For those who haven't seen it already, Berkshire Hathaway agreed to invest $5 billion in Bank of America this morning. The pop in stocks lasted all of 30 minutes.
But I wanted to discuss the last Buffett Bailout - of Goldman and what it may portend. My operating thesis is that WB has morphed into a completely political creature and will only make big, publicized investments for propaganda purposes. That certainly was the case with GS in 2008.
But like any actor, he has to receive something in return for the use of his name and image. That something is a political guarantee for his "investment" and the history of 2008 supports this. Buffett's deal with Goldman was announced before the US market opened on September 23, 2008. But behind the scenes a lot of political moves were being made that he obviously knew about but few others did at the time.
The Fed of course was involved. Over the next few days (through 9/29) they established or increased swaplines with a large number of foreign central banks. In effect they lent out $360 billion to foreign banks. The FDIC closed Wachovia and WaMu - pushing them to merge into the already bloated and insolvent Citibank and JP Morgan respectively. Wells ultimately outbid Citi for Wachovia. The Treasury moved to guarantee all money market funds and the TARP bailout was cooked up as a bill and submitted to the House over the weekend prior to initial rejection on the 29th.
The Bottom Line
My point is this. Last time Buffett was part of a full-court press designed to fool people into investing their earned money right along side his borrowed bank credit. Every lever was pulled by Wall Street and the Government in order to "restore confidence" and as the price of his participation, Buffett was given the privilege of front running virtually every central bank and government policy change.
I expect this time will be no different. The Fed is likely to announce something desperate and stupid tomorrow morning. It will likely be accompanied by something out of the Treasury and/or FDIC shortly thereafter if the Fed move proves insufficient to pump asset prices higher and bail out Warren after he stuck his neck out financially for favorable propaganda effect.
Of course the bad news if you're a bull is that it didn't work in 2008 despite truly extreme measures. Stocks, after a short sharp bounce continued to fall for another 6 months and housing prices merely rebounded slightly before resuming their decline. In 2008, stocks had already been falling for a year and had nearly been cut in half before they got that desperate. This time, we are 3.5 months past the rebound high and six weeks from the secondary peak. We are also only 15% off those highs - not 45% like in 2008.
There is probably a trading opportunity on the long side for the next week or two but I'm not going to get greedy or stupid. History indicates that Buffett is likely front-running SOMETHING here. But it sure as hell isn't fundamentals.
Showing posts with label bailout. Show all posts
Showing posts with label bailout. Show all posts
Friday, August 26, 2011
Wednesday, June 23, 2010
Fraud and Failure
Recent news on the housing front confirms what we have been saying about that market since the inception of Financial Jenga. In sum, there is no real stabilization much less recovery, the costs of attempting to maintain the illusion continue to rise rapidly and any cessation of government interference and manipulation results in rapid breakdown of the fake "market" which was created by those policies.
In the first instance, we now see the failure of HAMP as redefault rates among those "helped" by the program soar. An absolute majority of the government-sponsored loan modifications have now re-defaulted but they did give utterly baseless hope to debtors, thus trapping them into making continuing payments on a hopeless mortgage.
The ongoing cost to prop up Fannie Mae and Freddie Mac continues to rise. Last week the NY Times reported that the cost of those bailouts has now reached $148 billion and will likely total $389 billion. Bloomberg cites a "reasonable worst case scenario" for the ultimate tab which could be $1 trillion or more.
The creation of the tax credit for housing purchases induced a temporary uptick in the number of sales. But like many other government actions, this merely succeeded in pulling forward future demand into the present - which is now the past. We have now entered the void created by that pulling forward. The existing home sales number yesterday and the new home sales number today both demonstrate that in clear terms. Today's existing sales number was nothing short of a disaster. The headline on Marketwatch says:
Yesterday's existing home sales number was less dramatic but still indicated a housing market in trouble. The decline of 2.2% contrasted with an expected gain of 4%. The tax credit doesn't seem to have accomplished anything of value but at least it fraudulently paid out $9 million to 1,300 prison inmates.
