Sunday, September 21, 2008

We Remain on the Brink

If anything, the $700 bln rescue package for financial institutions may temporarily reduce market volatility over the next few weeks. That's assuming it quickly passes. We would be surprised if it didn't. Yes, Hank Paulson told the boys and girls on the Capitol Hill leadership squad a scary campfire story, complete with Ben Bernanke going "boo" with a flashlight to his face and we've got the biggest blowout to the federal budget -- really to any government budget in the history of mankind.

Bottom line:

Our expectation for the high risk of an autumn systemic failure remains intact. Paulson and cohorts have actually upped the ante....

Monday, September 15, 2008

On The Brink

An acquaintance by the name of Sue, as in Sue Nami has appeared at the
door of the financial system. Sue is one of those run around Sue
types -- sure to mess with the heads of plenty of ill prepared

AIG is in a heap of trouble and could spark a market tsunami as soon
as tomorrow unless it raises upwards of $75 bln. Why? It has been
downgraded by Fitch, Moody's and S&P with promises of further

The sums of money are vast. We've gone from hearing figures like $40
bln over the weekend for a loan to tide AIG over to numbers today
topping $75 bln with perhaps a consortium of banks providing the money
led by JP Morgan. This would be in addition to NY State's regulatory
move to allow AIG to tap $20 bln in funds trapped in AIG subsidiaries.
But it's the ratings action this evening that shall prompt a do or
die gambit in the next 24 hours, or so. the NY move seemed like a stay
from the financial gallows, but it's largely moot now.

Why would JPM's Dimon and various friends and family in the banking
world wish to loan so much to crazy uncle AIG? The first answer would
be stave off meltdown that could bring everyone down. The debt
downgrades by the credit cos are a default triggering event in the
highly leveraged, multi trillion dollar world of credit default swaps.

The Fed has thus far resisted being the lender of last resort in this
situation. Why not the Fed? A loan of that magnitude would put into
question the so called implied AAA rating of Uncle Sam. Yes indeed,
we kid you not. Swaps on 5 yr treasuries jumped.....

Sunday, September 14, 2008

You Can't Say We Didn't Warn You

We're actually quite surprised by BofA's move to buy Merrill for $44 bln. What kind of back door guarantees ala Countrywide did BofA get for this latest deal, or is it just a clean stock for stock swap.

AIG needing a $40 bln loan from the Fed (U.S. taxpayers)? Yikes.

Lehman going under? Double Yikes.

We did warn of major troubles ahead in the market... subscribers have been kept up to date. We feel systemic seizure and collapse still lie ahead.

In the last post below on Fannie and Freddie, there's a link to subscribe. As we told those folk who weren't interested in paying for proprietary perspective - Good Luck!