Soapbox Special: The Night Before New Year's, 2009

[ Editor's Note -- Regular posting resumes on Jan. 5, but we thought this was too good not to publish. Thanks to Brain Hague for contributing this, and we hope you enjoy. Happy new year! ]

The Night Before New Year’s, 2009

Brian Hague 

President/CEO 

CNBS  

‘Twas the night before New Year’s, two-thousand-and-nine,

And not many investors were feeling so fine;

Two-thousand-and-eight had brought sobering news

That left many across the globe singing the blues. 

As last year unfolded, Fed Chairman Bernanke

Was up to some interesting new Hanky-panky

(That pun was intended; the Treasury head

Was up to his own tricks – they’d fill us with dread.) 

The Fed had been easing since back in September,

A curious fact, for did they not remember

That part of the central bank’s dual obligation

Was using the funds rate to ward off inflation? 

Yet prices were rising, and still the Fed eased,

But ‘Copter Ben said credit markets weren’t seized.

He told us the subprime mess could be contained

Such that financial markets would not soon be strained. 

Then came March, and the bailout of big Wall Street firm

Bearn Stearns, in an action that seemed to confirm

The Fed and the Treasury now were in fear

That the subprime contagion would worsen all year. 

So the Fed rolled out new plans, to lend funds to all,

Lest banks and insurers went into free-fall.

The monolines’ business, it took a big hit,

As they’d been insuring the subprime-backed … stuff. 

That killed auction munis, the banks walked away

From that market, just no longer willing to play.

So the issuers scrambled to find a new source,

Of financing, but they were left with just remorse. 

And where were the bond raters through all this mess?

Keeping the lowest of profiles, we’d guess,

For on bonds that were ugly, they’d stamped “triple-A,”

Yet now there were doubts as to whether they’d pay. 
 
 
 

The foreclosures mounted, bond prices, they tumbled,

The builders, they cut back, the realtors, they stumbled,

Homebuyers stopped buying, the lenders stopped lending –

The problems, they mounted; it seemed never-ending. 

Countrywide failed, and so did IndyMac,

And soon no bank’s earnings would be in the black.

Yet after Bear’s bailout, the market recovered,

Ignoring the many red flags that still hovered 

Over the economy.  Summer then came;

Oil prices shot up – speculators were blamed.

But China’s demand was a factor as well,

As prices rose higher, and stocks further fell. 

Throughout the long summer, the Fed halted easing,

But then credit markets appeared to be seizing.

The price of oil soon tumbled back down to earth,

As businesses found that there now was a dearth 

Of demand, both for big-ticket items and small,

And so the Fed resumed its cuts in the fall.

The banks, they did falter, their earnings were battered,

And with each new data set, records were shattered. 

Home prices plunged more than twenty percent,

As borrowers bailed, and decided to rent.

New home-building suffered; before it was done,

At least one builder offered homes two-for-one. 

CDOs had gone toxic (their buyers seemed fools),

But so had abandoned houses’ swimming pools,

Creating a scene across parts of the nation

That looked to be taken out of Revelation. 

Bank stocks had plunged more than most could remember,

And things became critical by late September.

At that point, Hank Paulson said, “Show me the money!”

But his line, unlike J. Maguire’s, wasn’t funny. 

Congress debated, and at first seemed to stall –

It appeared that poor Hank might get nothing at all.

Then the pols reconsidered, and bailed out New York

But not before adding a bundle of pork. 
 

WaMu had failed, as had Lehman. And Merrill

Succumbed when BofA had them over a barrel.

The schadenfreude crowd gave their lucky stars thanks

As Wall Street was left with two investment banks. 

But then Morgan Stanley and old Goldman Sachs

Were also left feeling the walls at their backs,

So they went for bank charters, depleting the ranks

Of Wall Street’s once-prominent investment banks. 

The bailouts continued, with AIG next,

But their boondoggles left the taxpayers most vexed

As in increasing numbers, the people protested

The bailouts of firms that had badly invested. 

Retirement savers got news that was sober

When they opened their statements for month-end October.

For stocks had now fallen to levels not seen

Since two-thousand-two.  And it just seemed obscene 

That with home prices dropping, and stock prices too,

Wall Street got a bailout – but not me and you.

The broader economy began to suffer

Quite rapidly, and with no sign of a buffer. 

Consumers retrenched for the first time in years,

Cutting their spending on recession fears.

Their debt appetite had at last seen an end,

As living within their means became the trend. 

The factory sector stalled out very quickly,

As falling demand left its member firms sickly.

But still inventories remained way too high,

As once-solid exports now fell from the sky. 

Across the pond, troubles were mounting as well.

First Northern Rock faltered, and then the pound fell,

For the housing contagion had spread far and wide,

Its effects washing over the globe like a tide. 

India slowed, and soon China did, too;

The capital dried up, which raised fears anew

Over where money’d come from, and what was in store –

But fear not!  For Hank Paulson will just print some more! 
 

