This time it has the significance in terms of figures of the 1987 crash, everywhere was filled with anxiety and uncertainty in Wall Street, even abroad the effects was not unknown, the signs of a Sunday Emergency Session opened show how tensed and tight the situation was and it was not going to be easy on the Feds, they won’t have the balls to raise the rates, they have to battle the Inflationary pressure, defend the Dollar and the Financial Giants. They have to choose now who are allowed to fail and who must never be allowed to bring down the world with them. 1987 the Dow took a big plunge of 508 points , so did the Monday news become official that Lehman’s would be forced out of the picture, I mean it was bitter but who decides who to bail-out ? Is this still a capitalist country? With the valuation of 25x Per is there more slumps to visit to clear out the forest, or Buffett says swim naked?
Lehman Brothers had survived the Long Term Capital Management crash, 1987, 1997 stock massive devaluation, the Dot Com Bubble, but Subprime Wreaked the ship and sank them to file for bankruptcy protection. Even the September 11 WTC attack could not move the American Stronghold, but the subprime mess deflowered them and wreaked the fortress with massive toxic derivatives deleveraging and a Big default Note to the mortgage issuance. Indeed another Black Monday for the history of America and this contagion has spread to all around the world. Previous talks of decoupling from the America Subprime suddenly subsided when no one in Wall Street could tell the amount of securities held by this Giant.
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We want to take a look at the Subprime mess chronologically, from 2007 around May to July there were news about the mortgage defaults which were too heavy and burdened banks around please note I am addressing the problem in a very demeanor manner, we have the mortgage companies holding defaults that are mere paper or certificates. Then we have the companies who couldn’t bear the massive leverage and declared bankrupt, the DOW back then was about 13,266 average speaking during June and they manage to pull a rally of suppressing the poison pill to about 14000. That’s when July mortgage payments were still unable to recover and the rates were sky rocketing, we see Countrywide ailed, Bear Sterns bought at $2 per share, massive write down till to date where the write downs could not be justified with the insignificant amount of cash raised, they said 100 Billion dollars was an injection to save the market then came a note to save the market with 300 more Billion then lastly they revalued and said the derivatives cost 1 trillion.
Investors are looking at the limelight that the Americano government could extend their interventionist arm to feed banks with big amount of “fiat dollars”, this type of intervention did not exist officially or could I say is used to be represented by a figure known as the PPT but now intervention is on the surface and publicly known, we take a look a Feds open discount windows, Fed short term liquidity boost, Fed open intervention with banks, Fed injection of liquidity , massive Fire sale, buyouts and bailouts what more to say with the invisible hands in the markets. Mind you but financial markets work in a cycle and not in a full upward manner, what would this imply to gamblers and those that place bets with evil grins. Rogers said this is a corrupt act to make winds for financial giants to sail with tax-payers money and this in turn will spur inflation bugs to bite our holdings, we can see that even the manipulation of data with M3; M1 data retracted from the feds office, economic indicators adjustments, and this would debase the dollar so badly that inflation is spread to others to make US look deflated and yes the US giants have done nothing better to increase the trade deficit band and exported nothing extra including their inflation problems to all around.
What we look upon here would be the safe-haven to protect our deposits and our cash, we could see Buffett has some strong strings that he can pull for information, he withdrawn all deposit insurance applications before the announcement last Friday about Lehman brothers, if only he was socially responsible and could give a stronger hint instead of reiterating that the action to nationalize Freddie and Fannie was his course of actions, many would have been spared. The short term oversold condition and the desensitization of all the news of financial dysfunction will probably bounce the dead cat, but nobody!.. I reiterate nobody in this globalized economic situation may it be a GIANT, or even central bankers be spared if the American Giants fails, even they cough Asian equities could catch cold worst still pneumonia. The financial markets need to fail themselves and embrace themselves thru the rough ride to appear sound and develop a secure foundation in the economy.
The ride to unwind all the financial mess, derivatives trading, etc is on the way, with banks refrained from provide liquidity shows that they acknowledge the risk they are facing and the importance to defend their depositors. It is the banks fundamental function to protect deposits and generate profits using a small proportion of their deposits. But it is the lack of liquidity to help banks to turn around and fill the debts , and that is what the Feds has been used to justify all their action, people are missing the point that the banks fail and we will see even more buying , mergers and acquisition, these reforms are taking process to improve the fundamentals. Banks need to clear their reserve with bad loans and divest the failed real estate in a downhill market. All in all these will pave a way to make banks and the US economy make a comeback in a bigger bang given that the Feds does not debase the currency too much and inflate the economy.
Please remember this is just the American chapter, the unfolding of rubbish holdings would overturn the European economy and sovereign wealth funds that have holdings in all the crumbling financial institutions.
Take a Look Below and think which would be next:
BOFA Vs Merrill Lynch
Freddie & Fannie Vs Federal Reserves
Wachovia
UBG
AIG Vs MBIA Vs AMBAC
Morgan Stanley Vs Goldman Sachs
Citigroup Vs Wells Fargo
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