Financial fiasco engineered by "Sorcerer's apprentices" continues its widespread damage

Eager financial would-be wizards who fostered the credit bubble remind me of "The Sorcerer's Apprentice" from Goethe's poem Der Zauberlehrling (1797). The old sorcerer's apprentice, left alone in the workshop, tired of getting water by carrying in the pails. (It wasn't good enough to get water slowly by hard work, the conventional way.) So the apprentice used the sorcerer's magic - in which he wasn't fully trained - to give power to a broomstick to fetch more water for him. But he didn't know how to control it, and the workshop started to flood. The despairing apprentice tried to smash the broom into pieces, but each piece transformed into a new broomstick and started fetching water, exponentially faster than ever. When all seemed lost in a massive flood, the sorcerer returned, broke the spell, and saved the day. [source: Wikipedia] Unfortunately for us, the citizenry now sinking "underwater" because of eager "wizards of Wall Street" - goaded by idealistic officials and unfettered by much regulatory oversight, as it seemed everyone got in on the flood of easy credit - won't get "bailed out" so easily.

One of the latest effects of the financial fiasco is showing up in this news item: Bloomberg is reporting that Merrill Lynch & Co. will pay $550 million to settle claims by the Ohio State Teachers Retirement System and other shareholders that it misled investors about assets backed by subprime mortgages. (Find the full story by clicking the "subprime" topic in the news feeds included at the right side of this webpage.) This isn't the only set of pension funds and other investors who bought up great quantities of this stuff. Others have been considering or making similar claims ... and it's a sure bet that there will be even more to come.

Illustration circa 1882 by S. Barth (at Wikipedia)

This is just one of many economic cesspools in which the markets are mired. Thanks to financial ripple effects, we can continue to expect more and more such stories. For example, people whose retirements are now in jeopardy are cutting back on expenditures, thus reducing revenues to companies as well as to governments that rely on sales taxes. People are also likely to have trouble paying taxes of all sorts including property taxes. There are efforts in various stages around the country to reduce the levels of property appraisals and amounts of property tax owed because properties aren't worth what they were just a few years ago.

Local and state governments whose investments have been pinched are finding that tax revenues are declining, at the same time that unemployment and welfare programs are being asked to take care of more and more people.

And on it goes ... did anyone really think this could be over so quickly?!

Now, I'm not saying the mess dictates market direction ... markets tend to have movements all their own, and typically are a leading indicator that will start to come up before economic conditions demonstrably improve. So, I'm not posting this just because I'm leaning pessimistic on the market's next move! I'm just taking a moment to point out another reminder of how pervasive the financial turmoil is becoming.

Ah - it reminds me of a cartoon I patched together a few months ago ... seems like it's still pertinent - hope you like it! (all in good fun of course!)