Wednesday, 4 February 2009

If the foundations be destroyed...

One of the great inauguration moments was watching President Bush’s helicopter disappear from view. Was it my imagination or did I hear a mass American sigh of relief? Talk about time to go!

Hopefully he took with him the dumb and dumber pills that his administration fed the country for eight vapid years. If President Obama ushers in anything, let’s hope that it’s a new era of respect for intelligence and practicality.

That man is indeed a breath of fresh air. He recognizes the importance of a decent health insurance system, the pointlessness of invading other countries, the incompatibility of torture with the American way, and the necessity of restoring our image internationally. In my book that puts him ahead of the curve before he even gets his gloves off.

What he doesn’t seem to have come to terms with is the gross overvaluation of assets on the balance sheets of many of our great financial service firms. Until then, all his talk of a stimulus is just so much dust - or should I say - dollars in the wind.

Or could it be that the figures he’s crunching are so bad he can’t risk letting us peons – or the Dow - know the full story. Truth or fiction, the present financial crisis will remain with us until we all take a deep gulp and let the market reassert itself.

Strange talk, you may say, from a person who cut his teeth on the economic tracts of James Connolly! Oddly enough, the man they shot in a chair predicted the current international financial meltdown; only problem - he was off by 90 or so years.

One way or another these “toxic” assets must be dealt with. Until then banks will not loan to each other, much less you, me or General Motors.

Markets abhor doubt and respect only one law – that of the jungle. Many of the unhealthier financial institutions must go under so that the fitter ones can survive. Tragically, they’ll take with them the hopes and dreams of their employees. Still, pumping billions more into Citigroup, et al, is pointless until all institutions that made bad calls actually value their assets in the real world and not the Narnia they’re currently inhabiting.

That will cause a seismic shock but what’s the alternative? Let the crisis dawdle on while the country’s fiscal future is ransomed to various stimuli that won’t work? Have you checked out your 401(k) lately? Probably not, the sight is just too gruesome. Yet, to my mind, stocks of many solid companies seem undervalued. But what chance is there of any appreciation in the current uncertain conditions?

President Obama can employ his accustomed flights of oratory until the cows come home, but a phrase from scripture that I first heard uttered by Rev. Ian Paisley hits closest to the mark, “if the foundations be destroyed, what can the righteous do?”

Despite the dumbing down of the last eight years, I don’t have the least doubt that Americans will rise to the occasion. But we do need a good rock-solid floor beneath our feet before we get to work restoring the country’s fortune.

And what of Citigroup? Well, my Irish psychiatrist (local barman) gave his verdict a couple of nights back: “Just give me one of them corner bank buildings and I’ll turn it into the best bar in the city – presuming any of yez still has the price of a couple of pints.”

Seeing the new president didn’t take my advice and offer Steve Duggan, the gig as Treasury Secretary, maybe he should try the Rev. Ian. The man has some considerable baggage, and we’ll probably have to give him a pass on the questionnaire; but at least he’s got the first principle right – lay down a decent foundation before you start building.

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