In the first instance, we now see the failure of HAMP as redefault rates among those "helped" by the program soar. An absolute majority of the government-sponsored loan modifications have now re-defaulted but they did give utterly baseless hope to debtors, thus trapping them into making continuing payments on a hopeless mortgage.
The ongoing cost to prop up Fannie Mae and Freddie Mac continues to rise. Last week the NY Times reported that the cost of those bailouts has now reached $148 billion and will likely total $389 billion. Bloomberg cites a "reasonable worst case scenario" for the ultimate tab which could be $1 trillion or more.
The creation of the tax credit for housing purchases induced a temporary uptick in the number of sales. But like many other government actions, this merely succeeded in pulling forward future demand into the present - which is now the past. We have now entered the void created by that pulling forward. The existing home sales number yesterday and the new home sales number today both demonstrate that in clear terms. Today's existing sales number was nothing short of a disaster. The headline on Marketwatch says:
New-home sales plunge 33% to record low in MayBut that fails to reflect the full scale of the drop. In addition to May being down, April was also revised lower. This is a game we should all be familiar with by now. Actual may sales were 300k annualized. But the April report had 504k units sold but it has now been revised to 446k. That allowed the comparison to be reported as merely 33% down rather than over 40%. Either way it's not good and May set a new record low. Apparently, new houses just don't sell unless a big tax credit is piled on top of the subsidized mortgage loans.
Yesterday's existing home sales number was less dramatic but still indicated a housing market in trouble. The decline of 2.2% contrasted with an expected gain of 4%. The tax credit doesn't seem to have accomplished anything of value but at least it fraudulently paid out $9 million to 1,300 prison inmates.
Friday, January 22, 2010
Trembling Pillars of Fraud
Over the last two weeks we have seen a series of indications that some of the key elements supporting manipulation of market pricing mechanisms are beginning to tremble. We have seen equity prices rise despite the lack of any significant increase in profits. We have seen commodity prices spike without much increase in real demand. In our opinion the key institutions behind this mess are the major Wall Street (TARP) banks, government agencies and the Fed. They have all played a major role in creating credit inflation, with subsequent asset bubbles and debasement of our currency. But understand this: if you 'look through' each of those institutions you will find the US government backstopping each and every one of them. Each of those has come under increasing attack and as the supports have begun to shake, the fraudulent pricing they have promoted has also begun to unwind. As politics has supported bubble dynamics, so it can destroy them - live by the sword, die by the sword.
Fear and Loathing
First, Yahoo Finance reports that Wall Street's bonuses being paid out now will total $145 billion. That is greater than 1% of US annual GDP. In a normal year that number would be insane. After the disaster those same players inflicted on the US and global economy, that number is downright obscene. Bailouts were indefensible to start with and now you can add infuriating arrogance to the list of offenses. Public anger may be getting through to Congress and without siphoning off taxpayer money via the legislature, the rest of the Wall Street con game doesn't work. It has now gotten so bad that according to Dow Jones Newswire the TARP still exists only courtesy of a Senate filibuster by its supporters.
Fear of angry constituents has taken on a new urgency for our elected officials in the wake of a shocking Republican victory in the Massachusetts election for Senate. With citizens realizing that the Fed's actions have been a pure handout to Wall Street, the reconfirmation of Ben Bernanke as chairman is now very much in danger. Today, the NY Times reports that two additional senators abandoned him. With Geithner at Treasury already under serious scrutiny by Congress for his role in the bailout of Goldman via AIG and the subsequent attempt to hide the details, the two most prominent faces of bailout nation are both in danger of being forced out.
