January 26 2009: Gamblers, liars, fortune tellers and politicians

Ilargi: If today is any guide, my prediction yesterday that we might be in for a rough week looks spot on. Major corporations announced a minimum of 60.000 job losses. In one morning. The fact that this leads to stock exchanges doing happy dances, with London up close to 4%, and Amsterdam 6%, makes me lose what little faith I might have had left in our societies. As long as one man's misery is another man's profit in such a direct cause and effect line, there cannot be much of a future left.

What galls me in an equal fashion is reading about Citigroup buying a new $50 million corporate jet with its $50 billion taxpayer bail-out money. Or the ex-CEO of Deutsche Post, a semi-government institution as far as I can tell, getting a suspended sentence and a $1 million fine for sludging over $1 billion away from the German people. No jail, and an 0.1% fine. Justice, here we come. Or John Thain, who offers to pay back the $1.2 million he spent on his office while firing his employees. I think John Thain should by now be incapable of paying such amounts, period. Merrill Lynch paid out billions of dollars in bonuses when it was already clear they were going down and being bought up by Bank of America, with, there's the term once again, taxpayers' money. Confiscate it.

Read on...

Yes the perverse reaction of the stock markets to mass layoffs is a harbinger of the investors' depravity. Peacenik thinks the stock markets are totally detached from reality. The markets glom onto the smallest fact and race up. Meanwhile the house of cards has completely fallen down. Wall Street is now totally occupied by a bunch of Baghdad Bobs. When will everyone finally clue in. Peacenik thinks never. They will never clue in. The Dow will trade down into the low 7000's and someone will start a rumour that Buffet is buying in. Larry Kudlow will call the bottom for the 60th consecutive week. And there will be a rally. But the rallies will be smaller and smaller and shorter and shorter. As everything falls to zero.

Ready To Do It Right Yet?

The banks, that is.

XLF (the financial sector spyder) yesterday, down 16.5%. That's impressive, but what's even more impressive is the loss in some of the components, to wit:

BAC, down 28.9%
Citigroup, down 20%
Goldman Sachs, down 18.9%
JP Morgan, down 20.7%
Morgan Stanley, down 15.9%
State Street, down 59% (!)
Wells Fargo, down 23.8%

Those are one day losses folks. In one day anywhere from twenty percent to more than half of these firms was wiped out. If you hold their stock, I hope you're prepared for what you see when you look online at your account.

Why did this happen?

Read on...

Peacenik half expected, along with everyone else, a brief inauguration rally in the markets. Instead the markets are one step closer to Armageddon. Looks like Obama isn't going to have a honeymoon period to think about solutions. His next step is crucial. On a slightly brighter note Obama ordered a pause in the military tribunals and a review of Bush's latest regulations. But the markets. Peacenik is nervous. Are you?

The US and global financial crisis is becoming much more severe in spite of the Treasury rescue plan. The risk of a total systemic meltdown is now as

Nouriel Roubini Sep 29, 2008

It is obvious that the current financial crisis is becoming more severe in spite of the Treasury rescue plan (or maybe because of it as this plan it totally flawed). The severe strains in financial markets (money markets, credit markets, stock markets, CDS and derivative markets) are becoming more severe rather than less severe in spite of the nuclear option (after the Fannie and Freddie $200 billion bazooka bailout failed to restore confidence) of a $700 billion package: interbank spreads are widening (TED spread, swap spreads, Libo-OIS spread) and are at level never seen before; credit spreads (such as junk bond yield spreads relative to Treasuries are widening to new peaks; short-term Treasury yields are going back to near zero levels as there is flight to safety; CDS spread for financial institutions are rising to extreme levels (Morgan Stanley ones at 1200 last week) as the ban on shorting of financial stock has moved the pressures on financial firms to the CDS market; and stock markets around the world have reacted very negatively to this rescue package (US market are down about 3% this morning at their opening).

Let me explain now in more detail why we are now back to the risk of a total systemic financial meltdown...

Read on...

It is Tuesday morning and the markets are bouncing back a bit, without the bailout. Roubini wrote the above before the bailout failed. Roubini's view is scary. Peacenik thinks some kind of bailout will occur this week, but Peacenik is not entirely optimistic that the bailout is the solution. It's funny how this financail crisis is dominating the news, even wiping speculation about a Sundin signing out of the media. Bailout fails. Leafs win. All is well.

Impacts of the Financial Crisis: The U.S. Is Becoming an Impoverished Nation

by Richard C. Cook

Everything the Federal Reserve and the U.S. Treasury Department are trying to do to stem the tide of the self-destructing U.S. financial system is a stopgap. They are locking the barn door after the horse—many horses—have already escaped, and they know it.

They also know the cause of the crisis is not subprime mortgage lending—that was just the trigger. Cries to re-regulate the failed financial industry are coming from Congress, the media, and investors around the world. But lax regulation is not the cause of the problem either.

For now, all the Federal Reserve can do is loan more “liquidity” into the system that must eventually be collateralized by Treasury debt—that is, debt incurred by taxpayers—to cover bad loans made previously with credit which the banking system created out of thin air.

The Federal Reserve and Treasury are trying to forestall and cover up the bankruptcy of the entire U.S. economy, which already is looming. But the injection of liquidity into the system only means more loans and more interest. With more foreclosures and bankruptcies, it also means that more assets pass into the bankers’ hands.

No doubt the decision makers hope to prevent a cataclysmic meltdown, at least until after the November presidential election. President George W. Bush is being deeply discredited, because it happened on his watch. Republican presidential candidate John McCain looks more out-of-touch and clueless with each passing day.

But even though all the attention has been focused on “Wall Street”; i.e., financial institutions such as Fannie Mae and Freddie Mac, along with Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley, Washington Mutual, and AIG—with more to come—none of these would have gotten into so much trouble without the nation’s banks having acted to leverage speculative investments with money they themselves generated as electronic ledger entries.

And it’s the banks—or at least some of them—that may be the next to go.

Keep Reading...

punditman says...

This article sums up what has been happening to the US economy and lays the blame squarely where it belongs: on the "geniuses" who run the country. It is they who created a "debt-based monetary system, with a debt pyramid in the tens of trillions of dollars...made even more dysfunctional with our loss of societal purchasing power due to the outsourcing of jobs to cheaper labor markets."

It's all connected. Expecting war as diversionary tactic more than ever.