Monday, November 2, 2009

The alligator you don't see

Friday was a busy day in the bank seizure business with the FDIC liquidating nine under water banks at a cost of 2.5 billion Dollars. This brings us to 115 for the year, but to put this in a better historical perspective you need to remember that many of these banks have dozens and some more than a hundred branches. This amount of banking consolidation used to be illegal, so the comparison to past economic down turns just by number of banks closing is deceptive, things are much worse.

Speaking of much worse; today, after a long struggle, CIT (not Citi) has filed for Chapter 11 bankruptcy. Unlike the too big to fail Wall Street banks that are known as the thirteen families, this really large bank does real business banking and is a driver of the real economy. They provide lines of credit to many of the small and medium businesses that you take for granted but also to their suppliers. This could have even more far reaching implications since they in turn provide goods and services on credit to small business that are not able to get extensive lines of credit on their own.

In theory with the prepackaged Chapter 11 proceeding they should be able to continue operations, but this is by no means certain. Even the months this will take if successful will put a huge drag on the customers of CIT. If this plan fails however, it could be the trigger for a retail sector collapse. That could make the minor fluctuations in the economy we’ve experienced so far, seem like the prosperous good old days.

Consumer spending accounts for over 60% of the economy, before the last year was 70%. Because the cult of Reaganomics converted us to a so called "service" economy, the loss of thousands more retail businesses will cause unemployment to spike much higher and accelerate the downward spiral that we are already in.

The uncertainty alone will make things worse and can lead to unexpected consequences. Economic crisis is like alligators, its the one you don’t see that gets you.

Ironically an Amphibious Transport Dock like the LPD-21 USS New York is the perfect humanitarian relief vessel. With fully equipped surgical theaters, helicopter deck and inboard well for boat docking it can off load hundreds of tons relief supplies and vehicles in a few hours without a dock. This a level of relief support that is hard to accomplish in a remote theater. Not surprisingly, nobody would spend a billion Dollars for one of these if it were called "Peace" ship. This is the fifth in the series so far.

It still would be good thing for the Navy to have if it wasn't the center of a multi-warship task force that cost more billions and still more billions to operate and it will be rarely if ever used for anything but intimidating third world countries into submitting to US corporate domination right up until they inadvertedly clash with a Chinese warship and start WWIII. Chomp, Chomp!