Great Depression Online Archive Issue:

Can You Spare $7 Billion?

Great Depression Online
Long Beach, CA
October 07, 2008

Inside This Issue You Will Discover…

*** Global Markets Convulse
*** Loan Sharks Shaking Down Municipalities
*** Can You Spare $7 Billion?
*** And More

“A man in debt is so far a slave.” – Ralph Waldo Emerson

Global Markets Convulse

Global markets convulsed in painful spasms to the downside Monday.  The tremor began in the far east with the Japanese Nikkei 225 and the Chinese HANG SENG INDEX cratering 465.05 points (-4.25%) and 878.64 points (-4.97%), respectively.

It then rumbled across the continent where it decimated the European markets.  Germany’s DAX fell 410.02 points (-7.07%) and over in the United Kingdom the FTSE 100 dropped 281.15 points (-5.77%).

By the time the trembling slammed into Ellis Island, New York was in full panic.  The DOW dropped over 820 points, before a late trading day rally helped recover some of the losses.  When the carnage finally ended the DOW had lost 369.88 points (-3.58%), the S&P500 was off 42.34 points (-3.85%), and the NASDAQ was down 84.43 points (-4.34%).

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And while the stock markets around the word were putting on a humbling display of shock and awe, the credit market put on a humbling display of naught…

Loan Sharks Shaking Down Municipalities

Like free flowing credit, the world seems to have come up short on leadership and tough decision making.  In their place are calls for bailouts, rescues, recapitalization, and assistance…no matter what the cost.  

California’s one place that seems to be suffering from a scarcity of leadership at the moment.  It seems the golden state has an unhappy conundrum…its state government spends more than it makes.  And by the end of the month the state accounting department will be unable to make its payroll.

Naturally the solution to this problem is very simple…spend less.  But the buffoons in Sacramento can’t seem to figure it out…they’d rather borrow the money.  Yet that is where their grand intentions are frosted over by the blizzard on Wall Street.

The credit market’s essentially non-existent.  California needs credit…and fast.  In fact, we’ve heard several reports of public municipalities, with AAA credit rating, unable to issue debt to fund their capital projects.  The lenders are scared to lend.  And those that will are shaking down the municipalities for loan shark rates.

Can You Spare $7 Billion?

Friday’s $700 billion bailout is supposed to be just the fix.  It’s supposed to restore confidence in the credit market…and provide the stimulus to get the liquidity flowing.  But if it doesn’t, the Governator has already put Treasury Secretary Paulson on notice that California will be hitting him up for a $7 billion loan.

“In a highly unusual move,” reported Rachel Gordon for the San Francisco Chronicle, “Schwarzenegger wrote to U.S. Treasury Secretary Henry Paulson on Thursday saying the state may need to seek an emergency loan from the federal government to help ‘make critical payments to schools, local governments and law enforcement.’”

In the meantime, California’s hanging its collective hat on the bailout…

“‘Hopefully, enactment of the economic recovery plan will end the paralysis in credit markets and allow the state to conduct the RAN [Revenue Anticipation Notes] transaction,”’ said state Treasurer Bill Lockyer on Friday.

“But, he added, ‘there are no guarantees’ that the bailout will result in market conditions favorable to taxpayers.”

In other words, if the only credit available is still at the loan shark rates, California’s going directly to Paulson; where, if so granted, California’s budget deficit becomes part of the federal government’s deficit.

With unemployment rising and tax revenues falling across the country, we anticipate more states will be following California’s lead and will go knocking at Paulson’s door.  And if he obliges, we’ll commence a new chapter in the story of the Panic of 2008.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Banks are failing left and right, the stock market’s crashing through the floor, Washington’s in chaos…just what’s a person to do to make sure their savings is not part of the collateral damage.  All the answers, and more, are included in the newly published Handbook – How To Protect Your Wealth And Profit During Financial Disaster.  Learn everything you need to know about this important and invaluable Handbook here: How To Protect Your Wealth And Profit During Financial Disaster.

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