Evidently there is so much cash slushing around the system that banks are charging for the privilege of safety.   BNY Mellon announced yesterday that they would charge short term depositors, with assets in excess of 50 million, 13 basis points or .13% for the privilege.

If there is too much cash, and evidently the M2 expansion has exceeded 250 billion in the last 8 weeks, why not loan that cash to every U.S. taxpayer at a rate of 1%?   That would amount to 1,860 dollars of purchasing power (2005 taxpayer level)  per taxpayer.   Maybe the consumer can then jump start this economy after all.   Flooding the banks with cash has done nothing substantial to date.

Jeremy Grantham posted an analysis last week that purported to show commodities in a permanent new relevant range as a virtuous rising trend.   A couple of days later I met with an investment advisor who discussed commodities and investment opportunities in a market which is clearly trying to find direction.   A day later, I had a conversation with another money manager who talked about the absolute grim news which everyone seems to be dispensing at the moment.   There was talk of default on government debt and the disconnect between the economy, the market and quantitative easing.

Then on Monday night a documentary (part 1)   shown on BBC2 came up with a bold new theory.  We can lay all the problems of the last few decades at the feet of Ayn Rand and her philosophy of objectivism that supposedly permeated Silicon Valley and included Alan Greenspan as a supporter.  The philosophy of individualism and self interest clearly failed.

Surely I am not the only one observing such a mix of signals in this world.   I am sitting here on the shores of Coniston Water and across from the village of circa 1000 people.   If I am hearing this, what of the souls elsewhere, in booming boroughs and cities, and in Japan a couple hours north of Tokyo, and in the American midwest and in Afghanistan and in Egypt, Syria and Libya.

The truth is that we live in a vast common.   We share the common of earth, air, and water.   We are so interconnected that whatever we do, whatever action we take, will surely filter through to either the betterment or destruction of that common of earth, air and water.

This week we’re seeing the aftermath of terrible tornadoes in Missouri and the Icelandic ash cloud is once again grounding flights in Northern European air space.   Tomorrow there will be another hit to the common, we just don’t know where.

We don’t like our lives being disrupted.  We have agendas.  We are after all living in a world of self interest, say the objectivists.  Ah, there is a missing ingredient here.  Each person’s own self interest, being interconnected, is actually dependent on everyone else.

We depend on the farmer to do his job and to be successful.  When he is successful, we can buy his produce and eat better food.  We depend on weavers who depend on industry and farmers to produce the materials they weave.  We depend on designers and engineers to produce solutions to the problems of this world and to produce products that make our lives better.  We rely on doctors and nurses to be properly trained and to do their jobs well.  Their success means our success.  We rely on good teachers to teach our children so that mankind has a future on this earth.  Their success means the success of our children and the success of mankind.

It is ridiculous to discount the triumph of the human spirit and the great ingenuity and power of human capital.  But there is only one way we will find our way through.  We have to tap into the divine power that put us and this planet together.

Have you never wondered at the ingenuity of our programming?  Is it not awesome that a seed, with a little sunshine, earth and water, manages to produce a tall towering beech tree?   Are we even remotely necessary to this process?   This earth and the devices taken for granted by man, run on principles which have been sewn into the heavens.   Meditate on this for a time, and you’ll surely find the source of power which drives and will continue to drive everything in the known and unknown world for all time.

BP, the oil industry, fishing and tourist industries and the waters of the gulf can emerge from this crisis stronger if we let them.

My first reaction, like many, to the crisis of the Deep Horizon spill was one of great sadness for the living waters of the gulf, the families coping with loss of loved ones on the exploding rig and the coastal communities whose livelihoods were already dealt a big blow after Katrina.

Living in the midst of a beautiful landscape here on Coniston Water with a clear view of the Old Man, I am acutely aware of the importance of the commons we all share –  the land, water, forests and air –  to our survival.

Right now the most important task at hand is to stop the leak.  The best way to make this happen is by co-operation.  This calls for the best of team playing.  Forget pointing fingers, get on with the job.  Give everyone the backing they require and move.

