Has the Economy Fallen to a Level Where the Fall Cannot be Stopped?

Maybe. We’ve had the government struggling with building an operating room as the patient lies bleeding to death on the floor. Foreclosures have accelerated. Credit lines have been pulled and substitutes are not available. As assets drop in value, some companies that do business with a single bank (often a requirement of getting a credit line) have watched (sometimes without any notice) as their banks drained the company checking accounts under the complex contracts that cover dropped values with all of that company’s cash at that bank. Let the checks bounce. No matter that this money was earmarked for payroll. Layoffs have begun, and without workers to create new values and receivable financing to collect old ones, well, expect a lot of companies to close their doors permanently.

The markets are like very little children, except for the myths that sustain them (like Santa Claus and “they can’t all be bad loans”), they don’t really lie. One year ago today, the Dow was at 14,164. This morning, it was over 9,100. At the end of the day, reflecting a depression-level trend line, the market closed at 8,579 – a 679 point one day drop, the seventh consecutive down day on the market - $8.3 trillion worth of value destruction in this year. The Dow has lost 5,585 points, or 39.4 percent, since closing Oct. 9, 2007. General Motors stock hit a 58-year low. The markets are bawling like a baby! They are screaming that whatever the U.S. government has done just isn’t what needs to be done, is way too slow and way too little.

And every day that the government does not do the obvious – 1. stop foreclosures dead in their tracks (with a moratorium of reasonable duration to deal with the parts that need fixing) and 2. restore the credit liquidity (mostly based on lending against sales that have already been made but not collected – receivables) to fund payrolls – the problem will rise exponentially. You can’t operate on this patient without stopping the hemorrhaging first. The scalpel comes later. How many different ways do I have to repeat the obvious before someone of responsible power actual does it? I’m not alone. I hear a lot of voices joining in this obvious chorus.

People without jobs don’t buy products, pay rent, buy homes (which they can’t get loans for anyway), create value or pay taxes. Foreclosed houses flooding a market with no buyers just make all the good homes less valuable. And since banks and savings & loan lenders have to declare mortgage and loan defaults as part of the regulatory process and the reporting and disclosure rules, without a moratorium and some relief from the government, they can’t really stop. When a dam cracks, you either plug the hole or watch it widen until the dam falls.

Sorry Ben, the markets have all but laughed your rate cut into oblivion. Sure the banks and financial institutions are borrowing from the Fed at your pretty new rates, in record-breaking amounts. But they are hoarding the cash! Sorry Henry, all that Goldman Sachs training still doesn’t make the trickle down bailout (from the institutions being bailed out to the homeowners and small businesses) a viable alternative at this point. You waited too long to use the tools you were given, and nothing is forcing the banks to push the money they are hoarding down to the level where it’s needed. Why are the hoarding that cash, Henry? To benefit from the fire sale of our misery? And the President will address this issue tomorrow morning. Maybe he has the answer. Let’s see. We’re at strike two in the bottom of the ninth… and it sure doesn’t look like we’re winning.

So read my lips! Go to the bleeding… the wound itself, and apply a tourniquet! Now! Not words, plans and theories. Action! Stop building an operating room for a patient that might need a coroner!

I’m Peter Dekom, and I wish this message weren’t necessary.