The spice must flow

WaMu struck out. In the warm up pen swings Wachovia. Who is going to be left to fund the Sunday Morning Talking Head shows?

Profit is a monthly, quarterly, and yearly benchmark on the progress of a business. The day to day operations, though, survive on cash flow, the regular breathing in and exhalation of cash a business has. Some businesses must balance their books everyday (banks for instance). Some days you're up, some you're down, but in the end you need to be balanced. If you're down you need to borrow money; corporate paper and over night loans. If you're up you can provide those pieces of paper to help balance those who are down. Tomorrow the business that was down maybe up, and vice versa, and the loans go the other way.

The spice must flow.

In the current climate people have been concerned that they wouldn't get paid back on those quick loans. Interest rates go up, what used to be ten minutes of calls to secure debt now takes hours to line up the cash to balance the books. What had people panicky, particularly Hank Paulson, was two weeks ago, corporate paper and over night loans not only became hard to find, they stopped.

The spice did not flow.

Think of it like having a heart attack. Most don't knock you to the ground, most are small, and they build up scar tissue until the big one hits. This was a mild heart attack within the economic system. So you know what that wild eyed look was now, the thought of "will this pass, or should I go to the hospital?" It's always better to go to the hospital. Correcting the problems now can prevent having to have open heart surgery.

There are over a hundred reasons why this happened, but most are focusing on the holdings of "mortgage backed securities." I won't belabor what those are (really, how could you not know by now). However, they aren't the problem, they're the symptom. One way to prevent a heart attack is to thin the blood, and that's what this bail-out package is going to attempt to do. The other real reasons for this problem include businesses unable to fairly asses the value of these pieces of paper (a product of being to smart for your own good) so they can't fairly judge if a company is credit worthy (ie. we'll get our money back), businesses feeling that maybe they should increase their cash positions beyond what is required by law (thanks to deregulation these are very low) so they'll keep more of the upday's flow, lack of oversight to see that the spice is flowing evenly, and a pervasive attitude that "greed is good" (wasn't that so 80s?).

The spice must flow.

Most news organizations played Nancy Pelosi's comments from yesterday. Actually it was Barney Frank that made the case. To sum up what he said, nobody wants to do this, we all agree those on Wall Street need to eat their own dog food, but if there is no action taken this crisis will spread and affect all the tax-payers and middle-class people. Regular businesses will fail from lack of credit, or at the very least be unable to expand (which can lead to failure). Consumers will have to pay much heavier interest rates for loans (remember when home loans were typically above 15%?). We'll all pay the price one way or another. Consumer spending is two-thirds of GNP. If consumers can't spend (ie. run up their credit cards), GNP will crash.

The spice must flow.

As I said way back last year (I think it was last year) to correct this problem and to save the average person, those who were greedy must also be saved. It's not the ideal course of action, but it shows how upside down our economy is. And really, anything that would help Joe Average will trickle up (that's the way the economy really flows, not in a trickle down fashion).

I haven't read the bill, but I am heartened by some of what I hear. Executive pay controlled, golden parachutes nullified (a little late, but what the hell), stock positions in the companies, and the promise of investigations (the FBI is already looking into Fannie, Freddie, and many of the banks) and re-regulation.

All this means that the party isn't so much over, but now that the indigestion has backed up and the partiers had the scare of of a heart attack, we've turned down the music and will more closely watch our intake, maybe stay away from the rumaki . This bail-out plan (I'm sure they'll have a good name for it by tomorrow) is only the taking of a few aspirin, maybe a hit of pepto. It's a start.

The spice must flow.

Edit First try at the bail-out plan fails. Finger pointing ensues. Stock drops over 700 before rebounding to around 500 down (as I type).

The spice may not flow.