Financial System Collapse

Incase you've recently emerged from the rock under which you were living, we found it appropriate to inform you that what you have just witnessed over the past few days here in the debt-ridden United States of America is the final wheezing breath of the financial system as we knew it. There is only one thing to consider as we await a hastily designed bail-out plan that will likely place us in a poverty very few of us have known or understand.

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)
3rd president of US (1743 - 1826)

Special thanks to quotationspage.com
Photo Credits: picsearch.com

Charleston, SC Gas Situation

Around Charleston gas is fluctuating spectacularly due to the unknown extent of damages most likely inflicted by Hurricane Ike. Gas was going up all night. This morning we took a walk around downtown. We had some errands anyway. As we rounded the corner onto upper Meeting we noted the Exxon (above Calhoun Street) had Regular posted at $4.01.We made our way down to the market at Marion Square, spotting $3.99 at the Shell. Unfortunately, Shell was a few cents cheaper because they were out. All pumps donned the telling plastic, yellow OUT OF SERVICE covers. Thank you for shopping.The last station we saw on our trek was the BP at Calhoun & Rutledge. They had gas when we walked by and they were selling for $3.71.Gas prices have fluctuated violently since Hurricane Ike has passed over the Gulf of Mexico and through Texas. Supply may be cut off for days. We don't know yet. Considering the South gets most of their gas from refineries in the Gulf area, prices reacted. Gas prices began going up here last night, but seem to be tapering off some today where one can find gas, that is.

Ultimately, this situation reflects the vulnerability of our petroleum dependent system. It seems the drill, drill, drill plan still leave us open to compromised security considering parts of the South are out of gas as one category 3 rolls through. Offshore drilling of any kind is subject to disruption each and every time a storm crops up out there in warming ocean waters. It doesn't really matter in this case if climate change is man-made or not. The reality is we're getting more storms - and bigger ones at that. So, if we drill, drill, drill to attempt to solve our energy problems here in the United States, we can probably consider this a preview of things to come.

Shame on Charleston - Going to the Doctor

When we have to go to the doctor, most of us hop in our car and voile, 10 maybe 20 minutes later, we're there. The simple act of going to the doctor or hospital is easy for some. For others, not so much. You should have seen what we saw this morning.

As many of you know, we have given up the car to ride a marginalized public transit system here in Charleston. We both pretty much enjoy riding the buses. Well, except when they're late. OK, and also when one has to walk 70 miles crossing hundreds of vacant PARKING SPACES across miles of asphalt to get to any particular destination (which is pretty typical considering the current methodology behind city/town planning). It's especially degrading to be forced to trample through the nice landscaping our cities, towns and businesses provide, with some of your tax dollars no less, because no one bothered to place any kind of sidewalks, or pathways for the ingress/egress of pedestrians and users of public transportation. But, again, what we saw this morning trumps all of that - although it does have to do with sidewalks and pathways.

Anyway, CARTA busses sport a mechanized suspension system that lowers when the handicapped must board. With a loud swooshing sound similar to what you'd hear when the air brakes are pumped on a 16 wheeler, the right side of the bus lowers to the ground as an extension slides out from underneath the bus allowing a wheelchair to roll straight on. Then the whole platform rises up, slides back into the side of the bus and the wheelchair is then easily maneuvered back toward the reserved handicapped seating area.

This morning a gentleman boarded in a wheelchair. Luckily he had two young men with him to assist because he was very old. We all rode into Mount Pleasant. Near the hospital on the opposite side of Highway 17 there is a stop. Right before it, one of the young men pulled the chord and the bus pulled to the side of the highway to the stop. The bus lowered and the two young fellows assisted their elder off the bus. They were very careful and amazingly gentle with the old man. However, as we observed them try to ease the man off the bus we realized they were rolling the wheelchair onto the grass-filled PIT that makes up the entry and exit point at that specific stop. As if that wasn't bad enough, the trio would then have to cross six lanes over a heavily traveled highway during rush hour to get to the other side where the hospital can be seen off in the distance (they would have to walk).

All we can say is shame on the Town of Mt. Pleasant, CARTA, the City of Charleston and the hospital, too, for placing the handicapped and ill at risk by failing to outfit an essential area with the appropriate infrastructure.

Look, as we write this, putting together "a nice way" to deliver a little anger and humility with respectable words, we are quite aware of the fact that we are younger, healthy and still able to trample through local commercial businesses' landscaping (sorry guys). Although we are able to put up with a sub-par public transit system - the elderly, sick or handicapped are not.

If any money is spent at all on public transit in the near future we suggest a part of it be thrown at accessibility initiatives. We've been routing for increased routes and more busses. However, there are clearly other needs as well.

As witnessed this morning, not everyone gets to the hospital by being delivered at its front door.

Nationalization Nation - Freddie & Fannie in Conservatorship

Friday afternoon as the US was distracted by four potential hurricanes in the Atlantic and still reeling over the selection of beauty queen, moose hunter, Sara Palin, by John McCain for Vice President, Treasury Secretary Henry Paulson was hammering out the terms of the conservatorship of two more entities that fall into the “too big to fail” category.

A few weeks ago The Cosmopolitan Charlestonian went on a Freddie Mac and Fannie Mae deathwatch, and posted up a very important yet under-reported story related to Fannie/Freddie here. Fannie and Freddie are the two GSEs (government sponsored entities) that support a large portion of the United States’ mortgage market debt. Anyone interested in a housing market recovery, which would extend to a more solid total economic recovery, would be inclined to pay attention to the status of these two giants, whom together currently provide over 50 percent of mortgage financing to US housing markets.