Friendly Fire
The biggest blow psychologically may be the rhetorical broadside from President Obama against the big banks that are a key leg of the credit inflation machine. His speech yesterday called for them to be cut down to size and shackled. This was a frontal attack on the concept of Too Big To Fail, with its implicit taxpayer guarantee for the stupid risks taken by big banks. The Obama Administration has given Wall Street nearly everything it wanted so the Street must now feel shocked that their tame politician has turned on them viciously. We have long felt that once the anger of the populace rose to sufficient levels, the political class would throw the financial elites under the bus in the interest of self-preservation.
Our government has betrayed our nation's citizens in many ways - from the TARP to the uncapping of taxpayer losses on Fannie and Freddie on Christmas Eve. The failure of those policies to make things better or even to stop them from getting worse is now obvious. The failure has become political kryptonite - so much so that Rep. Barney Frank is calling for Fannie Mae and Freddie Mack to be abolished. Frank has been one of their main defenders and cheerleaders for years if not decades. For him to even contemplate such a call tell us that taxpayer bailouts have become the political equivalent of Ebola.
Political support lies at the very foundation of attempts to revive the bubble by inflating credit and eroding the dollar. It is clear that this political support is evaporating before our very eyes and the state of the markets is beginning to reflect that. Suddenly the political foundation of Bailout Nation isn't looking too stable and the pillars resting on it are beginning to tremble violently.
Fear and Loathing
First, Yahoo Finance reports that Wall Street's bonuses being paid out now will total $145 billion. That is greater than 1% of US annual GDP. In a normal year that number would be insane. After the disaster those same players inflicted on the US and global economy, that number is downright obscene. Bailouts were indefensible to start with and now you can add infuriating arrogance to the list of offenses. Public anger may be getting through to Congress and without siphoning off taxpayer money via the legislature, the rest of the Wall Street con game doesn't work. It has now gotten so bad that according to Dow Jones Newswire the TARP still exists only courtesy of a Senate filibuster by its supporters.
Fear of angry constituents has taken on a new urgency for our elected officials in the wake of a shocking Republican victory in the Massachusetts election for Senate. With citizens realizing that the Fed's actions have been a pure handout to Wall Street, the reconfirmation of Ben Bernanke as chairman is now very much in danger. Today, the NY Times reports that two additional senators abandoned him. With Geithner at Treasury already under serious scrutiny by Congress for his role in the bailout of Goldman via AIG and the subsequent attempt to hide the details, the two most prominent faces of bailout nation are both in danger of being forced out.
Friendly Fire
The biggest blow psychologically may be the rhetorical broadside from President Obama against the big banks that are a key leg of the credit inflation machine. His speech yesterday called for them to be cut down to size and shackled. This was a frontal attack on the concept of Too Big To Fail, with its implicit taxpayer guarantee for the stupid risks taken by big banks. The Obama Administration has given Wall Street nearly everything it wanted so the Street must now feel shocked that their tame politician has turned on them viciously. We have long felt that once the anger of the populace rose to sufficient levels, the political class would throw the financial elites under the bus in the interest of self-preservation.
Our government has betrayed our nation's citizens in many ways - from the TARP to the uncapping of taxpayer losses on Fannie and Freddie on Christmas Eve. The failure of those policies to make things better or even to stop them from getting worse is now obvious. The failure has become political kryptonite - so much so that Rep. Barney Frank is calling for Fannie Mae and Freddie Mack to be abolished. Frank has been one of their main defenders and cheerleaders for years if not decades. For him to even contemplate such a call tell us that taxpayer bailouts have become the political equivalent of Ebola.
Political support lies at the very foundation of attempts to revive the bubble by inflating credit and eroding the dollar. It is clear that this political support is evaporating before our very eyes and the state of the markets is beginning to reflect that. Suddenly the political foundation of Bailout Nation isn't looking too stable and the pillars resting on it are beginning to tremble violently.
