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?

In the last few days, all of the American car companies have announced that they are either getting rid of or really cutting back on their car leasing programs. And the other financing companies are also announcing the same. From Bloomberg News:

JPMorgan Chase & Co., the second-largest U.S. bank by assets, will stop offering automobile leases for Chrysler, Dodge and Jeep brands as of Friday, the same day Chrysler LLC’s finance unit ends its leasing program.

The bank will continue a separate program that provides leasing on Subaru-brand cars since Chase is the first-choice provider for the Japanese manufacturer, said Christine Holevas, a spokeswoman for the New York-based company.

Chrysler Financial said last week it would no longer offer leases after lenders began charging interest rates too high to make leasing a sensible option.

Leasing used to be a money maker for the companies, especially as their finance divisions reaped the benefits of the interest payments. The cars were then resold at the end of the lease.

But now, they can’t resell the cars. If you have a leased SUV and you turn it in, the car company is likely going to have to eat the cost of that automobile because no consumer wants it.

Ford just took a $2.1 billion write down on losses on leases in its financing arm.

Leasing, however, afforded regular consumers the chance to “own” a car they otherwise would not be able to afford. With little money down, most people could drive out of a car lot with a Cadillac, a Beemer, even a Mercedes and pay a reasonable monthly payment for three years.

It gave the illusion of wealth. Others had no idea you didn’t own the car and were simply leasing it.

So millions of Americans drove “luxury” cars through leasing.

Same way they “rented” houses from the bank they couldn’t afford (through the 100% financing, no money down mortgages). Same way you can “rent a purse” through the websites that charge you a fee to walk around town with the Gucci or the Prada for a week (as portrayed in the recent S*x and the City movie.)

It’s All an Illusion

It’s all fake. There is no wealth underlying these purchases.

And that’s the problem in America right now. The country’s “wealth” is all an illusion. We can’t really afford the luxury items most of us buy. But we’d like others to think we could.

I’m not advocating a return to the strict class distinctions that marked America in the 1900s (where the rich truly DID live in separate neighborhoods and where the kind of car you drove said everything anyone needed to know about the person.)

But it’s also not healthy, as a country, to live beyond our means.

I’ve long said that eventually we’ll return to actually having to save money to buy the luxury items we want. It will be a structural shift in American society when this realization hits the consumers.

Maybe, when they walk into the auto showroom and can’t walk out with a leased car, it will finally hit them.

You didn’t think the Ed McMahon foreclosure story was just going to go away, did you?

Ed and his wife Pamela were on Larry King Live last night. Of course! They’ll be on The View next.

Here’s some of what he had to say from ET Online:

“It’s like a perfect storm. The economy problems … selling the house right now is a tremendous operation,” Ed said, admitting also: “If you spend more money that you make, this can happen.”

“I think that because you’re a celebrity, people think you have a lot more than you have,” Pamela added, attributing their troubles to “a combination of Ed working so hard and [our] not looking at proper management.”

Um….”proper management” Pamela?

Why didn’t Larry ask the REAL questions that are on everyone’s mind like:

1. “Ed, where’d all the money go?”

2. “Ed, why didn’t you save for a rainy day?”

3. “Ed, what are you going to do if you DO sell the house before foreclosure, because with that loan amount, it’s not like you have much to live on.”

I’m pleased to see that at least Ed took some of the blame for his predicament. It’s NOT about the economy and a slow housing market. It’s that he MUST sell because he has no money to make his payment.

He apparently went public with the news of pending foreclosure because, well, that’s public information (ha! ha!) and also because:

“I figured I want to speak for [them],” he said. “I want give them hope and some kind of guidance.”

He wants to give others facing foreclosure some kind of “guidance”???

I, for one, am glad he’s gone “public” and is speaking out. Look in the mirror and repeat after me:

“I will not be Ed McMahon someday. I will prepare for my retirement. I will save some money for a rainy day. I will not be Ed McMahon someday.”

But Ed is forever the optimist because some publicity is better than NO publicity (even Ed knows that):

“Now there’s all kinds of interest. I’m optimistic,” he said, adding that his experiences landing fighter jets on battleships during WWII have given him a practical life-outlook: “Once you’ve done that a couple times, this is easy.”

Stay tuned. I doubt this is the last we’re going to hear of this story.

I just heard on CNBC this morning that the credit crisis is over. All of the bad news is behind us. Good times will be here again.

Heck- look at the housing numbers. They went UP for the first time in five months. Housing starts were up 8.2% in April- which means builders are building MORE houses than they did last month.

Isn’t that great?

They’re apparently doing this even though there are a record number of homes sitting empty around the country. That “inventory” is massive.

But hey- what’s not to like? So a few more are now being built.

What’s “supply v. demand” anyway- when the housing bottom has been reached?
Yes- that’s also what I heard on CNBC this morning. This is the bottom of the housing market. We all should be buying in now because it only has one place to go- and that is up.

I’m all for being optimistic. And yes, someday housing WILL rise again. But the bust only started about two years ago- after over a 10 year bull run. Historically, that would mean we’re not even close to the bottom of the market.

Additionally, the bottom of busts happen when no one is paying attention and when no one is buying the asset. Take the bottom of the Nasdaq bubble. You couldn’t get anyone to buy shares of Yahoo or Cisco. In fact, you couldn’t get people to buy much of any stocks (and still- many people don’t “believe” they can make money in the stock market.)

In Chicago, I still hear stories of flippers, investors, and speculators in the housing market. That doesn’t seem to indicate a bottom to me.

But maybe I’m just wrong and CNBC is right. Maybe housing will rise from the dust this summer- despite the banks tightening credit and actually requiring a downpayment.

Maybe…or maybe not.

The stock market, however, is making quite a few people money right now. Housing will too- someday. But that day is not right now.