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Monday
Sep292008

Memorializing Yet Another Date in 2008

Black Monday III (1929, 1987 and now 2008)? Another example of how money and politics just do not, and cannot, mix? I do not like government intervention into private matters. But on this bank bailout I was resigned to the fact that it was/is a necessary action. Was it politicians protecting themselves at all costs? What should be bipartisan becomes partisan? What should be about the good of the American people becomes about what political party is more responsible for success or failure?

I woke up in Jacksonville, FL this morning to the news about Citi and Wachovia. I actually had the pleasure to speak to an enlightened Jacksonville Aviation Authority Board of Directors about happenings in the airline industry and the resultant effects on their business.

By the time I landed back in Washington, the Dow had closed down 778 points, its biggest one day drop in history, or 7%; the Nasdaq was down 200 points or 9%; and the S&P had closed down 107 points or 8.8%. All the while, oil had dropped to $95 per barrel and gold prices surged. The US House of Representatives had voted down the bailout package in a roll call vote of 228-205. The markets, anticipating passage of the bill, were looking for anything to suggest an end to the psychological unease and the resultant turmoil in the US and world markets. The volatility present in the markets when the wheels went up only continued.

Like a lot of things that seem obvious when politics become intertwined with logic, we probably should not have expected a “yes vote” on the bailout package in the first version offered to a vote of the US House of Representatives. After all, it is a presidential election year. A plum job that might be better suited to a resume of a funeral director.

The fallout was not limited to the US. Bailout activity took place in the United Kingdom, Belgium, Germany and Iceland. Asia is not immune. Given less than full information on this region we really cannot know just what might be ahead there. Like in the US, big name banks were in the news around the world. Europe’s stock market suffered its second worst day in trading activity.

Some are declaring Wall Street dead as we know it. I do not know what to make of the elected representatives in the US House. Paul Krugman writes: "So what we now have is non-functional government in the face of a major crisis, because Congress includes a quorum of crazies and nobody trusts the White House an inch. As a friend said last night, we’ve become a banana republic with nukes."

If it wasn’t so serious, it would be really funny. This is the macro economy’s watershed. People got tired of the airline industry traipsing about Capitol Hill after 9/11. This is much more serious for even the airline industry. You know how it goes, the airline industry is inextricably linked to the health of the US and global economies. Well, with little health in the macroeconomy, we just may not need all of those airlines anyway. Oil remains a concern, but these economic headwinds may be greater than anything the industry has faced thus far.

As for all of those grossly overpaid senior managers in the airline industry, they are looking pretty damn smart for their decisions three months ago to bolster the liquidity positions of their respective companies. The window can be declared closed for the immediate future and as a result of their actions companies can manage their businesses with a focus on internally generated capital because that is all that will be available for awhile.

Nancy Pelosi spoke, but I do not think the fat lady has sung on this one just yet.