not as Awesome as Functioning Vertebrae

Esquire has unveiled the first mass-produced glossy magazine cover featuring electronic ink. It relied on technology from a firm called E Ink that's been used in electronic book readers like Amazon's Kindle. Future issues could include E Ink pages that are updated wirelessly, Esquire said. One challenge with the current issue was packing in the 6 batteries and 2 PC chips needed for the cover's 10-inch-wide screen, which flashes "The 21st Century Begins Now", a statement that pretty much proves that the publishing industry is at least eight years behind the rest of the world. 

More home products, from door locks to pet-feeding devices, are getting linked to cell phones so users can control the products even when they're far from home. U.S. lock maker Schlage has unveiled a $299 door lock, which opens via a keypad or with an old-fashioned key, that can be locked, unlocked or reset from a cell phone or a PC, thus enabling you to fuck with your roommate from far away. 

Your Motivational Investment Quote of the Week

"Attempt to be fearful when others are greedy and to be greedy only when others are fearful."

Warren Buffett

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