Category Archives: Energy costs

The Banking Meltdown Is Just A Symptom Of A Much Larger Problem

They’re comparing this week’s financial events in the United States with those that led to the start of the Great Depression. But make no mistake, the United States’ economy has been headed for disaster for years now. The loss of decent-paying jobs, the record number of home foreclosures and the depressed real estate market are all symptoms of a far greater problem. The near-collapse of the American banking system may be linked to the mortgage crisis, but look for a root cause elsewhere.

The looming failures of financial giants including Lehman Brothers and Merrill Lynch, and insurance companies such as AIG, have created shock waves felt from Wall Street to Main Street. For the first time in memory, people were concerned that the money in their bank accounts, money market accounts and retirement plans was at risk. A 1929-style run on the banks appeared to be imminent. Indeed, people started pulling their money out of money market accounts at an unprecedented rate. Even investment professionals are running scared. Putnam Investments was so rattled by recent events, that they suddenly decided to close and liquidate their $12.3 billion institutional Putnam Prime Money Market Fund, which had experienced a run of redemptions last Wednesday. (Read about money market funds “breaking the buck” in this cnn.com article, or in this blogger’s posting.) In the seven days ending this past Thursday, Americans collectively pulled a quarter of a trillion dollars out of their money market accounts, an indication that people are frightened. This has led to the government announcing that money market mutual funds will now be insured in much the same way that FDIC insurance protects bank deposits, although the insurance coverage is currently planned for only the next year (we think you can bet your bottom dollar (pun intended) that this insurance will become permanent).

Within the space of just a few days, the government’s $75 billion bailout of AIG grew into a proposed $700 billion bailout of the entire mortgage mess. (Didn’t something like that happen in the movie “The Blob That Ate Pittsburgh”?) The government certainly has the ability to print as much money as it needs to put out these brushfires, but it’s foolish to believe that the federal government throwing money at the problem will make it go away for any length of time.

The economists here at Routing By Rumor point to two very basic problems that the country’s economic woes can be directly attributed to. The first problem is that America is sending about half of it’s cash to the Middle East to buy oil. The second problem is that the rest of America’s cash is being sent to the Far East, mainly to China, to pay for just about everything else we consume. Unless this situation changes, the U.S. economy will never recover, and the current round of federal bailouts are just the beginning.

America has made little progress towards energy independence, despite 35 years having elapsed since the oil crisis of the early 1970’s gripped the nation. A second oil crisis in the late 70’s, as well as dramatic increases in the price of oil in the recent past have done nothing to break our dependence on foreign oil.

America has become dependent on China for almost all consumer goods. This is not only foolish from an economic perspective, it also presents a grave risk to America’s national security. We manufacture almost nothing domestically any more. We’ve said this before, and we’ll repeat it again… God help America if we ever go to war with China, because if that should ever happen, you might as well just go ahead and hang a picture of Chairman Mao in your living room. Now take a look at Walmart, the largest retailer in the United States. According to wakeupwalmart.com, more than 70% of the goods on Walmart’s shelves are made in China. To be fair, that’s probably no different than any other American retailer, but in our mind, Walmart is little more than a sales agent for China, Inc.

Just how bad have things gotten ? According to this CNN article, the United States Department of Agriculture says that 50 percent of the apple juice imported into the United States comes from China (an estimated 161,000 tons of apple juice compared to the 110,000 tons produced in the United States). If we’re reading those numbers correctly, that means the United States only produces 25% of all the apple juice it consumes.

Apple juice !!! What the hell is happening to our country ?

People, there’s something very, very wrong with the U.S. economy, if we can’t even grow our own apples in this country anymore. We’re in deep, deep trouble if we’ve even become dependent on China for apple juice.

They better come up with a new saying, because “As American as apple pie” doesn’t hold true any more.

When the presidential candidates show up for their next press conference or debate, in addition to the standard questions about abortion, the death penalty, Iraq and tax reform, perhaps someone can ask them to take off their shoes and tell us where they were made, and whether they see that as a problem. Or, ask them to remove all of their clothing that was NOT made in the U.S.A. That should be quite revealing.

