http://www.bloomberg.com/apps/news?pid=20601087&sid=a3v8O6IgHva4&refer=home
http://www.bloomberg.com/apps/news?pid=20601087&sid=aBucQ1Prv8E4&refer=home
Unfortunately, not all the financial institutions have the ability or assets to save themselves. Think about the tens, even hundreds, of billions some fiancial institutions are now or in the future going to owe to us taxpayers. Assuming they survive, how many years, decades, centuries . . . do you think it will take them to pay it all back? Silly question of course because I am sure we will forgive the debt and let them off the hook when all is said and done. After all, if Lawrence Summers has anything to say, we will let them all off the hook so he can maintain his speaking fees. He made millions in speaking fees from Goldman and Citigroup on top of his $5.2 million in pay for a one day a week job for a hedge fund. Clearly we hired the right guy for the job. If you doubt me on Summers, read the following from Frank Rich at the NYT:
"We discovered, for instance, that Lawrence Summers, the president’s chief economic adviser, made $5.2 million in 2008 from a hedge fund, D. E. Shaw, for a one-day-a-week job. He also earned $2.7 million in speaking fees from the likes of Citigroup and Goldman Sachs. Those institutions are not merely the beneficiaries of taxpayers’ bailouts since the crash. They also benefited during the boom from government favors: the Wall Street deregulation that both Summers and Robert Rubin, his mentor and predecessor as Treasury secretary, championed in the Clinton administration. This dynamic duo’s innovative gift to their country was banks “too big to fail.”"
Krugman Ain't Linkin' it Either
I am the first to admit I do not always agree with Paul Krugman, but as of late I am seeing eye-to-eye with him. Here is a nice piece from Calculated Risk on his take on the "Stress Test" and the IMF $4 trillion surprise I reported the other day.
http://www.calculatedriskblog.com/2009/04/krugman-on-economy-and-stress-tests.html
Overall, things are just rosy out there. But let me return to to my recent topic of the new reality. Here is another tidbit to chew on. Let's take an example that in my mind is likely multipied perhaps millions of times across this country. You have a baby boomer who is, let's say, 57 years old. Before the recession lets say he had $750,000 in retirement and a home worth $400,000 - half of which was equity. He was looking pretty good by most comparisons. Actually, compared to the average American this dude was dong mighty well. But let us assume he kept his money in equities despite the market downturn. Too late to take it out and too afraid to miss the recovery. He is frozen by fear and the unknown.
So now his retirement is worth, let's say $450,000 and his house is worth $225,000. He is lucky that he still has equity in his house - barely - but his retirement is no where close to where it needs to be. So what does this guy hoping to retire in under a decade do?
- Buy a new car
- Buy a vacation home
- Replace the old furniture
- Finish the basement
- Save everything he can and hope it is enough.
I am not going to answer this question for you. Multiply this example by millions, most of whom were probably in much worse shape than the boomer in this example, both before and after the recession. Yep, we are looking at a V shaped recovery. No doubt about it!
There are plenty more examples of workers in the country that have less financially sound stories than the example I just gave. We will see what this new world has to offer, but I do not see a massive rebound in spending any time soon.
Disclosures: None.
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