First a little history, the phrase “perfect storm” originated with the 1997 book The Perfect Storm, and was cemented into most minds by the 2000 movie of the same title which starred George Clooney.  The phrase the perfect storm refers to the simultaneous occurence of events which, taken individually, would be far less powerful than the resulting combination of events.  Such occurrences are rare by their very nature, and any slight change in any one event would potentially lessen its overall impact.

Not surprisingly with all the turmoil in nature and financial markets recently, the phrase was awarded the top price by Lake Superior State University in their 2007 list of words that deserve to be banned for overuse.

Unfortunately, there is no better description today for what is going on in the economy and why it has become such a worldwide problem.  Headlines from today’s news and web sites show the obvious problems:

CNNMoney.com – “Big Three Plead for $34 billion from Congress.”
Wall Street Journal -  “Bernanke Urges Actions on Foreclosures.”
MarketWatch.com -  “Thirty Thousand Are Being “Right Sized” Right Out of Jobs.”

These are serious, and unless someone takes the reigns and owns up to the solving the underlying issues it’s not going to get better any time soon.  Some of you are probably wondering what that means, and that’s where my rant begins.  Everything I hear about lately involves handouts, buying worthless paper, and taking a loan that may or may not be enough and may or may not be repaid.  Not one article talks about putting people to work, improving our infrastructure, or investing these billions that we’re using in the bailout to build a better America.

We’ve lost our touch – America used to be an economic powerhouse.  Much of this was attributable to our military, but it also included our banking, manufacturing, technical, and pharmaceutical strengths.  Today we’re outsourcing, learning from other countries, and gambling on the future with derivatives and other crazy financial tools.  Major Wall Street firms are failing because they forgot the core tenants of business, including, don’t spend what you don’t have and don’t buy into anything that you don’t understand.  Many of these stoic organizations were quite literally gambling with your savings.  Through it all, the “rescue” starts with the people responsible for creating the catalyst for the downfall of the financial markets and bankrupting the average American.  They should be shunned and publicly humiliated for what they’ve done, and instead their cronies in Congress start by bailing them out and covering their losses.  These banks and investors are being rewarded for their own failures as the government not only offers financial salvation but creates a term for their spoils, toxic assets, so they can con scare Americans into believing that they’ve done the right thing.

The solution isn’t in these bailouts, and while there clearly haven’t been problems like this before, history tells us what might work to resolve this problem.  Instead of trying to buy banks out of this problem by covering their past losses, the government needs to put a “New Deal 2009″ program into place that takes from Roosevelt’s plan and initiates programs that will people people back to work, reform business and financial practices, and improve the American infrastructure.  Stop pork-barrel spending, wasteful government programs, and funding foreign countries and their wars.  Start helping states, promoting equality in foreign trade, raising money through duties and import taxes, and improve legislation to prevent financial companies from gambling with their assets and investor’s monies.

Frankly, I don’t think Bernanke (and obviously not Bush) are the people to drive this forward, and I am only somewhat hopeful that Obama will quickly get a solution in place, but I have to believe that something will read history and come up with some ideas that have worked.  It obviously can’t start with UncensoredRants.com, but my opinions can’t be alone here, either.  The average American has to use their voice and hold the torch for what they believe in.  Mine is lit – is yours?

Ranter

Some of you still remember the internet bubble and subsequent popping of that bubble almost a decade ago.  My own company closed its doors after some of our “new economy” customers lost their funding, resulting in non-payment on millions of dollars already spent on web development.  We paid our employees and vendors the old fashioned way – we sold assets, clients, and took second jobs to make sure that we paid every dime owed.  Ultimately, we closed our doors, but not one vendor was left without payment or a guarantee of payment.  That’s how business used to be done.  It never once occurred to us to ask the government to bail us out of our problems, and I don’t remember any other company getting a bailout either.

In 2008, everything seems to have changed.  At what point is a company too big to fail?  Enron was huge, they failed, and the world continued to spin.  This year so far we’ve seen a $350 billion stimulus package, $130 billion going to AIG, $25 billion to the auto industry, $850 billion going to banks, financial institutions and who knows what else, and untold billions going out in backhand deals that most of us will never completely understand.  That’s a lot of money, and the way it looks today – we’re not even close to done bailing out big business with taxpayer’s hard earned money.

To be fair, these disbursements are really being sold as investments/loans and if you believe in a short-lived recession they could potentially be very, very lucrative.  Even in the case of a long-term recession, some of these deals could pay out quite well if the borrowing companies survive and prosper.  If not, these deals will prove to be enormous failures and American taxpayers will be left footing the bill.  If you’re a betting person, you’d have to play the odds and assume that some of these already failing companies will continue their path and ultimately fail in spite of the massive amount of money being put into them.  Even if you are not a betting person, you should be asking yourself, what makes the government feel that these companies can succeed now in what is being called an ever more difficult economy?

AIG was loaned almost $130 billon and recent articles have them saying that it’s pretty much gone and in order to continue their operations they may need more.  Who is asking the question – where did that first $130 billion go?  If your friend is borrowing money while quitting their job and buying new cars, at some point you stop loaning that friend money, regardless of the fact that he lets you borrow the cool cars every now and again.  At some point, it has to be the same thing for AIG – at some point the American economy has to cut AIG off and let the chips fall where they may.  A lot of people are going to lose a lot of money, and that’s unfortunate, but it’s better than the entire nation losing a lot of money so that some investors can sustain their riches.

Survival of the fittest, and ultimately some of these companies need to fail.  The strongest will survive and thrive.  Right now it’s like we’re slowly pulling the band-aid off, extending the pain, when we should really just rip it off quickly, take the pain, and move on.

A great example has to be the auto-industry.  Times are tight – no doubt – but if companies like GM, Ford and Chrysler need tens of billions just to survive, it’s time to ask out loud – can America continue to sustain three mediocre car companies?  It wasn’t too many years ago that Chrysler needed only $1.3 billion to survive (which resulted in $300 million in interest paid back the treasury), and now they’re back in line for another government loan – this one much larger than before.  Isn’t it time to ask, does America need Chrysler?  If they were as good at making cars as, say Toyota, wouldn’t they be profitable like Toyota?

These companies obviously provide millions of jobs – even conservative estimates are over 300 million people that would be impacted by the failure of one of the big three.  That’s a lot of people – but is it really?

Hypothetically, if Chrysler disappeared tomorrow, would 300 million people really lose their jobs?  Obviously not, because Americans will continue to need and buy cars.  Those would be Chrysler car buyers aren’t suddenly going to start riding their bikes – they’re going to buy another car.  Sure, it might be a Toyota or Nissan, which could be made in the US or anywhere around the world, but they are going to continue buying cars at the same volume that they might have bought Chrysler cars.  And, the companies that are capturing those sales might be more efficient, but they are still going to need some of the people, facilities, parts and mechanics that would have gone to Chrysler.  So yes, there would be a lot of pain, but in reality it’s not nearly as much as politicians and economists would leave you to believe.

It’s time to decide – do we keep handing out loans on a hope and a prayer that things will get better in the short-term and we won’t lose our shorts, or do we take our pain and move to the inevitible upswing that follows every loss?  I believe Darwin.

Ranter