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Employee Rights Attorney Frank Pray

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EMPLOYMENT LAW COMMENTARY -- SEPT. -- DEC. 2008

  • This page reflects the thoughts, analysis, and commentary of Employee Rights Attorney Frank Pray on matters affecting work place relations and conditions.
  • If you have your own comments to add, use the "Message Board" menu item above.

The Finance Industry Melt-down on Wall Street 9-17-08

Merrill Lynch and Bear Stearns disappear. AIG, one of the biggest conglomerates in the world, on the edge of Bankruptcy. Their immediate response, as hard nosed capitalists: Bail us out. This is a completely hypocritical posture, and reflects a welfare state mentality in the heart of wall street. Every man woman and child in the U.S. will have to pay about $650 each for the federal governments bail out of Fannie Mae and Freddie Mac. This is not the legacy or financial burden I want to leave my daughter or grand children. Enough is enough. Let the stockholders assume the losses they bargained for when they entered the market.

The Political Meltdown 9-18-08

McCain is caught up in the Wall Street Hurricane: He shifts positions from being a Reaganite to becoming a New Deal Roosevelt Republican. His ads now focus on stopping this kind of melt down from happening again. The truth is that the banks and investment houses made lousy long term investments in Mortgage Backed Securities in the interest of short term profits. Wall Street runs on the adrenaline of the quarterly report. Now "the sky is falling!, the sky is falling!" McCain is caught up in the "end of the world" rhetoric. What is actually happening is that the system is being gutted of the speculation and profiteering, and will return to disciplined loan standards. The market was wildly overvalued and under capitalized. Everyone wants the gain without the pain. The party is over. Let the hang-over run its course.

Oh, yes, the destitute and sad AIG, following the Fannie Mae and Freddi Mac bailouts, the largest insurer in the world, has just been added to the welfare roles. Another bail-out, this one for $80 BILLION. When will it stop?

$500 BILLION to $1 TRILLION 9-19-08

As Election 2008 approaches, the politicians are very nervous of a "throw the bums out" reaction by the electorate. This financial fiasco occurred under the stewardship and watch of Congress, which runs often useless and interminable committee and subcommittee meetings. Can they claim they didn't see this coming? And now, to "make it all better", a grand scheme is in place: a total buy out of the bad debt securities of virtually the ENTIRE market! Who will pay for this short term sedative against the pain of a gluttonous, greedy, and unchecked market? You and your family for generations to come. Instead of about $650 per man, woman and child, for just the Fannie Mae, Freddie Mac bailouts, now you can anticipate about $4,400 per person. Here's the essential plan: the treasury will issue its own long term debt securities to generate cash, to buy the bad debt of the financial houses and banks. [Good money after bad?]. But who pays for that treasury debt? You do! Taxes pay debt, and you and your children, and grandchildren for generations to come, will be paying foreign investors that fund these treasury bills. Your government is selling your future out of fear, ineptitude, and political cowardice.

Who's to Blame? Maybe Us? 9-22-08

We (and generations to come) will pay an enormous tax bill to provide welfare subsidies to investment bankers who knowingly bought up large bundles of mortgage backed securities they knew to be high risk because the original loans did not conform to the most basic underwriting guidelines. Is there anyone not complicit in this mess? Yet we will observe that the finger of each faction gets pointed at some other faction or participant. I suggest you and I are complicit to the extent we do not vote out of office those members on the Senate Banking Committee who did nothing to avert this disaster. Charmian Christopher Dodd for years had oversight of the investment banking industry. He and others in Congress knew that a housing bubble had developed in the last 10 years. The members of this committee were informed by the best sources of information, and they had the subpoena power to require testimony from industry big-wigs, CEOs, and experts. They required Alan Greenspan to divulge the hard facts and prognosis, and indeed, they were warned by the Fed Reserve Chairman that the housing bubble posed a serious threat to the economy. [That Greenspan was so passive in the face of so many red alerts is another story]. In the face of this abundant information, they did nothing to bring restraint on the "quick profits" greed that resulted in enormous portfolios of packaged securities backed by bad loans. We, the people, having government of, by and for the people, are ultimately to blame for permitting spineless Senators on the Banking Committee fail in their function as "watch dogs" of the industry.

Why Care? 9-23-08

The primary argument for a massive government intervention to buy up the distressed mortgage backed securities now being held as virtual "penny stocks" by the investment banking houses is this: Banks burdened with this bad debt are unwilling to take further credit risks due to lack of liquidity and negative balance sheets. It doesn't stop there however. Everyone potentially suffers if money stops moving through the money system. As Obama delights in saying: What happens on Wall Street affects what happens on Main Street. You and I will pay higher credit charges. We will be less qualified to obtain credit. There will be less money available for credit for small businesses. More businesses will stumble and fail as customers buy less (having less credit to buy), and will lay-off more people (CA unemployment rate is now 7.7%), further depressing spending. U.S. businesses depending on overseas sales will suffer too as foreign investors heavily weighted with stock in Lehman Brothers, AIG, Bear Stearns, Goldman Sachs, etc. also stop investing in U.S. securities, and their host countries stop buying U.S. goods and services. The dirty word that no-one likes to speak because it evokes self-defeating panic is DEPRESSION. There, I said it. Look at how the Congress is rushing to give unchecked authority to the Secretary of the Treasury to issue long term debt to buy up the billions of dollars of bad loans out there, and you get the sense the panic has already set in: Do something now! Well, Congress, within the next 10 days, will do something never done in the history of the Country: it will turn the operation of the U.S. economy over to one man with full authority. If this last ditch effort does not succeed, then people will truly freeze in panic, and with them, the financial system will freeze in place as well.

Crashing and Rebooting 9-25-08

The policy and economic wonks have been using the term "reboot" to describe the $700 TRILLION plus bail out of the financial sector. In computer parlance, you reboot when your system freezes up. This "freezing" of the flow of money through the credit system would have disastrous consequences for anyone depending on credit (i.e., all of us). If businesses can't get credit, they will lay off employees. If employees fear loss of their funds in banks, they will withdraw those funds in a panic, further freezing credit, and producing more lay-offs. Bottom Line: A cycle of panic leading to a great depression. Sarah Palin basically admitted this is the crisis the country is facing. [An admission contributing to the "panic"]. For a time-line of the way the government regulators failed to take bold and clear account of the problem before it reached its current critical status, visit: http://www.cbsnews.com/elements/2007/10/15/in_depth_business/timeline3368816.shtml .

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