Then there’s the U.S. banking industry, which to us, resembles nothing so much as legalized loan sharking. Banks are, on the one hand, paying minuscule interest rates to depositors, with regular savings accounts and interest-bearing checking accounts paying perhaps 1% or so, and in many cases, just a fraction of one percent APR or APY (the switch from quoting interest rates paid as APY, instead of APR is a scam onto itself, but we’re digressing). On the other hand, banks are charging 15% or 20% interest on credit card balances, and in some cases, as much as 35% or 40% APR for their less credit worthy customers. Did you know that federal law places no limit on the interest rate a bank can charge ? And while some states do so, there are states which do not cap interest rates. That’s why it’s likely that when you mail your monthly credit card payment, the address on the envelope is usually in South Dakota or Delaware, where, as far as credit card interest rates are concerned, the sky’s the limit.

Take a look at the off-the-wall late fees and other penalty charges that banks are getting away with, since a 1996 Supreme Court ruling removed limits on such fees. Today, typical credit card late fees are as high as $40, and continuing to go up. In fact, if there’s one thing that amazes us, it’s the way that banks continually come up with new ways of putting the squeeze on credit card holders. That’s why you continually get notices from card issuers, announcing changes in your account terms. It’s surprising to us that none of those notices have yet advised us that a late payment will result in a guy named Guido paying us a visit around midnight, to negotiate a repayment schedule using his Louisville Slugger.

We think most American’s have lost any trust they might have had in that cesspool called Wall Street, where, it seems to us, the average investor doesn’t stand a chance. Maybe Eliot Spitzer was on the right track after all, with his aggressive investigations. The well publicized scandals, insider trading and other illegal activities involving Wall Street firms and the companies that trade their stock there have eroded investor confidence. And while we don’t think it’s fair to single out any one individual, just take a look at the Dick Grasso case. How do you think the average American who is struggling to pay their mortgage or feed their family, feels about a situation like that one ? And yet, despite the current financial crisis in the United States, don’t expect CEO compensation to decrease much, even at companies that have to be bailed out with federal money.

So while the billions of dollars that Washington is throwing at the financial crisis will probably stabilize things in the short term, don’t start singing “Happy Days Are Here Again” just yet. They are not.

If you want to hear what it will sound like if happy days ever do get here again, check this out.

– Routing By Rumor

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Driving South At General Motors

We just came across a post at the blog “The Truth About Cars” (TTAC) that is spreading a rumor (could you imagine that… RUMOR mongering !) that Rick Wagoner, the CEO at General Motors, will be taking a much needed vacation within the next couple of days. A permanent vacation.

According to this profile at forbes.com, Mr. Wagoner’s compensation for FY 2007 was just shy of $5 million. And that’s despite shareholder value that is melting away faster than an ice cube on a hot August day. Not a bad gig if you can get it, in our opinion.

We have no idea whether the story posted at TTAC has any basis in fact. It will be interesting to see if Rick Wagoner gets to take his “vacation”… whether he resigns, is dismissed, or takes a different position within GM (he’s been there for the past 30 years). If the rumor is true, it shouldn’t surprise anyone, especially the motorheads here at Routing By Rumor. In the past, we have written about why we are one GM customer that will never buy another vehicle from this company. And since we are a die-hard proponent of that quaint notion of “Buy American”, and we were a loyal GM customer for nearly our entire driving career, you know that something is very wrong with this company. We feel that if they couldn’t hold on to us as a customer, they have little chance of holding on to anyone else.

Those poor GM shareholders. Back in January, 1999, GM’s share price was sitting pretty at $90. When we checked it this morning, it was below $10 (view the current GM share price). That equals a loss of shareholder value of almost 89% from it’s all-time high. GM shares are also more than 76% off their 52-week high of $43.20. If you’re invested heavily in GM, chances are you can’t afford to buy one of the gas guzzling GM SUVs piling up in dealer’s lots, no matter how worthless they become. Thanks to $4.00 a gallon gasoline and an economy that is on life support, the only thing dropping faster than GM’s share price is it’s SUV and pickup sales.

