The Shotgun Blast Heard 'Round The World [Update 2]

[fp A.R.]

It Is Not Just Lehman Brothers - or Lehman and WaMu.

Apparently, bankers involved in the enormous talks to save Lehman Brothers are saying that the internal work of at least one firm indicates a non-zero probability that Washington Mutual, AIG Insurance and Merrill Lynch could fold WITHIN THE WEEK - individually or separately. As for the dependability of this work, I can only say that the same firm, analyzing the effect of Bear Stearns, reportedly concluded that if that investment bank had not been rescued, Lehman Brothers would follow Bear into bankruptcy within a short time, followed by Merrill. This was considered too dour a forecast by many at the time. Apparently it wasn't gloomy enough.

Jim Cramer may soon get an answer to his question:
"When Will This Market Crack?"

[This was cross-posted from my blog, so if it refers to something I haven't written about here, that's why. Updates will be added at bottom and I will try to keep them as brief as possible.]

The problem with going further into a story like this is that - for the moment - the internal finances of these institutions and the operations of the markets in which their assets are valued are too murky to make analyses - unless you have proprietary knowledge, which I sure don't.

As for my own little thesis, this is probably going to be a negative both for oil and the dollar, but it's not good for the euro or yen in the long term, either, I think. But certainly in the short-term the euro is soaring. I expected it, see my previous post "It Begins".

And that bubble full of dollars is sure emptying out pretty fast. I think all trends pause and then accelerate.

On a positive note, I just want to say that this is a very predictable result of laissez-faire policies, but it CAN BE REVERSED.

The U.S. government has enormous power to re-capitalize markets because the government's capital efficiency is so strong.

While under-regulation in trading markets always - ALWAYS - leads to collapse [start with this mess, then go backwards in time through Enron, LTCM, Asian Bubble, etc., etc. - you'll see what I mean], those markets usually get properly regulated and start to function again - with some significant help.

As a citizen, you just need to support policies that put money out to more regular people in a well-organized, well-regulated way with the most democratic input.

Update [2008-9-15 12:46:2 by dlaw]: Just to sum up the story:

  1. 150-year-old investment bank, Lehman Brothers, is bankrupt.

  2. Merrill Lynch has been acquired by Bank of America in a stock deal which also included extraordinary new lending facilities from the Federal Reserve Bank. This means, incredibly, that three of the five major investment banks on Wall Street have disappeared in six months.

  3. AIG Insurance has announced that it suddenly needs $40 BILLION dollars and is asking for it from, of course, the government, not liking the terms it got in the private market. Given the nature of the insurance business, I cannot imagine how suddenly needing $40 B could mean other than that they are dead.

  4. We haven't even heard about WaMu, which is very disturbing. Meetings over the entire weekend including THOUSANDS of people resulted in only one of three institutions saved. WaMu apparently wasn't even on the list.

I conclude that WaMu is toast, based on two things:

  1. The inevitable inference that the outright deception in the financial statements and accounting at these firms is at an incredible level.

  2. The obvious complacency of private financiers who have now come to expect HUGE economic subsidies before they are willing to intervene to save the system - and thereby themselves.

If you see a lot of security and black limousines around the Washington Mutual headquarters one weekend soon, you know they are done.

Update [2008-9-16 18:3:33 by dlaw]: S&P; cuts WaMu debt rating to "Junk"

< Please donate to George Fearing in the 4th CD | In Case You're Not Paying Attention [Update 1] >


What the F?

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how many people don't seem to be the least bit concerned about all of this or don't have any idea how it could personally effect them.

by Cherisse on Mon Sep 15, 2008 at 01:49:46 PM PST

* 1 none 0 *

...and there are no choices but I voted anyway: "Vote". It didn't count it, apparently: a metaphor, I guess.

by m3047 on Tue Sep 16, 2008 at 01:42:04 AM PST

* 2 none 0 *

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Skims $ Millions
from workers comp to attack Gregoire







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