Sunday, September 07, 2008

What if this is as good as it gets?

Or subtitle: "Friday nights and Mondays always get me down" (from a 70's lyric by Paul Williams and Dada)

A U.S. archetypal failed bank. Model for more coming very soon?
Isn't it great how sometimes the most exciting news comes from the centers of finance and/or government on Friday evenings just after the stock markets have closed and folks are on their ways to wonderful weekends?

This Friday evening was one of those biggies. In order to avoid a panicky sell off on Wall Street, the government waited to release news of their intent to announce today they will oust the top executives of Fannie Mae and Freddie Mac, and place these companies which control $5.3 trillion in mortgage debt in government conservatorship. Investors, who have seen these stocks fall 89.7% and 91.4% respectively in the last 12 months (and were off an additional 20% of their closing prices in post-market trading Friday evening), can expect to lose even more when markets resume trading tomorrow. Foreign market's reactions to this latest financial train wreck should also be interesting.

So what exactly does this mean? Well, tighten your seat belts because what will follow will likely be the government's largest (ah, "government" being "we the people") bailout ever. While the exact cost is not known, estimates are it will cost us in the tens of billions of dollars.

Dada is thankful we live in the richest nation on Earth, able to expand our global empire and ambitions to the tune of several trillions of dollars while simultaneously bailing out endless institutions costing Americans hundreds of billions more.

But I wonder if maybe the recent high price of gasoline isn't the result of increased competition for oil from the U.S. Treasury needing to print greater and greater supplies of money from oil based inks for their presses running 24/7 at its mints?

My only regret is our current wars which I always thought could be carried on endlessly without any sacrifice by those of us on the home front -- save for those who expend vast amounts of energy to honk their car horns in support of peace demonstrators they occasionally pass on the sidewalks of America -- may have been a misconception.

Could it be our global hubris will extract sacrifices from each of us far more costly than the yellow ribbons on the rear ends of SUVs and drive by honkings?

Fasten your seatbelts. This ride is just beginning to get interesting.

And right here, right now? Could it be this is as good as it gets?


Border Explorer said...

Fasten your seatbelts and tighten your belt. Because I'm thinking you may be right on the money.

dada said...

As if the tenuous banking industry's woes weren't bad enough, it's hurricane season and James Kunstler on his blog contributes his pessimism about a disruption or decrease in energy supplies should a strong hurricane hit in the gulf (like Ike?) where the offshore drilling platforms and "more importantly, the Louisiana Offshore Oil Port (or LOOP), where all the oil supertanker ships from Middle East come to offload their cargos," to wit:

"My guess is that enough oil and gas will come off-line, be shut-in, or get disrupted to severely affect the normal operations of America for a couple of weeks. At the least, our just-in-time gasoline and diesel supply system will take a forced time-out. Those refineries on-shore are in the path to get hit. If they are damaged then we'll probably see shortages of motor fuels all over the eastern US."

Result according to Kunstler? "the potential disruptions to the everyday economy, could be the shot that finally pushes the long-teetering banking system over the edge. Surely the insurance industry...will not be in position to cover all its billions of dollars in payouts. This may be what finally stops the game of musical chairs in which insolvent banks pretend to be capitalized by showing up for loans at the Federal Reserve's teller cages.

"For instance, when last seen before the Labor Day hiatus, Lehman Brothers was desperately scrambling for life-support from anybody and anything with a few billion spare bucks. As the hiatus ends and real-life reasserts itself, Lehman may finally find itself free-falling into the abyss, and the chain of mutual obligations, cross-collateralizations, and Ponzi plays connecting it to the other banks could break, bringing on a domino fall of insolvent banks and institutions."

Of course, I should mention Kunstler is somewhat of a pessimist (or should I say "realist"?), which is why I probably read him.

eProf2 said...

Thanks, Dada, for the link to James Kunstler. I spent about an hour there tonight and I liked what I read thus far. The announcement of the takeover of Freddie Mac and Fannie Mae are right in line with your posts. Let the chips fall where they may. But, please don't screw with my retirement!

Fran said...

Another gvmnt *Ooops*

Keen observation on the timing of the announcements.

dada said...

Whelp, so far today's market has been great for investors in US and foreign mkts. (Faith runs deep -- and baseless)

Although, a check of Fannie Mae and Freddie Mac stocks reveal they had a "slight" drop of 88% and 81% respectively hmm, wonder how heavily some retirement funds are invested in these two?