Tuesday, September 30, 2008
The Limits of Optimism
The absurd actions of our financial authorities continue to impress with the sheer hubris and vast scale of their proposals - with today's bailout attempt being the latest and greatest of many attempts. Some of the government's contortions would be impressive even for Cirque du Soleil were they not such a blatant effort to distort the market. Our nation and the world at large seem to be living out the economic equivalent of a Kafka novel today. Yet even here we see the boundaries of government interference and the limits of (unjustified) optimism. As advocates of the free market and rule of law, we have been constantly appalled. A nominally Republican administration continually interferes with market forces and changes investment rules in the middle of the game. How did we come to such a sad pass?
Like many children, yours truly had a favorite word for much of his childhood - "Why?" Eventually, I stopped bothering Mother but never stopped asking the question. It is particularly pertinent now. How did we put ourselves in a position where using tax money to subsidize Wall Street's losses could even be considered? Well, the stock market is now considered key to the retirement of many Americans.
Why?
Er, most Americans now have a substantial part of their pension or 401(k) invested in stocks.
Why?
Well, the higher average rate of return on stocks allows us to say that retirement is fully funded with less up-front investment. This is especially important for corporate and government pension plans. For individuals it allows hope of the big score and a cushy retirement.
Did the pension managers decide that was a good idea, themselves?
Umm, not really. Remember, stocks are not bought - they are sold. Some smart salesmen on Wall Street started to push this in the late 1980s, just as the last people who lived through the Great Depression were retiring.
But what about the higher risk?
The salesmen could point to the superior long-term returns from equity, while glossing over the risk and the folks who remembered the risk in very visceral ways were gone. Even so, many pension managers objected but were overruled by their bosses who wanted to lay out less money for pensions so they could spend it elsewhere (government) or report higher earnings (corporate).
What about 401(k) plans?
The long bull market convinced many individuals that there was little risk in stocks. They certainly had produced high returns. Many people hitched their wagon the Wall Street.
Perpetual Motion Machine
With so much money from average Americans pouring in, stocks could hardly do anything else but rise. Eventually it became a self-fulfilling prophecy as money chased performance, while pushing the price up in turn. That reached its peak with the Tech Bubble, when completely worthless companies were valued in the billions. When that broke down, the Fed stepped in and created a new bubble - actually several bubbles, led by housing. The same self-reinforcing dynamic - as old as markets themselves played out again.
With so much money from the masses committed to the stock and housing markets, there is considerable support for ANY measure to bail out these markets and prop up asset prices. This is the end result of individuals and pension funds refusing to settle for the smaller but steady gains from lower-risk investments. Keep in mind that not long ago, most pension and endowment type funds invested almost exclusively in bonds. For the economic importance of this, let's examine the characteristics of each class of capital:
- Senior Debt (bonds or bank loans):
first in line for assets and cash
must be paid or the creditor can liquidate the borrower
reliant on total company cash reserves
- Junior Debt:
next in line but otherwise similar to Senior Debt
- Preferred Stock:
3rd in line for assets and cash
dividend can be suspended as stockholders CANNOT force liquidation
reliant on company cash flow
- Common Stock:
last in line for assets and cash
dividend has the least protection of any security
reliant on company profits
potential for speculative gains
Slouching towards Insolvency
Over time, asset allocations at all levels have become riskier, including pension funds. From an economic standpoint, investment results became more reliant on marginal financial activities. For example, bonds are tied to current and future corporate cash (reserves + cash flow), which tends to have a linear relationship with revenue. Preferred is reliant largely on cash flow. Common is tied to marginal profit and even to the growth rate of profit - the second and third derivatives of revenue. Investment results went from relying on the soundness of the companies, to their profitability and then to the growth rate of that profitability. Under these circumstances, it is no surprise that the emphasis shifted away from ensuring that companies remained sound and certain to survive and towards showing growth or even accelerating growth (a fourth derivative!) at almost any price.