The relentless finger pointing and castigation of BP is futile while this crisis is ongoing.  Whipping the backside of the main company you are calling upon to save multitudinous lives from future despair is nothing more than theatre and extremely dangerous.  For there is no good that can come from robbing the only one with pockets deep enough to save you from the motivation to keep going.  In 2009 BP made 25.1 billion before taxes.  The previous year, a record, they made 34.3 billion before taxes.  These pockets, while deep, will have no motivation whatsoever to provide for the many mouths and hands outstretched if retribution is whipped up to a feeding frenzy.

This calls for sound judgement.  To the brink but not beyond.   The cure may hurt but must not destroy.   Working together, everyone can grow from this disaster.  Vigilantes beware.   No good thing will come from the destruction of BP and the oil companies that have provided, through good times and bad, the energy that drives the economic miracle that we call capitalism.

I don’t know about you but I find it awfully hard to comprehend the numbers flying around in describing the massive debt load of the U.S. government.  Here’s something that might help.

Today it was announced that 68 billion dollars of TARP money would be paid back to the Treasury.  If every one of those dollars was a second, how many years would this sum represent?  The answer is 2,156 years OR 147 years before Christ.

Just for curiosity, I thought I would run the numbers for 1 trillion of debt.  The answer to this question is truly unfathomable at 31,710 years.  I leave you to wrestle with the implications.

The media show for the G20 Summit is full of hype and promise.  Yesterday’s camera action included thugs casting large steel arms into the windows of RBS.  Then there was the awkward moment of the 3 point turn in front of Downing Street.  Pity the poor man leading them in.  When this throng goes away, where will he get his next act?  Michelle dutifully plays her role and of course she makes a great distraction from the real action and meat of the day.  Whatever happens, she will make us all feel better about ourselves.

I wonder what would happen if we had a media free day.  The actors need a stage and if they spent less time staging, there would surely be a huge savings.  Why for instance does Obama need an entourage of 500?  Then again, those leaning towards violence would also lose their power if no-one gave them the coverage their acts are bent on taking.

As I look out my window, the sky is a  glorious blue, the new seedlings I planted a few weeks ago are coming up smartly in the propagator on the windowsill, and the bird song this morning was a total delight.  Maybe if we all spend more time in the natural universe, we’ll have a plan for tomorrow worth living for.

As I contemplated the implications of a GM bankruptcy the other night, thinking about the food chain and all the businesses and therefore people along the way who would be impacted, my husband shook up my thinking by reminding me that at the top of the chain is food itself.  Without it we all die.  I sat there in shock and said, ‘But what about civilisation?  I hadn’t gotten it yet.  Without food there is no civilisation.  That is why it matters how we treat the earth’s resouces.  No matter that every attempt has been made to put the world’s first industry away as an ever smaller part of the economy.  In the end if we cannot feed ourselves, we cannot live.

I note today that the UAE is going hell for leather into nuclear power.  Having read John’s vision of the last days in Revelation, I’ve often wondered how such a scenario could play out.  No longer.  Whatever the temporary benefits of this major push into nuclear power, the seeds of our annihilation are being sown.  And just like our weaknesses being played out in the last financial folly, the plan hatched today by the G20 will lead to new folly and the other half of that great end game also prophesied in Revelation.

In the meantime, it’s all smiles for the G20.  The misery commiseration has been lulled at least temporarily into euphoric stupor.

How extraordinary it is.  Now that efficient market theory is officially dead.  Now that we have had endless days of black swans.  The new black swan is the .0229% change day.

Not that long ago, people were fighting for a piece of the action.  Driving oil ever higher, we heard endless talk of how the days of cheap oil were over.  Today oil hit a target price not seen for 5 years.  Some analysts are projecting something even lower for the future.  Where is demand they say?

Dow still seems intent on doing a deal, at an outrageously high price that was considered high when the market was strong.  What kind of management would continue to support such a plan?  Will the shareholders get a chance to weigh in with their views?

There are some incredibly good buys out there.  If I were intent on buying a piece of America, a bit of oil for instance, I would choose this time to buy.  Why does no-one think of buying when the price is low?  Even if the price goes down from here, it has less far to fall than the drop from the previous lofty heights that put so many assets in play.

