Just The Facts

The Plunge Protection Team Goes to Work

I'm expecting a half point drop in the Federal Funds rate, and maybe some other "unique" approaches aimed at calming everyone's nerves.


My guess? It will provide a boost that lasts roughly 4 hours or so.


Look for DOW 3,500 by the end of this month. :(

Fannie & Freddie: Just the Tip of the Iceberg

Oh. And JPM. They just took a billion-dollar hit on Monday on the bail-out of FNM and FRE. Obviously not included in anyone's projections of their earnings for this quarter ...

Fannie & Freddie: Just the Tip of the Iceberg

No, Paul. They've already taken a dive of 90 to 99 percent.


But how about GS or MS or MER or BAC or WFC?


Isn't there still a ton of downside potential there?

Fannie & Freddie: Just the Tip of the Iceberg

>>> With that in mind, I have two more words for you…got gold? <<<

Through different analysis, I believe that you and I have arrived at the same conclusion!

But just try to buy some, at the "official" price. There is none to be had (in quantity).

:)

Fannie & Freddie: Just the Tip of the Iceberg

>>> but how will financial markets absorb $50 or $100 trillion in triggered swaps? <<<


That's easy. There was an article on it today. The swaps require the bonds be bought back by the insurers, but the nationalization of the underlying debt guarantees that the market will pay full price for the underlying security. So the bondholders sell the debt back to the insurer, who then resells it back into the market at its full insured value. The debts basically became US Treasury Notes via the takeovers. If anything, some people will make a little money in commissions on all those transactions, as everyone honors their obligations and nothing changes (other than who holds the debt).


Maybe that's why the CBO came out today with their opinion that the liabilities of FNM and FRE are now liabilities of the US government and should be added to the national balance sheet.


The problem is, it just increased our national debt by 50 percent. Won't those who own our debt expect a corresponding increase in the rate of return on their investment, due to the increased risk? It's a lot harder to pay back $14.5 trillion than it is $9 trillion --- and especially so, with the economy entering a recession (or worse) and tax revenues declining. And two candidates running for President, one of whom is promising to cut tax revenue and the other who is promising to increase federal spending !!!


Expect the returns on US debt obligations to increase dramatically in the next few weeks. And that, of course, is going to wreak pure HAVOC on our federal budgets for the next several years.


I think we've seen the beginning of the end, for America as it is currently known ...


:(

Fannie & Freddie: Just the Tip of the Iceberg

>>> it’s that the best job in the world is apparently a failed CEO. <<<


LOL! That's been true for as long as I've been following the markets, which is 7 or 8 years or so. The gal at Mattel that drove the stock from $40 to $15 --- and then drove off in the company car --- comes immediately to mind. The guys "retiring" from FNM and FRE are another good example. And I can't help but think of that guy at Boykin Lodging who made that investment in Florida real estate at $19 million with his shareholder's money because it was simply "too good a deal to pass up", while he drove the stock's value from $15 to $6, and then cut a deal with private equity to buy out the company at $8 per share (a whopping 33 percent premium to its "then-current" fair market value ... a good deal - right?). But the kicker was that the same property he "bought" for $19 million with stockholder money got sold back to him for $2 million in the deal. That was supposedly a "great deal" for the stockholders, with the company changing owners at less than half of what it was worth 12 months before.


And I'm sure there are many others.


After watching this closely for 8 years, I'm convinced that our equity markets (and all publicly traded companies in general) are mostly a sham, designed by those with money to transfer money from the pockets of the working class to themselves.


Maybe this latest crisis will finally fix the problem. And maybe not ...

The Economic Cost of the Military Industrial Complex

Excellent article.

The Fed is Terrified

<<< Not impressed neither with the depth nor with the mindset behind this article. Criticism is easy to direct, especially when no responsibility is assumed by the initiator. On the other hand, to be constructive and provide ideas as to how will our nation put this financial crisis behind is a lot harder. Since, for the sake of this and future generations, we have no other option but prevent this crisis from paralyzing and harming our economy, what other brilliant suggestions does the author have to compare with what the Fed has done ?? <<<


Criticizing the arm-chair quarterback? I understand that. And I second the comments of some of those before. You can't "save" a failed system. You must let it fall and replace it with something which will stand on its own feet.


Pull a "max" chart on the DOW or the S&P, and put it on linear scale. Then compare those charts to any of the tech companies through 2001 at the peak of the "tech bubble". Maybe you'll get the point. Our current situation is a mirage, a bubble. Unsustainable over the long run, no matter "what" Bernanke or Paulson or Congress or the current (or future) President --- or anyone else --- does. Quite simply, it CANNOT be saved.


We'll get back on our feet and start moving forward again, after we correct for the excesses of the past 20 or 30 years. When the DOW reaches 1800, we'll be at the bottom.


And if we want to "fix" it for our future generations, then our government will never be allowed to grow beyond 5 percent or so of our total economy.


So yes, next year's federal budget must be halved. I'll let you all fight over whether that means surrendering in Iraq or throwing old people and children into the street without ANY medical care whatsoever.


But that's the choice we face.