The eventual price was to lever up companies far beyond what was prudent in the quest for "growth." It didn't matter if the growth was real or not, it just had to look real for the shareholders. Companies undermined their own capital base with stock buybacks that juiced EPS growth while consuming cash flow and in some cases requiring additional indebtedness. We pointed to this problem nearly a year ago in Tactical Nukes. The paradoxical result was a slew of companies that were "growing" rapidly but could not survive a downturn. By placing so much reliance on marginal outcomes, the system became easy to game as small movements in revenue could drive huge changes in "growth" rates. Eventually, growth became THE foundation of many investment strategies, making those folks dependent on them willing to support increasing distortions of free markets for financial gain.
Those distortions have been a large part of the discussion here at Financial Jenga since the very beginning. The collapse of the illusion of growth and the economic distortions that supported it have revealed the true state of the underlying economy for all to see and it's not a pretty sight. Such are the ironic outcomes of the Universal Debt Bubble.
Like many children, yours truly had a favorite word for much of his childhood - "Why?" Eventually, I stopped bothering Mother but never stopped asking the question. It is particularly pertinent now. How did we put ourselves in a position where using tax money to subsidize Wall Street's losses could even be considered? Well, the stock market is now considered key to the retirement of many Americans.
Why?
Er, most Americans now have a substantial part of their pension or 401(k) invested in stocks.
Why?
Well, the higher average rate of return on stocks allows us to say that retirement is fully funded with less up-front investment. This is especially important for corporate and government pension plans. For individuals it allows hope of the big score and a cushy retirement.
Did the pension managers decide that was a good idea, themselves?
Umm, not really. Remember, stocks are not bought - they are sold. Some smart salesmen on Wall Street started to push this in the late 1980s, just as the last people who lived through the Great Depression were retiring.
But what about the higher risk?
The salesmen could point to the superior long-term returns from equity, while glossing over the risk and the folks who remembered the risk in very visceral ways were gone. Even so, many pension managers objected but were overruled by their bosses who wanted to lay out less money for pensions so they could spend it elsewhere (government) or report higher earnings (corporate).
What about 401(k) plans?
The long bull market convinced many individuals that there was little risk in stocks. They certainly had produced high returns. Many people hitched their wagon the Wall Street.
Perpetual Motion Machine
With so much money from average Americans pouring in, stocks could hardly do anything else but rise. Eventually it became a self-fulfilling prophecy as money chased performance, while pushing the price up in turn. That reached its peak with the Tech Bubble, when completely worthless companies were valued in the billions. When that broke down, the Fed stepped in and created a new bubble - actually several bubbles, led by housing. The same self-reinforcing dynamic - as old as markets themselves played out again.
With so much money from the masses committed to the stock and housing markets, there is considerable support for ANY measure to bail out these markets and prop up asset prices. This is the end result of individuals and pension funds refusing to settle for the smaller but steady gains from lower-risk investments. Keep in mind that not long ago, most pension and endowment type funds invested almost exclusively in bonds. For the economic importance of this, let's examine the characteristics of each class of capital:
- Senior Debt (bonds or bank loans):
first in line for assets and cash
must be paid or the creditor can liquidate the borrower
reliant on total company cash reserves
- Junior Debt:
next in line but otherwise similar to Senior Debt
- Preferred Stock:
3rd in line for assets and cash
dividend can be suspended as stockholders CANNOT force liquidation
reliant on company cash flow
- Common Stock:
last in line for assets and cash
dividend has the least protection of any security
reliant on company profits
potential for speculative gains
Slouching towards Insolvency
Over time, asset allocations at all levels have become riskier, including pension funds. From an economic standpoint, investment results became more reliant on marginal financial activities. For example, bonds are tied to current and future corporate cash (reserves + cash flow), which tends to have a linear relationship with revenue. Preferred is reliant largely on cash flow. Common is tied to marginal profit and even to the growth rate of profit - the second and third derivatives of revenue. Investment results went from relying on the soundness of the companies, to their profitability and then to the growth rate of that profitability. Under these circumstances, it is no surprise that the emphasis shifted away from ensuring that companies remained sound and certain to survive and towards showing growth or even accelerating growth (a fourth derivative!) at almost any price.