As layoffs gained pace, US joblessness mounted,

And all the while losses were still being counted

On mortgage-backed bonds, which at first had gained traction

When Hank got his TARP funds, and moved into action – 

But then, with a nimbleness never expected,

Hank reversed direction, and quickly injected

The funds into banks all across our great nation.

Who would have thought we’d see nationalization 

Of our banking system?  (But Paulson preferred

To call it “investing” in banks – how absurd!)

So those bonds again plunged, and so did banks’ earnings,

Bringing an end to their brief hopeful yearnings. 

Hank would again change his course, when at first

He told Detroit “No!”  And their bubble seemed burst.

Then Congress rebuked them as well, but old Hank

Gave GM and Chrysler what not even Frank 

(That’s Barney) could get them.  Thus ended their scare,

As Treasury gave them bridge loans to nowhere.

But given their burn rate, the money won’t last

Very long, for the car firms are losing cash fast. 

Then Hank, in his nimblest reversal yet,

Performed yet another dazzling pirouette.

Having said that he wouldn’t ask Congress for more,

Waited ‘til they’d recessed, and then opened the door 

For the three-fifty-billion that hadn’t been spent.

(We suspect that that was all along his intent.)

But the White House, in fear of a major backlash,

Told Hank that he’d better not ask for the cash. 

The “investment” in Citi was meant to forestall

Its demise, though it said ‘twasn’t needed at all.

But within weeks, its stock price approaching the floor,

It asked for, and got, twenty billion bucks more. 

Everyone gets a bailout!  But not you and me,

We’re excluded from Washington’s mad spending spree.

But we’re footing the bill, and so will be our kids,

Assuming the US does not hit the skids. 
 

But wait – as if these losses weren’t quite enough,

Comes a new story (we just can’t make up this stuff):

Bernie “Madoff” with his investors’ dough.

Retirees and trust funds had suffered a blow. 

Cities and states, too, were all found a-reeling

From losses they’d suffered, and many were feeling

The pinch.  And some found themselves on the brink

Of collapse, as into bankruptcy they could sink. 

With real estate and income tax receipts down,

Their budgets were suffering; even the town

Of Vallejo, up at the north end of the Bay,

Declared itself bankrupt, and called it a day. 

By year’s end, the funds target hovered near zero,

And poor Ben and Hank looked a lot like old Nero,

Who fiddled while Rome burned – remember that story?

Whod’ve thought this one would turn out as gory? 

Well, some saw it coming – among them, yours truly,

And so, gentle reader, I offer you duly

My outlook for next year.  It won’t cure your blues,

As two-thousand-nine will bring much more bad news. 

We’re in a recession, we have been all year,

And recovery’s still quite a ways off, I fear.

Wondering what the next shoe is to drop?

The next sector to stall?  The next bubble to pop? 

Try commercial real estate – for vacancies

Are rising, and soon will bring firms to their knees.

They need fresh refunding, and that could spell trouble,

For we haven’t seen the end of the debt bubble. 

See, other firms, too, will face capital needs,

But with all those companies beating the weeds,

Who will replace all the bonds coming due?

(There’s eight-hundred-billion, just in the EU.) 

And now, with rates near zero in the US

And Japan, the debt markets will face a new test:

“Quantitative easing” is the new buzzword,

And here’s how it works, just in case you’ve not heard. 
 

Central banks buy up more debt than required

To keep rates at zero – but is it desired?

It’s meant to keep up the liquidity flows,

And that sounds just peachy, with debt markets froze. 

But it’s just printing money, of which we’ve run dry.

So we’ll just have to issue more debt – who will buy?

The US, Japan, and soon the UK

Will be undertaking this dangerous play, 

All competing for bidders, which drives the bid higher,

As everyone chases the same group of buyers.

So rates will take off, this in spite of all easing;

It’s just hard to see credit markets unfreezing. 

And then, option ARMs will rear their ugly head, and

We’ll find ourselves facing option ARMageddon.

They’ve hit caps for negative amortization,

And now, to the borrowers’ realization, 

Their resets will come earlier than expected,

And many more from their homes will be ejected.

That means many more homes, the market will flood,

And real estate prices will fall with a thud. 

We’ll likely see several more hedge funds fail

(And we’ll likely see old Bernie wind up in jail).

As for bankruptcies, to our consternation

The next to be filed could be one or more nation’s. 

Another risk point is a renewed oil jump,

Unlikely as that seems – demand’s hit a bump.

But spending on projects of every stripe,

Has dried up, with capital froze in the pipe. 

And cheap oil’s caused energy projects to halt,

Because of low payoffs – so who can you fault?

But an energy spending collapse will not end

The fact that on foreign oil we so depend. 

So when crude demand is finally resumed,

We’ll be further behind – then, I fear, we are doomed

To repeat the mistakes that we’ve made in the past,

Thus it may cost more for our cars to be gassed. 
 

No, two-thousand-nine isn’t looking so great –

In fact, it’ll be worse than two-thousand-eight.

But in spite of the risks, and in spite of the fear,

I hope you have cause for a Happy New Year. 

Just focus on all of your family and friends,

The joy that they bring – well, it just never ends.

Remember that money is not the main thing,

And concentrate on all the joy you can bring.