PODCAST-TRANSCRIPT-WEEKLY-UPDATE-2009-MAY-1 (FRANCONOMICS.COM)
14 Trillion Dollar Drainage from Tax-Payers to bankers = $2 Trillion (US Treasury) + $7 Trillion (Federal Reserve) + $5 Trillion (50% of Loss in Stock Market Capitalization) = US GDP
Link to Read the Value Drain-II in our Value Drain Series of Articles
Hello, I am Sam Mishra from franconomics.com with the macro-economic weekly podcast, for the week ending May 1, 2009. Also, now you can go to our website where you can find links to subscribe to this podcast using iTunes or Podcast Alley, in addition to the RSS feed…
This week, the big news obviously was the Chrysler bankruptcy. It will affect the whole supply chain of the auto manufacturer, including millions of people working for auto parts manufacturing companies. Those who had Chrysler as their biggest customer will go bankrupt, affecting hundreds of thousands of jobs! GM also announced slashing 23000 hourly workers, OUCH! We at franconomics.com feel their pain, and the pains of their families. May be the Wall Street bankers, who sip champagne at night, feel it too.
If you thought only auto manufacturing is sick, newspapers are not far behind. The hot news towards the weekend was that Boston Globe may shut down in 2 months. Warren Buffett, whose Berkshire Hathaway Inc. is the largest shareholder of the Washington Post Co., said on May 2 that Most U.S. newspapers, facing declining revenue amid the recession, hold little potential for a turnaround. We will hear more from his deputy at Berkashire Hathaway a little later in this podcast.
Also this week, 100 hedge funds bid on the pPiP, inspite of the TARP Inspector General coming out with a 250 page report last week, which reported that pPiP is vulnerable to fraud. [educating] So, what are hedge funds. After being a secretary, you want to work in a hedge fund. Even Madeline Albright, the US Secretary of State started one. Larry Summers worked for one, earning more than 5 million dollars for working only 1 day a week. After campaigning for her mother, Chelsea Clinton has gone back to her hedge fund employers. And hedge funds want a piece of the trillion dollars which will be looted through pPiP from Americans in the nexr few months. And fill the coffers of bankers, which are already over-flowing with bonus money from TARP bailouts. TARP is an acronym for Troubled Assets Relief Program, in case you are tuning in for the first time into all this. Read up our Value Drain II, the second in our series of Value Drain articles on Franconomics.com to understand the looting in its gory detail.
In this article, we show how 8.7 trillion dollars are being drained from the Americans to the bankers as you listen, excluding another five trillion in deflated stock market. So, the drainage is as big as one year’s GDP, i.e. 14 trillon dollars. Please go to franconomics.com to read this timely article, where we have also introduced the concept of technical rebounds. A technical rebound reflects physical phenomena like a ball bouncing back up 50%. So, let’s understand it in terms of real stock market data.
For the week, the Dow Jones Industrial Average rose 1.7%, closing at 8212.41. Last week, it had closed at 8076.29. However, from its all time high of 14279.96, it is still down by 42.5%, In terms of market capitalization, investors in American stock markets are losing 42.5% of 23 trillion dollars, or almost 10 trillion dollars. If we assume that equilibrium will be restored when the markets get 5 trillion dollars pumped back into them, a drain of 5 trillion dollars will have to be accounted for. If you add the 5 trillion dollars to our calculated value drain of 9 trillion dollars by the Federal Reserve and the Treasury, you arrive at 14 trillion dollars, or 1 year’s worth of GDP. Whoa.
How about Gold and Bonds? Both fell for the week, as the stock markets rose. Gold fell 2.87% per ounce for the week, and closed at 887 dollars per ounce. Silver dropped by more than 3% to close at 12 dollars 50 cents per ounce. The yield on the ten year treasury note jumped up to 3.17% from 2.92%. the 30 year US treasury has been golden as an investment vehicle for years, but with the current fed and treasury actions, we can only count on Gold, don’t you think?
Let’s discuss briefly the plummeting housing median price data from Silicon Valley, where this is being podcasted from. In Santa Clara county, median prices collapsed 35.9% year over year for 20 business days ending on April 8th, 2009, 1280 homes were bought and sold as the spring-selling kicked in; Condo prices fell 50%, as reported by San Jose Mercury News. Nice neoghborhoolds like Cupertino and Los Gatos went down 24% and 50% respectively. Only Los Altos appreciated 14% on the sale of 8 homes. In all the other 48 zip codes, prices fell. Nearby Santa Cruz county had the same decline for total sale of 155 homes. In terms of foreclosures, compared to March of Last year, March 2009 saw foreclosure notices of default going up 106% in San Mateo county, 26% for Santa Clara county, and 27% for all of California. As the 3 month moratorium on foreclosure sales comes to an end, foreclosure sales will start galloping upwards in the next few months. Well to do people are trapped in their homes, which have lost significant value. They are afraid to refinance mortgages which are significantly higher in value. In other words, all over America, the refi plan of the Obama Economic Brain Trust is not working. For example, you buy a million dollar home. It deflates 37% or to a new value of 630,000 dollars. Will you refinance a 630,000 dollar home for a mortgage which is a million dollars? Will you pay 58% more in value for something, whether it is stock, car, or mortgage? Yes, 1 million dollars is 58% more than 630,000 dollars, for the difference of 370,000 dollars is 58% of 630,000! Hmmm. Why should someone just not walk out? Oh I see, for personal bankruptcy ruins one’s credit history, FICO score, etc. So, what do I do? Hang on to my home which is falling in value, and pray!
Now, let’s listen to some sage comments. On Bloomberg tv, Charles Munger, the 85 year old collegue of Warren Buffet, said this about our friendly Wall-Street bankers: “This is an enormously influential group of people, and 90 percent of that influence is being spent to gain powers and practices that the world would be better off without,” hmm. He also said this about banks too big to fail: “If they are too big to fail, they are too big to be allowed to be as gamey and venal as they’ve been -- and as stupid as they’ve been.” Looks like Warren Buffet and Berkashire Hathaway are hurting financially. We at Franconomics.com like the fact that they have come out in the open and are now calling the scam out publicly. Buffet should not have given Goldman 5 billion dollars in the first place, it was just morally wrong, even though he got preferential finance terms.
Folks, Eventually the markets will come up, and set up new highs; but when that happens, the value drain of 8.7 trillion dollars will still remain; affecting the living standards of our progeny in terms higher prices for food, gas, clothes, rent, and also MORTGAGE. Americans will be taxed in multiple ways to foot the 9 trillion dollar LOOT: higher income taxes, more money for consumption, less money or no money for savings or investment, etc. It will be a long time before the financial system is back on track; by then the 9 trillion dollars would have been well digested by the Wall Street bankers. It will be too late then, stop the looting now, tell your congressman to stop it, write to your senator, complain to your neighbor, bring it up with your Church minister. Feel free to print our Value Drain II article and distribute it to your friends and family. Let’s not damage our financial futures by doing nothing. Let me repeat: The Wall Street bankers are looting $5 billion a day for the last five years, and in another 2.5 years, the drainage will approach the US GDP in terms of $14 trillion dollars looted away, stashed in Swedish and American bank accounts. We have to stop it. To much is at risk here, America. Our financial, psychological, and moral healths are at risk. Our progeny are at risk of inheriting a corrupt political and financial system. Our destiny is at risk of not being the greatest democracy in the 21st century. We can’t let a few greedy rotten apples tarnish everything. Tune in again next week for your next weekly podcast. Thank you for listening, and I am Sam Mishra from Franconomics.com, Thank you. You have a great week ahead, and stay well.