The eventual price was to lever up companies far beyond what was prudent in the quest for "growth." It didn't matter if the growth was real or not, it just had to look real for the shareholders. Companies undermined their own capital base with stock buybacks that juiced EPS growth while consuming cash flow and in some cases requiring additional indebtedness. We pointed to this problem nearly a year ago in Tactical Nukes. The paradoxical result was a slew of companies that were "growing" rapidly but could not survive a downturn. By placing so much reliance on marginal outcomes, the system became easy to game as small movements in revenue could drive huge changes in "growth" rates. Eventually, growth became THE foundation of many investment strategies, making those folks dependent on them willing to support increasing distortions of free markets for financial gain.
Those distortions have been a large part of the discussion here at Financial Jenga since the very beginning. The collapse of the illusion of growth and the economic distortions that supported it have revealed the true state of the underlying economy for all to see and it's not a pretty sight. Such are the ironic outcomes of the Universal Debt Bubble.
Saturday, September 27, 2008
Shadow Banks, Shadow Government
Here at Financial Jenga, we don't often comment directly on politics - being much more inclined towards economics. We are also equally skeptical of both groupthink and conspiracy theories - which tend to be opposite sides of the same psychological coin. However, the sheer scale of the current crisis and many of the proposed solutions make this problem inherently political. It would also appear that many of the "fixes" being bandied about won't actually fix anything but WILL benefit certain politically-connected parties.
There is considerable evidence that the proposed $700 billion bailout of Wall Street will do little to fix the credit problems. One of the key arguements used by supporters is that banks don't have enough money to keep lending. This is simply a lie. The latest Fed H.3 report shows that excess reserves in the banking system were $68.8 billion as of 9/24/08. This is 1400% above any other datapoint for the past year and more than 2000% higher than the average for that time. In other words, the Fed has FLOODED the banking system with borrowed money (the excess reserves) and the banks STILL won't lend.
In the real world, you cannot conduct fully-controlled experiments to validate an economic theory. But to the extent that it can be, we have already tested the thesis that giving banks more money will cause them to lend more and found it to be flawed. The most likely outcome of the bailout appears to be many banks saved at taxpayer expense but we get a credit crash and recession-depression anyway and Main Street has even less money to struggle through it since it will have been given away to Wall Street. Basically, it redistributes the losses for past transgressions from the guilty to the innocent and does little to help the future. We therefore oppose the bailout on both economic and moral grounds.
Hitting the Panic Button
According to various media reports, the supposed experts threatened Congress with all sorts of terrible repercussions if the bailout was not passed immediately and without strings. From their public statements, our representatives have been told that failure to do so would result in an immediate end of credit, a stock market crash, massive layoffs and likely a new Great Depression. As regular readers here know, many of these consequences ARE likely but they do NOT stem from the lack of a bailout for Wall Street. They are the DIRECT result of the orgy of foolish lending that preceeded the bailout request. Paulson and Bernanke are using their control of information and the ignorance of the politicians to run a bluff. We are being threatened with consequences that are likely to come in any event and the bailout won't change that.
In many ways, the financial authorities are taking active measures to make the crisis worse. The Fed has been withdrawing liquidity from the financial system for over a week. According to the Slosh Report, system liquidity topped at $190 billion on 9/18 and fell to $110, $110, $90, $65, $63 and $59 billion on subsequent days. With the Fed deliberately cutting prior support, it's no wonder the short-term stress has become overwhelming. One result has been the largest bank failure in history (Washington Mutual) followed within days by a shotgun marriage to prevent an even larger one (Wachovia). The WaMu failure itself is quite interesting. The FDIC ALWAYS buries failed banks on a Friday, in order to give themselves time to sort the mess out over the weekend. We've gone back and checked and it's been true for many years. Yet the WaMu failure was announced on a Thursday, the day after the President unveiled the bailout proposal. The FDIC's timing on WaMu looks suspiciously like an attempt to rachet up the pressure on Congress - as does the Fed's withdrawal of liqidity support from the system.
