I’ll admit, things in America suck right now, compared to the salad days of the late-nineties. But from the daily headlines regarding the current financial downturn, you’d think Hoovervilles are already springing up outside every major American city. As I’ve pointed out in previous posts, the hyperbole surrounding these events is laughable once you get into the meat of the stories. Like the story a few weeks back about the “ruined lives” of Bear Stearns employees, in which one executive stock options were worth a mere $28 million dollars, and lesser employees were forced to put their “weekend homes” up for sale, or another story about the California housing market in which the shrinking pool of mortgage related credit had forced one homeowner to “cut back on travel” and find other means by which to pay for his “investment properties.” Today, I found yet another golden quote, in a story with the dire headline “Food Costs Rising Fastest in 17 Years,” which definitely sounds scary. Should we expect food riots in the streets of New York? Soviet-style bread lines at bakeries nationwide? OMG WHAT DO WE HAVE TO BE AFRAID OF NOW???! How about $20 key lime pies that now cost $25?

Steve Tarpin can bake a graham cracker crust in his sleep, but explaining why the price for his Key lime pies went from $20 to $25 required mastering a thornier topic: global economics. The owner of Steve’s Authentic Key Lime Pies in Brooklyn said he didn’t want customers thinking he was “jacking up prices because I have a unique product.”

“I have to justify it,” he said.

I somehow doubt that anyone who could afford a $20 key lime pie is somehow going to starve now that they have to pay $5 more. But then the story got even better:

“I was talking to people who make $9 an hour, talking about how they might save $5 a week,” said Kathleen DiChiara, president and CEO of the Community FoodBank of New Jersey. “They really felt they couldn’t. That was before. Now, they have to.”

For some, that means adding an extra cup of water to their soup, watering down their milk, or giving their children soda because it’s cheaper than milk, DiChiara said

Umm…have they ever heard of WATER?? It’s this thing that runs out of the faucet. And guess how much it costs?? $0.0000000!!11 But I guess if you’re poor you’re not really interested in giving your kids something healthy to drink, especially not something totally free.

Interesting article from the Sunday Herald about the massive debt write-downs and ensuing goverment bailouts of private banks currently happening throughout Europe and the US, a scenario predicted rather aptly by our old friend Karl Marx:

The quaint idea that loss-making companies should fail, to ensure the health and vitality of the capitalist system, has quietly been discarded. The banks, we are told, are “too big to fail”, which means that they have to be taken into public ownership - like Northern Rock - or have their debts underwritten by government, like Bear Stearns, which comes to much the same thing. The central banks are also cutting interest rates to try to boost banking profits, and this is making currencies such as the dollar increasingly unstable.

Which takes us back to Marx. The crisis that is rocking the world is a classic example of the kind of shocks and dislocations that Marx said were an essential feature of a competitive capitalist economy. The falling rate of profit that results from too much investment piling into new technologies and commodities forces capital to engage in a constant search for profit.

Athough the US government has long had an unspoken policy regarding commerical banks that were T.B.T.F. (too big to fail),  the recent bailout of Bear Stearns marked a new broadening in scope of this failsafe, one the New Yorker deems “Too Dumb to Fail“:

T.B.T.F. has become a generally accepted, if unwritten, rule in the financial world. Two weeks ago, though, it was given a new twist when the Federal Reserve acted to save the investment bank Bear Stearns, orchestrating the company’s sale to J. P. Morgan Chase by providing Morgan with up to thirty billion dollars in financing to cover Bear Stearns’s portfolio of risky assets. Previously, the government had intervened to protect only commercial banks—which take deposits and issue traditional loans, and which are heavily regulated. (Another first: the Fed is now allowing investment banks to borrow from it directly.) The Bear Stearns deal means that the T.B.T.F. rule now applies to investment banks as well. Suddenly, the federal government is committed to saving a whole lot more companies than it was a couple of weeks ago.

And though the New Yorker story quoted above goes on to praise the bailout of Bear Stearns as being an altogether positive for the long term health of the world financial markets, it does make an especially salient point about the precedent being set:

Rescuing failing companies obviously runs the risk of creating moral hazard—if we insulate people from the consequences of their irresponsibility, they’re more likely to be irresponsible in the future.

Stay tuned…

The other day I blogged about a very unfortunate victim of the California housing bubble who was forced to “cut back on travel.” Today, I found a much, much more tragic story, involving the employees of Bear Stearns, who saw the shares they had aquired in their company ( more than 30% of the company’s outstanding shares) sold to rival JP Morgan for $2 a share in a last ditch, federally-backed effort to stave off bankruptcy:

For James Cayne, the firm’s chairman and former chief executive, holding on to his Bear stock was a point of pride, and he rarely, if ever, sold. A billionaire just over a year ago when Bear’s stock soared past $160, his 5.8 million shares are now worth about $28 million at Monday’s closing price of $4.81.

Only $28 million dollars?? How is he supposed to LIVE!!!! HOW WILL HIS KIDS EAT!?????? The lesser employees of the company found themselves in even more dire straights:

“My life has been flushed down the drain,” said one person. There was talk Monday that with their life savings nearly depleted, some executives had moved quickly, putting their weekend homes on the market.

SELLING THEIR WEEKEND HOMES!!! HOLY SHIT CALL THE FUCKING NATIONAL GUARD. THESE PEOPLE WILL DIE WITHOUT AN IMMEDIATE INJECTION OF 18 HOLES OF GOLF AND A TRIP TO THE DAY SPA FOR A MASSAGE!!

 From a story in today’s San Francisco Chronicle regarding the Fed’s bailout of Bear Stearns and what it signified in terms of the economic downturn spreading throughout US financial markets:

Bay Area consumers are feeling the pain. Pleasant Hill resident Caleb Mitchell, 25, had his Washington Mutual home equity line cut in half last month to $55,000 from $110,000. He had already drawn $54,400, leaving him just $600 in additional borrowing power. ”The security blanket I had for myself is now gone,” he said.Mitchell, who works as a real estate agent, used the credit line to help cover payments on investment property he owns. Now he’s cutting back on travel and other spending, and looking for other sources of financing. 

So, lets see. The SIX-FIGURE credit line, some douche used to float his INVESTMENT PROPERTIES got cut to a meager $55,000, meaning he had to face the unbearable hardship of “cutting back on TRAVEL.” No one wonder most of the world is waiting for us to crash and burn. Excuse me while I subscribe to Adbusters.