This correction has been far harder and far faster than the rocketing market that lulled so many to sleep.  That hedge funds, who for some unexplained reason have been able to perfect their craft outside of the normal scrutiny of the SEC, have been unloading at fire sale prices is part of the problem. Shame on us all for letting them get away with their closed shop model after the LTCM debacle.

There are risks now that we will lose our way.  We need to look through the carnage around us and set a course for the future.  Cheap oil will not encourage the search for alternatives even though not all of them come with a high cost.

How do we want to relate to the wider world?  How do we want them to relate to us?  How can these ideas filter down to the everyday lives of Americans?  In a world where the production of more stuff creates more environmental damage, are our current pricing strategies creating the world we want to live in?

These are big questions.  If the market really is telling us something, it is that there are a lot of unanswered questions about who we are and where we are going.  In the meantime, where are the buyers?  When my husband and I stayed at the Grand Hotel on Mackinaw Island this past summer, we learned that the current family ownership dates from a purchase by an employee during the depression.  The day will come, when everyone will be kicking themselves over the markdowns of America’s finest institutions.  These companies represent years of history, years of good honest labor for and by Americans and many other citizens around the world.  What does it say when we shun what we have spent a lifetime and our heritage building?  This is our family.  This is our history.  It is time to stand by it or we will lose it all.

waterfall

The waterfall at the entrance to the northern gardens was in full flight today following torrential rains overnight.  it seemed an apt description of the falling rocket otherwise known as the stock market in free fall.

Looking at the PE’s of companies following last night’s meltdown I can’t believe my eyes.  The current markdowns are beyond all reason.  Then I think back and realise that I also thought the same thing at the silly prices shares were trading at earlier.  Why should I be so surprised?  The same irrational exuberance that flowed freely on the upside is resulting in the monumental meltdown before us today.

Before we all hit the panic button and get out our 1929 scripts to see how this is going to play out, I was given a revelation that maybe there is another way than the crash and burn that has been with us in our capitalist system.  Crash and burn may work for the one off disaster but now that nothing is exempt from the current pain, it is time for a new way.

First of all, let’s address the housing market.

Banks have already written down a good chunk of the value of their current holdings. Rather than turfing everyone out on the street when they cannot pay the going rate, here’s an alternative:

Take the current value of the loan on the books and reclassify it as a housing trust investment.  Rent the property to the individual at a rate they can pay.  Amortise the housing trust investment at the current cost of capital.  Offset the amortisation against the housing trust rental income.  The difference will go to income or loss.  On this basis, people would still be able to live in their homes but equity would not be built up.  If on the other hand they wish to build equity in the process, the income/loss would be applied to a deferred profit or loss account and this would allow some ownership to be built up and accrue to holders of the property over time.  It would be up to the banks to set up the amortisation period.  This doesn’t address the subprime packages of debt sold off by the ton but it does provide a working solution to manage the debt and reduce the current pain.

The result of this plan would be an immediate reduction in the number of For Sale signs up and down the land. Psychologically, this would improve the chances for a housing recovery.

Alternative to Employee Layoffs

With all the panic on the street, the layoffs that will result from this process of crash and burn will be a total disaster for the economy.  Here’s an alternative:

Rather than laying people off, cut cash salaries in half and issue share options for the other half.  This would have the effect of encouraging all employees to improve the share price to increase the value of their options.  It would improve current earnings of the company, thereby automatically improving the share price not to mention employee morale.

With everyone working together to improve the company and the company share price, this would unleash new innovation and creativity at a time when it could be severely strained.

As for the impact of the reduction in earnings, the banks already have a way of dealing with mortgage pain from the above example and this would provide help to employees on lower salaries.

Needless to say, there are variations in between for both of the above measures.  It would allow for progress with a minimum of outside governmental assistance.  It also encourages everyone to work together for the good of everyone.  It is in everyone’s best interest to encourage full employment, it is in everyone’s best interest to encourage home ownership, and it is in everyone’s best interest to encourage equity ownership.

Let’s get off the crash and burn bandwagon and buy America now!