This is probably just a cruel coincidence, but the TTAC blog runs ads on their site, and the ads that appeared on the article we cited above happened to be for a vehicle from KIA. How fitting.

So Rick, if it turns out you’re looking for work, and you have any writing experience, send us your resume. Blogging experience, a familiarity with WordPress, and some Internet savvy will all be helpful. Please include a cover letter with your salary requirements.

– Routing By Rumor

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Filed under Automobile Manufacturers, Blogging, Business, Cars, Consumerism, Employment, Energy costs, Environment, Jobs, Journalism, Money, News, Routing by Rumor, Stock Markets, The Economy, Uncategorized, Wordpress, Your Money

Dear President Bush: Send More Money !

President George W. Bush
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear President Bush,

Just wanted to let you know that we received the very generous “economic stimulus” check you sent us recently. It was greatly appreciated.

We thank you.

ExxonMobil thanks you.

The oil speculators thank you.

Saudi Arabia thanks you.

(just to name a few)

Oh, I almost forgot… There’s just one problem. It’s all gone. With each visit to the gas station costing $75.00, your check didn’t go as far as we expected. And now, our gas gauge is on empty again.

Please sir, may we have some more ?

Sincerely,

Routing By Rumor

P.S. – Please also send another check to all of the people who have posted comments below.

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When We Speak, Wall Street Listens.

One of the great things about hosting a blog at WordPress.com is the various tools and statistics they provide (thanks, Matt). You can see how much traffic your posts attract, how your visitors are finding your blog, what search terms people are using to find you (but sadly, not which search engine they used), and what hyperlinks in your posts they click on.

We were quite surprised this morning, when we noticed that nasdaq.com was sending traffic our way because of this article we posted yesterday about the U.S. economy. We had mentioned that New York and New Jersey utilities, including Consolidated Edison, had recently gotten steep rate increases approved by regulators, some as much as 25% and 50%.

Within a few hours, visitors to Nasdaq who looked up Consolidated Edison (NYSE: ED), were seeing a link to our blog in the “Comments From The Blogs” section on nasdaq.com. This is yet another example of how blogging has really gained legitimacy, and how mainstream media and even Wall Street have taken notice of what is being discussed by bloggers. To be sure, it is a bit of a trip, realizing that almost anyone with a computer and Internet access can have their voice heard by the world. To us, that’s perhaps the greatest thing about this experiment they call the Internet. It transcends borders (although some regimes try to surpress it), it makes the world a very small place, and it gives you access to views and opinions you would otherwise never hear. How great is that?

Now that Routing By Rumor is (almost) a household name, we want to let the New York Stock Exchange know that we are available, should Dick Grasso’s old job still be open. However, in light of the firestorm that his $140 million retirement package caused, we want to go on record as saying that we will not accept a deferred compensation package of more than $75 million. We think that even Eliot Spitzer, the former New York State Attorney General turned New York Governor (and no friend of Dick Grasso’s), who’s career crashed and burned in a sex scandal, would approve of that.

– Routing By Rumor

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Need More Proof That The U.S. Economy Is In Trouble? How About Talk Of General Motors Seeking Bankruptcy Protection!

Things are tough in Detroit. For the first time since 1922, General Motors will not pay it’s shareholders a dividend. Even more omnious is speculation that GM may have to seek bankruptcy protection (see NY Times / Associated Press article). There are even calls for dropping GM from the Dow Jones Industrial Average.

While much of what ails GM is related to the sad state of the U.S. economy, not all automobile manufacturers are suffering the way GM currently is. There are many reasons for this, including GM’s reliance on large, gas-guzzling vehicles which have become white elephants, thanks to fuel that is selling between $4 and $5 a gallon.

