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Stock Market Down on Obama? Nope, Traders Realized U.S. Banks Are Insolvent

22 Memorable Words in Kennedy Inaugural Speech; Obama 18; What Were They?

January 21, 2009       Leave a Comment
By: Dave Rogers

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Why did the stock market drop 332 points after Barack Obama was inaugurated President?

That's the big question on the minds of many Americans today, and there are no clear answers.

Lots of opinions make absolutely no sense in explaining why it was the worst market drop since the inaugural of William McKinley, the 25th President, in 1900.

"He said something liberal the markets didn't like."

"The Republicans did it to make him look bad," was one view.

"It was a reaction after the market was closed on Monday."

The market probably was not responding to Obama's words, but rather to multi-billion dollar losses reported last week by Bank of America Corp. Citigroup and the Royal Bank of Scotland's that forecast losses for 2008 could top $41.3 billion.

U.S. financial losses from the credit crisis may reach $3.6 trillion, according to New York University Professor Nouriel Roubini, who predicted last year's economic and stock-market meltdowns.

This would mean the U.S. banking system is effectively insolvent because it has capital of only $1.4 trillion, Roubini said at a conference in Dubai, commenting: "This is a systemic banking crisis."

Barack Obama became the 44th U.S. president, his drawn visage showing immediate concern about inheriting the most severe economic crisis since Franklin D. Roosevelt 76 years ago.

Commentators Wednesday morning mentioned the fact of Obama's troubled look, saying "he must have been briefed about something bad." No, the new President didn't need a briefing to know that the sagging world economy has just been placed on his back.

The current turmoil has put the world's largest economies into recession and caused more than $1 trillion in bank losses.

According to Bloomberg, bailout commitments add up to about $8.5 trillion. The money has to come from the Federal Reserve, FDIC, Treasury Department and FHA. More than $3 trillion has been spent thus far.

Bloomberg's numbers:

* The Federal Reserve has committed $5.5 trillion and spent $2.1 trillion on the mortgage crisis and credit freeze, including Citigroup and the JP Morgan and Bear Stearns merger.

* FDIC has committed $1.5 trillion and spent $149 billion to guarantee Citigroup assets, interbank loans, and shore up GE Capital.

* Treasury has committed $1.1 trillion and spent $597 billion, not including the GM bailout. Add to that the Troubled Asset Relief Program (TARP), tax rebate checks of 2008, tax breaks for banks, and a program to stabilize foreign currency exchange rates.

* FHA has committed $300 billion for the Hope for Homeowners program.

Traders speculated Obama will need to rack up record amounts of debt to combat the recession. The lone recent positive note is that the dollar continued to strengthen against the euro.

"I just don't understand the banking system," a prominent local professional said yesterday. "Neither do I," replied one of the most erudite former bankers. "We have very little transparency in banking these days, what with derivatives and other confusing financial instruments. Nobody really knows how much money there is and how it is invested."

This comment reminded me of the day when I worked in Washington in 1961 and I visited the chairman of the Senate Finance Committee. On his desk was a huge stack of computer printouts, the national budget. He pointed to it and said matter of factly: "Nobody really knows how much money we have in this country or really how we are spending it."

Apparently, the banking system is just a reflection of the entire U.S. economy. It is, in the end, somewhat like a huge Ponzi scheme that gambles on trust and the continued growth in Gross National Product. If too many people lose confidence that we will continue to grow, the Ponzi scheme collapses in a universal crisis of the mind. That's what happened with housing, that bilious bubble that began the whole crisis.

John F. Kennedy's 22 memorable words: "And so, my fellow Americans: ask not what you country can do for you -- ask what you can do for your country" were the most important message he could have delivered at that time.

By the same token, Barack Obama's 18 memorable words in a speech nearly twice as long as Kennedy's were: "Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America."



Obama's inaugural address had another key phrase: "This nation cannot prosper when it favors only the prosperous."

In the end, we must ALL believe in each other and cooperate to achieve prosperity and peace.###

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Dave Rogers

Dave Rogers is a former editorial writer for the Bay City Times and a widely read,
respected journalist/writer in and around Bay City.
(Contact Dave Via Email at carraroe@aol.com)

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