What Will Happen To Wall Street When Washington’s Fix Wears Off?

On Friday, Justice asked us all two salient questions. The first was: “Haven’t Washington and Wall Street learned anything from this debacle?”

Sadly, I am convinced that the answer is no, for two reasons. Genuine change would require displacing the kleptocracy currently in power. And change around the edges would require that kleptocracy to admit that they are capable of error.

The current thinking within our “leadership” is that the crisis is one of detail and timing. As they see it, the error the last several times around the merry-go-round wasn’t at the beginning, when Washington and Wall Street invented free capital via overheated printing presses, or off-book option schemes, or twisted multi-tranche mortgage bonds, etc. etc.

Rather, we are told, it was because we didn’t stop once the pumps were primed.

“This Time It Will Be Different”

That arch denial always reminds of something I used to hear a bit back in the ‘70s. Those who know me well, know that I have had a much-varied career, which included a stint doing stage carpentry and some lights and sound work in the clubs of New York’s Lower East Side.

Cocaine and heroin were rife back then, and even considered somewhat chic. One of the saddest things I have ever experienced was to have a perfectly talented young man or woman tell me that “they were only ‘chipping’ - they weren’t like the others, the drugs didn’t own them, they could quit whenever they wanted to.”

If you really want to know how most all their stories ended, I recommend renting the 1971 film, The Panic in Needle Park, directed by Jerry Schatzberg from a screenplay by Joan Didion and John Gregory Dunne, and starring a very, very young Al Pacino and Kitty Winn. If it doesn’t break your heart, you don’t have one.

Free Always Costs in the End

My friends, no one is ever “just chipping.” Free flowing capital is certainly essential to our system. Heck, we even call the stupid thing “Capitalism.”

But there is a crucial difference between free flowing and just plain free. The former is when capital seeks to create value. The latter is when capital has no value.

“Free” capital is just as worthless and addictive as heroin, and just as destructive. Instead of stimulating acts of genuine creativity, both encourage false fantasies of immortality. And both engender the same results in the end.

The Hangover

Which brings us to Justice’s second question: “What will happen when this whole fix begins to unravel?” Unfortunately, we don’t have to guess. We need only to look to the disaster that is following on the heels of Washington’s “Cash for Clunkers” program.

In one short month since Washington withdrew Detroit’s fix, Chrysler (now owned mostly by Fiat) and General Motors [[GM]] (now owned mostly by you and me) have seen their sales volume cut in half.

General Motors sold 156,673 vehicles in September, a drop of 45%. But truck sales (still the company’s only real profit center) plunged 47%.

Chrysler’s total U.S. sales came in at 62,197, an overall fall-off of some 42%. But once again, this figure disguises huge disparities within Chrysler’s marquee names. A few varieties of Jeep actually saw modest increases, while PT Cruiser sales virtually ceased altogether.

As has always been true and will always be true, the high never lasts, and the hangover’s murder.

The Benefits of Clean Living

But what of that other American car company, the one that has made a point of turning down Washington’s “free fix?” The one that has been focusing its efforts on the profitable production of effective cars the public actually wants?

The benefits of clean living could never be more clear.

Unsurprisingly (at least to me), Ford (F) reports U.S. sales of 114,655 vehicles, a mere 5.1% drop from a year ago. Much like with Chrysler and GM, that total figure conceals internal disparities. But in Ford’s case they are of an opposite nature: Total sales for the Ford, Lincoln and Mercury marques fell 5.8%, but Volvo sales actually rose 16%.

Have I mentioned that I am a Ford man? I think I have.

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