M. Burke

More Financial Pitfalls Ahead - S&P

PART 2

I forgot one amazing moment at an amazing time approaching September 15.

I actually tried to introduce a way to save Lehman Brothers that the people who saw it thought had merit. It finally made its way to Dick Fuld but not until the last Sunday. Frustrated, I tried to reach major commercial banks and investment banks. The common message I got back was stunning. We do not want to save Lehman.

For the investment banks, it seemed like shooting yourself in the foot. After all, who was going to be in your syndicates now other than commercial banks with bigger balance sheets who are trying to kill you. Good call!

As for the commercial banks, at least you could fathom the response.

However, by the time it was over 2 days later, one had to ask "Don't the Fed, the Treasury, the commercial banks and the investment banks know that Lehman's downfall would have drastic repercussions?" These are the best & brightest who are the pros, the ones who know. It is their business to know. Lehman Structured Notes in money market funds here and around the world. You guys know those notes are only as good as Lehman's credit. The only lesson you possibly can take from it is "The DNA id the DNA is the DNA" You've competed so ferociously for so long that you don't know any other way to respond. Watch your livelihood go down the drain. Now all we have are commercial banks. Some of the new ones don't even seem to know what that means as they make public statement after public statement that not much will change in their business models. May I introduce you to the Fed, your new master. Of course, the Fed and the Treasurer have shoveled so much money into the banks outside of TARP through the side door with little public notice to the tune of hundreds of billions of dollars that go right out the door in bonuses, deferred comp, dividends.

We want Lehman to fail! From the guys with no new business model.

Three major items will be looked back on. How the crisis built and burst, how some many people could have prevented the trough from being so severe but did nothing, and how inept and ineffective the response to the crisis has been. We may never get to the first because most of the people responsible refuse to take any responsibility. We already have the second. The third is off to a really bad start.

Restructuring America without actually restructuring America.

Right behind those three will be the expose on who got taken care and the staggering sums involved. Either its grand Theft Auto in full public view or the problem is so massive that all of the banks are insolvent and you have to get every dollar to them before too many people realize it. That the same people keep benefiting from each action tips my view one way.

It may be that both are true - in which case we're $8 trillion heading toward $11 trillion.

Lastly, this debacle will have two additional debilitating effects that are significant but not talked about very much. First, America's soft power has reached new lows, compromising our national security. Second, numbers like $8 trillion will make $100 billion seem like not that much money, disabling a governor on the spending of additional massive amounts of money and compromising our children's future well being.

Superimposing all of this on a retirement problem that was already coming to a theatre near you, we have a perfect storm and we created it. A White Swan that everybody is desperately trying to convince the public is a Black Swan.

Here's hoping for the Hollywood ending. The American people are traditionally at their best in a crisis and not so good the rest of the time. We had better be at out best because anybody who tells you this will be behind us in the next 12 months is either in denial or delusional.