Confidence Game

Posted November 17, 2008

Over 20 world leaders met in Washington D.C. over the weekend to discuss the global financial crisis. In the meantime, the Dow Jones Industrial Average took another triple digit dip.


If you have heard of a “confidence game”, you know people are suckered into a scam after being made to feel they are playing a role in something legitimate.  That is how many US consumers are feeling about the enormous $700 billion bailout plan.  In fact, consumers and some US congressman are letting it be known they went along with the bailout as long as it was agreed the money would be used to loosen up credit in order to help consumers.

That was the part where they were made to feel as if they were participating in something legitimate.

Instead of loosening credit, banks took the money and used it buy other banks.  They could do that because there were virtually no strings attached to the handout….I mean bailout….money.  The only string was a requirement the money is to be paid back in 3 years or interest rates go up.  Now the government wants to use bailout money to buy into private businesses in order to keep them afloat.  AIG was the first, but it looks like there will be many more.

That was the scam in the eyes of many people struggling to survive an escalating recessionary economy. 

In this confidence game, consumers are watching Congress, corporations and economists battle over whether the US government should bail out the failing auto industry which is decidedly private sector.  And while all of this is going on, the G20 met over the weekend at a financial summit to discuss ways to prevent a financial global financial disaster of this magnitude from ever happening again.

The results so far of this summit have been particularly uninspiring.  The one thing they all agree on is that they need more notice when the financial markets are getting ready to collapse.  Small thing to ask when some countries would have experienced financial ruin if not for government injection of massive funding amounts. 

If this all sounds a bit cynical, it is not intended to be.  It’s just that all of these actions or the lack of action is doing nothing to inspire investor confidence.  On Friday, 14/November/2008, the Dow Jones Industrial Average took another three digit slide downward.  The DJIA closed at 8,497.31 which was a healthy 3.82% decline. 

Hello?!  Is anyone in government listening? 

The US dollar weakened against all major global currencies except the Australian dollar which closed at $.6624 in terms of US dollars, and the Japanese which closed at $.0102.  The euro rose ($1.2787), as did the British pound ($1.4933).  The Canadian dollar ($.8192); the New Zealand dollar ($.5624); and the Swiss franc ($.8426) also strengthened against the US dollar.

The G20 leaders discussed the need for a world stimulus package, but there is not enough agreement among them to take such a strong, coordinated and definitive stand.  There is also the problem that President Bush is leaving office in approximately 2 months and has to be very careful about what he agrees to so the US is not put in a difficult position if the next President does not concur.

So this confidence game is still reeling in the consumers as many people face a grim holiday while unemployed.  While corporate moguls are trying to decide if they should take their multi-million dollar bonuses after their companies accepted government financial help, the average consumer is trying to figure out how to salvage a devastated savings account.

In a confidence game, you have a “mark” or target.  In this particular version of the game, there seems to be millions of them around the world.