For us however, GM lost it’s appeal long ago. Not because of the quality of their products, which by and large we’ve been quite satisfied with, but rather because of what we believe is their total lack of respect for their customers. As we have written previously, we are a strong believer in buying products made in the USA, and indeed we’ve owned only US-assembled GM vehicles for the past thirty years.

We’ve never had a good experience with repairs covered under GM’s new vehicle warranties. We have always experienced dealer service that was inept, shoddy, defective, or incomplete, and which in many cases took days or weeks longer than it should have, while our vehicle languished in some dealer’s lot. Almost all warranty repairs we’ve ever taken our vehicles to GM dealerships for have required one or more return visits to the dealer, either because repairs were done incorrectly or not at all. We believe that GM dealerships prefer to not do warranty repairs, and will try to avoid doing them whenever possible. There never seemed to be any incentive to do things correctly. The experiences we’ve had over the years at GM dealerships convinced us to never ever allow them to do non-warranty repairs on our vehicles where we would be paying for the work out-of-pocket.

We’ve dealt with dealership personnel from salespeople to service managers to owners, who have been rude, indifferent and downright obnoxious. In our opinion, it’s not so much a lack of caring or pervasive incompetence (although there’s plenty of that), as it is a culture of contempt for the customer. We feel that GM and it’s dealerships view customers as little more than an annoyance. As if they were saying “we don’t value you as a customer, and we couldn’t care less about your future business”. GM’s “customer care” has proven to be a worthless farce every time we’ve ever turned to them in an attempt to resolve problems with our vehicles. We decided years ago that our current GM vehicle will be our last one. It’s a bit ironic then, that GM may not be around much longer to sell us, or anyone else, their next vehicle. We think that in large measure, they can blame their current plight on the way they’ve treated their customers. Forget about Harry Gordon Selfridge’s old adage “the customer is always right”. At GM, it has always seemed to us to be more like “the customer is never right”.

This fellow doesn’t think The General has much better regard for it’s current workers or retirees.

We won’t shed a single tear if GM goes belly up tomorrow.

Where was I ? …Oh yeah, the dismal state of the U.S. economy. See what happens when someone mentions GM to me ?

So, GM is hurting big time, banking institutions are in trouble, home foreclosures are at record levels, soup kitchens and food pantries are reporting big increases in families seeking assistance (while at the same time finding it harder to get food donations), and the cost of living is skyrocketing, despite what government inflation figures claim.

IndyMac Bank customers in Burbank, California

Associated Press photo / Kevork Djansezian

The FDIC has compiled a list of 90 banks it says are in danger of failing, victims of the U.S. mortgage crisis.

Consumers are seeing utility bills increase 20, 30, even 50 percent. In New York City, the local electric utility, Consolidated Edison, recently hiked electric rates between 22% and 25%. Because of steep increases in fuel prices, there’s sure to be more double-digit increases in store. In New Jersey, Verizon, a regional U.S. phone company, has gotten permission to raise basic telephone charges 50% over the next three years, and cut the number of free directory assistance calls a subscriber gets in half, while tripling the price. This will no doubt accelerate the trend of consumers dropping traditional phone lines and making their cellphone their only phone. This is not only because of the cost, but also because traditional phone companies like Verizon still don’t know how to be competitive in today’s telecom market where Cable TV, Internet and cellular telecom providers offer highly competitive or all-you-can-eat calling plans that include a smorgasbord of features at no extra charge, and companies like Google are providing FREE directory assistance services. Isn’t Verizon still charging extra every month if you have a Touch-Tone phone? They are clueless.

Healthcare costs are increasing so rapidly that many employers can’t afford to continue providing coverage for their employees, and an increasing number of individuals and families have no health insurance.

Trips to the supermarket induce shock, while a trip to the gas station produces gas pains.

We’re starting to see panicked Americans creating a run on the bank, such as these customers of IndyMac Bank this week.

And, of course, we are still at war.

America is the land of plenty, where we are enjoying a bumper crop of bad news on the economic, political and employment fronts. There seems to be very little good news these days.

– Routing By Rumor

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