Redefining Bad

Just when the banking industry wants us to think things are getting better, along come Wachovia Corp. and Washington Mutual, reporting $8.9 billion and $3.3 billion losses, respectively. This unsettling news, combined with SunTrust’s announcement that it will look to offset its losses by selling its 90-year stake in Coca-Cola, stripped the gloss off last week’s relatively benign banking-sector results. Perversely, investors rejoiced, sending Wachovia’s stock up 27 percent in Tuesday’s trading—reflecting, says the New York Times, a bunker mentality in which “results that would have once been viewed as disastrous are now seen as good, or even great.” As one leading institutional investor put it: “We are redefining bad.” And so they should be. As both the NYT and the Wall Street Journal point out, one year into the credit crunch, we now have a scenario in which banks are not only putting a chokehold on the construction industry; they are also having to set record-high mortgage rates—in part, to recoup the cash they hemorrhaged in the subprime stupor and, in part, as a reaction to their fears for the future of Fannie Mae and Freddie Mac. Those rates then place additional strain on a public struggling in a constricting economy, risking more housing defaults and—yep, you guessed it—increasing the pressure on Fannie and Freddie. No wonder Congress is working overtime to finalize a rescue package, which could run to $25 billion, for the two teetering mortgage giants. If there’s one industry that can make banks feel better, it’s the airlines. United Airlines, US Airways and Jet Blue all posted second-quarter losses and announced drastic steps to cut future costs. The Chicago Tribune reports that United will cut 5,500 more jobs in 2009, while the Los Angeles Times notes that both United and Jet Blue will slash the number of flights they run out of Southern California. United’s cuts may end its hub use of LAX. Investors liked what they saw (see previous item for rationale) with “battered shares” in United’s parent company UAL Corp. soaring by 50 percent. Maybe the airlines need a bit of sovereign-wealth love. The Financial Times makes note of Tuesday’s news that Mubadala, Abu Dhabi’s investment vehicle, will become one of the 10 biggest institutional investors in General Electric; together, the two companies will commit $4 billion each to form a commercial finance unit based in the Middle East. Mubadala already owns a stake in Ferrari and has a joint venture with Rolls Royce. Why not add a firesale U.S. airline to the mix? Just a few weeks ago Congress was frothing over the despicable actions of speculators in driving up the price of oil. Yesterday an interim federal task force report popped the politicians’ rhetorical bubble saying, “it found no evidence that those investors are systematically pushing up the cost of energy,” the NYT reports. Instead, it attributed skyrocketing oil prices to more pedestrian factors: fast-growing global demand and “sluggish” supplies. Price, of course, can do funny things to demand, which explains why crude continues to retreat from its $147 a barrel high earlier this month. Wednesday morning it fell to $127.69 a barrel, also helped by news that Hurricane Dolly was likely to avoid Gulf of Mexico drilling platforms. President George W. Bush is generating a little media storm of his own, thanks to a clandestine video taken at a private fundraising event in Houston and posted on YouTube. Everyone reports with glee this morning that Bush “compared Wall Street to a drunk with a hangover and cracked jokes about the ailing housing market,” as the Houston Chronicle summarizes it. Don’t believe our president would talk that way? You can watch the video here.