Under the deathwatch, though, we are caught in a quagmire. Free market capitalism is Darwinian in nature. Free markets call for the weak to fail with an understanding that a stronger entity will emerge to fill the void. However, under current market conditions, some economists estimate that Fannie and Freddie are needed to back as much as 80% of mortgage paper generated in U.S markets over the next few years considering the tightening of lending restrictions within the overall banking industry.

At this very moment traditional banks are lending less. They are busy shoring up their fractional reserve balances and transferring bad debt (that was previously held off-balance sheet) back onto their books. The banks’ asset sales and write-downs are covering losses generated by a whole bunch of unregulated financial instruments created throughout the late eighties, nineties and early 2000s designed around maximization and monetization of global leverage. These products indirectly fueled the biggest credit expansion in US history – which also led to quite a magnificent housing bubble. The trouble is these instruments were built upon models that overlooked any potential deflationary downside risk. And since the first hedge fund collapse in the summer of 2007, our economy has been mired in an unwinding (otherwise known as deleveraging) that is feeding the very deflationary cycle the banks didn't count on. At this point a failure of Freddie and/or Fannie is simply an absolute economic nightmare scenario to the Treasury, Federal Reserve and Bush Administration who have relied on credit expansion and consumerism to drive the American economy for far too long.

Despite an overall gain in homeownership, Fannie and Freddie have been on questionable financial ground for years. Although they were supposedly turning things around, the challenging global trading climate that has developed around US financial instruments, compounded by record highs in foreclosure activity are now taking a new toll on the GSEs. Quantified by The Wall Street Journal, “Freddie and Fannie own or guarantee more than $5 trillion of mortgages. They have suffered combined losses of about $14 billion over the past four quarters as they make provisions for a wave of defaults.” Freddie and Fannie will not be allowed to fail. Should they be allowed to travel the way of the Dodo, the housing markets would essentially freeze, with little or no credit extended to even the most worthy of loan customers. So, free market capitalism is off the table. However, Paulson's move in no way equates to complete crisis aversion.

Any move by Treasury would represent perhaps the most significant intervention by the government in the financial industry since the housing bust touched off turmoil in the credit markets a little more than a year ago. From the $168 billion economic-stimulus package in February through the bailout of investment bank Bear Stearns Cos., the Bush administration and the Federal Reserve have taken an increasingly aggressive stance in responding to what has become one of the worst financial crises in decades.

Exactly how Freddie and Fannie are backstopped is the next billion dollar question. Futures trading indicated swift reaction to the news Friday night with everyone wondering how Paulson will treat shareholders.

Investors worried that a government bailout would wipe out the value of existing stock, and those fears have sent the shares down about 90% from a year ago. Many U.S. banks as well as foreign governments own stock or debt in the two giants, meaning their financial woes could cause broad problems beyond the housing market.

Most certainly the news of Fannie and Freddie was rolled out on a Friday afternoon intentionally. Monday morning market commentary will be interesting to say the least. Until then, here are a few links we found:

Bloomberg News

The Economic Populist

Naked Capitalism

Calculated Risk

Blogging Through Hanna - The Aftermath

Well, nothing exciting to report. Hanna was a non-event. Not even a single brach was downed of the giant old oak standing its timeless guard in the cemetery across from our house.

The East Side appears to have a zero to minimal damage report on this beautiful Saturday.

An attaboy goes out to Jared W. Smith who Tweeted conditions and reports throughout the entire storm.

Blogging Through Hanna

It's 11:30 p.m. and Hanna is close. The winds have picked up here in downtown Charleston while the rain is turning sideways. We realize too late that we forgot to secure our giant plastic city issued trash can, but the winds are only gusting so far at 60ish according to Bill Walsh on the local eleven o'clock news cast. And the big green eyesore is not sitting out in the open.

We walked up to The Piggly Wiggly earlier around eight. Our hurricane, er, tropical storm supply list inadvertently excluded popsicles. The storm was still far off so we ventured out to get a look around and fetch some snacks. Few cars were on the street, but lots of people on foot armed with umbrellas and sporting a wide variety of rain gear, including one guy in the expected trash bag with arm cut-outs. Anyway, we digress.

Hanna is near. The wind has really picked up and one of us here is reporting a popping sensation of the ears. We're now under a flood warning, a flash flood watch (because high tide is scheduled at 12:42 a.m.), a tropical storm warning and a tornado warning. The historic downtown area boasts all of these wonderful old homes. The rain on these old tin roofing systems sounds quite charming, but we can also report being able to clearly hear the wind whistling through the house (oooo, we so need to keep moving forward with the energy efficiency upgrade initiative).

As usual, like all of the other storms we've weathered, Hanna has been coming in bands all afternoon and now as she bears down there is little time between them, meaning the rotation is tighter and the center is closer to us. She's moving fast though and will be gone in a Suthun Minute.

The Weather Channel is reporting Charleston has received 3" of rain, and that Highway 17 is now closed due to a 2' storm surge. So far, though, we don't see any major flooding on our street; however, we live on higher ground, where it exists anyway on the peninsula of lovely Charleston. We still have electricity, otherwise, you'd not be enjoying this publication from within the storm. All looks well, so....

Heading off to sleep now through the brunt of the storm. Charleston has gotten through far worse.