Connelly on Commerce

Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

Could it be that the “worst Christmas in modern memory” for the nation’s retailers is really a good thing?

Is an economy that’s over 70% dependent on consumerism a good thing?

As we pause for reflection at year-end, it may be worth noting a sense of relief  rather than despair that spread among shoppers before the Holidays. Could it be that people were glad to have the excuse of the Recession to dial back their expenditures and take a pause on the spending treadmill?

Of course, for many, the hard economic times are far more than “excuse” to  cut back; for them this season involved painful self-preservation.

 

But for the vast majority of US mortgage-holders, for example, who are making their payments and not underwater in terms of loan to home values, perhaps this year-end signals the beginning of a new perspective on why they spend money, and what they really need to own or to give.

Instead of the search for the “next bubble”, perhaps these shopper-investors will be thinking that the quality of their lives ought not be defined by the spending habits of yesterday’s mega-millionaires. In this new environment, it may not be so easy to defend tax cuts for the super-rich on the notion that maybe we all can aspire to be super-rich someday, too.  Maybe Joe the Plumber is well,  just Joe the Plumber, which is not such a bad thing, really.

The country obviously need a hearty does of optimism, which it is not getting from the financial media (especially cable), which seems these days to be revelling in trying to be first to call the death of  “free-market capitalism” at the hands of Obama. The voters generally didn’t buy the idea that the President-Elect is a Socialist, and neither will investors, so why are so many anchor/commentators (Jim Cramer for once a notable exception in this case) on the leading financial news network trying to sell that line?

Everyone should just take a deep breath and let the new team lay out its plans in its chosen time — then by all means have at them and do more vetting than was done, say, about Bush’s move into Iraq or Greenspan’s 1% rate  regime or the magic of derivatives. Obama has already moved faster than any other transition to lay out his agenda and pick his team, so what’s the problem if he doesn’t answer every question right now?

Indeed, it may be the case that, with the “recession we had to have” (to borrow a phrase from former Australian Prime Minister Paul Keating), the “era of instant gratification” is what’s truly “over”.  If so, Happy New Year indeed!

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To those Senators and Representatives who are opposing the draft legislation agreed between the Bush Administration and Congressional Democratic leadership to provide a bridge loan for the auto industry — have you forgotten that the bravado chorus in mid-September to “let Lehman go under” wound up costing the country a $700 billion bailout of the entire financial system, plus another $100 biliion or more to bail out AIG which was going belly-up precisely because it was on the hook for insuring (without reserves or offsetting derivatives) Lehman Brothers’ debt?

Do you really want to play roulette with the entire financial system again, this time for real money?

Do you not realize what will happen in bankruptcy to the unsecured creditors of these companies, whose debt is now trading in the open markets at levels as low as 20 cents to the dollar of principal?

Do you understand who holds this debt — your pension funds and mine, your insurance companies and mine, not to mention the entire financial system, which will be forced to take another gigantic round of write-offs, thus further impairing their capital and restricting their ability to lend to Main Street or mortgagors?

Do you not understand that the problem with companies being “too big to fail” is that we let them get that big in the first place, and that it is no solution to that problem to go ahead and let them fail no matter the consequences to anybody else or the overall economy?

 Do you understand that the Federal Government itself will be on the hook for hundreds of billions or dollars in pension claims if these companies go into bankruptcy, and that these billions will not be loans, as currently contemplated in the bridge legislation, but outright payments right off Uncle Sam’s bottom line?

Do you not understand that no one but the US Government would possibly contemplate extending  credit during bankruptcy proceedings to the “debtor in possession” of the car companies, and that those credit lines from the taxpayer would have to far exceed the $15 billion in the bridge loan legislation?

Do you not understand that without such a line of Federal credit during a Chapter 11 restructuring, the companies will be forced into Chapter 7 liquidation and then the whole economy  will be at profound risk and we really will see again what a Depression looks like?

Do  not understand that the only consumer who would buy a new car from a bankrupt company would be the same person who would take an appointment to the US Senate today from the current Governor of Illinois?

Is there something about basic reality that you don’t understand; or are you just off in ideological Fantasy Island  — as you were in September when it  looked so easy to let Lehman go down?

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