There have been several articles over the past few days talking about how badly New York City will get hit economically by this financial crisis.

Investment banks are going under and thousands of people will lose their jobs. But many will be absorbed by other companies and life will go on.

The real difference now is that with the end of the investment bank as a solo operating entity, like a Lehman or a Merrill, the era of huge bonuses will also probably come to an end.

When has Bank of America ever paid mega-bonuses? Don’t get me wrong. I’m sure they pay very good bonuses. Even stellar bonuses. But they didn’t pay the size bonuses a Lehman or a Merrill was paying.

And it was the bonus that propped up the Manhattan housing market for so many years.

You know- the housing market that the “experts” said could never decline. The housing market that was “immune” to a downturn because there was simply too much money in New York and, of course, “everyone wants to live there”.

Maybe we might find out with this bust- that everyone DOESN’T want to live there after all.

This financial bust isn’t just re-wiring Wall Street, it will re-wire New York’s money culture.

It’s only fitting that this comes at a time when a Russian fertilizer Billionaire is suing the Plaza for his condo deposit because his $50 million penthouse turned out not to be so great after all. He never saw the condo before purchasing it. He bought it completely site unseen.

Those were the excesses of this bubble. And now they’re going away.

I don’t know how long it will take- but normalcy will return to Manhattan’s real estate market. It likely won’t be “cheap” to live there, but at least it can be affordable.

Maybe that will be one of the positive things from this financial crisis. A return to housing sanity.

There has been a long running feud between the Bush Administration and Venezuela’s President, Hugo Chavez.

In the past, Chavez has threatened to cut off its oil to the United States (a serious threat as the US gets about 25% of its crude from Venezuela.)

Recently, the countries had another spat after the US expelled Bolivia’s ambassador and then Bolivia expelled the US ambassador in retaliation. Chavez, in solidarity with Bolivia, also expelled the US ambassador from Venezuela.

On Sep 11, Chavez gave a rousing speech to several thousand people. From the BBC:

President Chavez used coarse language to describe his feelings about Washington as he ordered the expulsion of US envoy Patrick Duddy.

“The Yankee ambassador to Caracas has 72 hours to leave Venezuela, in solidarity with Bolivia, with the Bolivian people, and with the Bolivian government,” Mr Chavez said.

“Go to hell 100 times,” he said.

Mr Chavez also announced that he was recalling his envoy from Washington.

Why should we care about this on a financial blog? I’m just giving you some background information about the ongoing feud between the two countries and their leaders. Because despite disliking each other, these two presidents have a lot more in common than they would like to admit.

George Bush:

1. Nationalized Freddie Mac and Fannie Mae, the two largest mortgage institutions in the United States. Billions of dollars lost for shareholders.

2. Nationalized 80% of AIG, the world’s largest insurance company by providing an $85 billion loan. Billions lost for shareholders.

Hugo Chavez:

1. Nationalized oil fields and refineries jointly owned and operated by Chevron, ConocoPhillips and ExxonMobil and Venezeula. Billions of dollars lost for shareholders. (Conoco, for instance, took a $4 billion write-down for those lost facilities.)

2. On Aug 19, nationalized the cement industry including simply taking Mexican cement company, Cemex’s, facilities. Cemex produced 52% of Venezuela’s cement and employed 3,000 workers.

Said Chavez:

“So tomorrow, we’ll go ahead with nationalizing and regaining the cement industries.”

“The government will not stop, now or ever,” Chavez said.

Chavez says he hates Bush but you know what they always say: there’s a fine line between love and hate.

And besides, they have much, much more in common than is apparent.

Nationalization.

Never thought I’d hear about it happening in the United States. But it is.

What’s next?

There appears to be news out every few hours. Another one of the banks is failing. A few others are being bought out. Another is declaring bankruptcy. And still another seeks more capital.

As an investor, it’s easy to get caught up in all of the news and become paralyzed.

It’s easy to panic.

But unless you’re an investor in any of these financials, then your strategy should shift another direction. You should ask:

What companies are going to make money, regardless of what is going on in the financial sector?

There are plenty of choices.

Investors should look at companies like Phillip Morris International (PM), which sells cigarettes and tobacco products around the world. It doesn’t really care what happens to Lehman Brothers. It’s selling tons of cigarettes either way.

Same with Coca-Cola (KO). Or Proctor & Gamble (PG). Are consumers suddenly not going to buy detergent? Nope. People still have to clean their clothes. And they’ll still drink Coke.

Keep your eye on the prize - especially if the stock market retreats further. Great companies are going on sale.

What the Financial Chaos Says about our Economy

Does it mean anything that our banks are going under? Of course it does. But the economy is much, much more than just banks and insurance.

If you’re in New York City or Charlotte, you’ll feel the effects more than other cities. But Houston and Dallas, booming from higher energy prices, won’t see a direct affect. Neither will Minneapolis or Denver.

Where you’ll see effects are in the risk taking of the remaining banks. They will be loath to lend money- to either businesses or people. That’s where we’ll all feel the real hit. Less money means it will be more expensive to borrow. That means growth will slow. And that affects us all.

Keep your cool. Look for opportunities. Think long term.

Will 2008 go down as the year of the end of the American Empire? Or a blip in the 100+ year of American economy supremacy?

Let’s recall what has occurred so far this year:

Bear Stearns bailout: billions of dollars

Freddie and Fannie bailout: no one knows how much this will cost yet- but billions

Car companies bailout: $25 billion (also asking for $25 billion more)

Are Airlines next?

Newspapers?

Real estate companies?

You have to wonder how far the government is going to go.

I concur with most experts that Freddie and Fannie were so crucial to the housing market that they could NOT be allowed to fail. But the car companies? We have long ago passed the time where “whither GM, whither the nation”. (Because if we haven’t- the nation is in real, real trouble.)

But this is an election year and Michigan is a prized state. So both political parties are backing the huge bailout of these companies. Even as they continue to get their butts kicked by Toyota, Nissan, Honda and BMW.

Want to know how well a company works when it is owned by the government?

Look at Amtrak.

Enough said.

Will the Fannie/Freddie takeover halt the housing bust?

Supposedly the takeover of Freddie and Fannie is going to halt the housing price declines and stop foreclosures. How will it do that again?

Housing is declining because the prices are too high compared to American incomes. Without all-interest loans or 100% financing, there is no way someone making $70,000 can buy a $700,000 home (which was common in places like New York and California.)

You can’t prop up a bubble or stop it from busting. Yet- this Administration believes these latest actions will do so. And no one knows how much this will cost. Paulson was on CNBC this morning saying he has no clue what the cost will be.

Fabulous.

But I thought bailing out Bear Stearns was going to stop the credit crisis and the slide in the financial markets?

These are interesting times. These are historic moves. Question is- how will history judge them?