In many ways this power-grab resembles the cynical use of religion in primitive societies. It is well documented that the priesthood in many cases studied the heavens with great care. One benefit would be the ability to predict solar eclipses - one of the most terrifying astronomical events to our ancestors. In some cases, the religious leaders used that terror to wring offerings, greater control and even political power from a frightened populace. The events in Washington today are quite similar but even worse. The crisis is already pre-determined. But the current financial leaders helped to create the disaster and now demand power to end it. In contrast the shamans and witch doctors were merely opportunists. The crisis centered in the Shadow Banks is now being used to create a Shadow Government.
There is considerable evidence that the proposed $700 billion bailout of Wall Street will do little to fix the credit problems. One of the key arguements used by supporters is that banks don't have enough money to keep lending. This is simply a lie. The latest Fed H.3 report shows that excess reserves in the banking system were $68.8 billion as of 9/24/08. This is 1400% above any other datapoint for the past year and more than 2000% higher than the average for that time. In other words, the Fed has FLOODED the banking system with borrowed money (the excess reserves) and the banks STILL won't lend.
In the real world, you cannot conduct fully-controlled experiments to validate an economic theory. But to the extent that it can be, we have already tested the thesis that giving banks more money will cause them to lend more and found it to be flawed. The most likely outcome of the bailout appears to be many banks saved at taxpayer expense but we get a credit crash and recession-depression anyway and Main Street has even less money to struggle through it since it will have been given away to Wall Street. Basically, it redistributes the losses for past transgressions from the guilty to the innocent and does little to help the future. We therefore oppose the bailout on both economic and moral grounds.
Hitting the Panic Button
According to various media reports, the supposed experts threatened Congress with all sorts of terrible repercussions if the bailout was not passed immediately and without strings. From their public statements, our representatives have been told that failure to do so would result in an immediate end of credit, a stock market crash, massive layoffs and likely a new Great Depression. As regular readers here know, many of these consequences ARE likely but they do NOT stem from the lack of a bailout for Wall Street. They are the DIRECT result of the orgy of foolish lending that preceeded the bailout request. Paulson and Bernanke are using their control of information and the ignorance of the politicians to run a bluff. We are being threatened with consequences that are likely to come in any event and the bailout won't change that.
In many ways, the financial authorities are taking active measures to make the crisis worse. The Fed has been withdrawing liquidity from the financial system for over a week. According to the Slosh Report, system liquidity topped at $190 billion on 9/18 and fell to $110, $110, $90, $65, $63 and $59 billion on subsequent days. With the Fed deliberately cutting prior support, it's no wonder the short-term stress has become overwhelming. One result has been the largest bank failure in history (Washington Mutual) followed within days by a shotgun marriage to prevent an even larger one (Wachovia). The WaMu failure itself is quite interesting. The FDIC ALWAYS buries failed banks on a Friday, in order to give themselves time to sort the mess out over the weekend. We've gone back and checked and it's been true for many years. Yet the WaMu failure was announced on a Thursday, the day after the President unveiled the bailout proposal. The FDIC's timing on WaMu looks suspiciously like an attempt to rachet up the pressure on Congress - as does the Fed's withdrawal of liqidity support from the system.
In many ways this power-grab resembles the cynical use of religion in primitive societies. It is well documented that the priesthood in many cases studied the heavens with great care. One benefit would be the ability to predict solar eclipses - one of the most terrifying astronomical events to our ancestors. In some cases, the religious leaders used that terror to wring offerings, greater control and even political power from a frightened populace. The events in Washington today are quite similar but even worse. The crisis is already pre-determined. But the current financial leaders helped to create the disaster and now demand power to end it. In contrast the shamans and witch doctors were merely opportunists. The crisis centered in the Shadow Banks is now being used to create a Shadow Government.
Subscribe to:
Posts (Atom)