It's been a wild couple of days in the financial world. Not only did Lehman Brother's go under but so did Merrill Lynch. And then AIG. And then... The panic continues and will for some time. Politics in the Zeros recommended the following financial blogs. You can't tell the players without a program and, in these times, it's very important to keep up with what is happening. I've read about the beginning of the Great Depression and wondered what it was like living through it as things unraveled. Now I'm finding out.

CalculatedRISK

Mish’s Global Economic Trend Analysis

The Big Picture

Infectious Greed

Naked Capitalism

I would also add: RGE monitor

A Ripe Moment
by Jim "Happy Talk" Kunstler

It turns out the real hurricane blew through Wall Street last week, not Galveston. This morning, Manhattan is strewn chest-deep with the debris of banking and at this hour (seven a.m.) nobody knows how far, deep, and wide the damage will spread. The fear, of course, is that we are witnessing a classic "house-of-cards" or "dominos-in-a-row," situation, and that the death of Lehman Brothers and Merrill Lynch will cascade into a generalized collapse of the entire consensus of value that supports mediums of exchange. At least one thing ought to be clear: this has happened due to the negligence and misfeasance of the regulating authorities, namely the Republican Party, and that now all the hoopla surrounding Sarah Palin can be swept away revealing that group to be what they actually are: the party that wrecked America. I hope one or two Barack Obama campaign officials are reading this blog. You must commence the re-branding of the opposition right now. The Republicans must be clearly identified as, the party that wrecked America. Many things happening this week will be interesting to see and hear, but just now an outstanding question is how on earth can the Bank of America buy Merrill Lynch for $50 billion after assuming the liabilities of the tarbaby known as Countrywide? But that little detail may be lost in the din as other banks and bank-like organizations start crashing like sequoia trees in a national forest. I wish I knew whether this extravaganza of ruin might settle the question as to whether America goes into hyperinflation or implacable deflation, but the net effect is that money is leaving the system in big gobs. And if not money per se, then the idea of money as represented in certificates, contracts, counter-party positions, and gentlemen's agreements. This is the day that America finds itself a much poorer nation. The capital we thought was there, is gone. A lot of it was actually translated over the years into Hamptons villas, Gulfstream jets, and other playthings that will now go up on Ebay or some equivalent as we turn into Yard Sale Nation in a general liquidation of remaining assets. Of course, the trouble in a situation like this, where absolutely everybody is trying to pawn off assets, is that there are very few buyers on the scene, so the prices of all these things go down down down. Everything is for sale and nobody has any money.

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Lehman collapse means all bets for the financial system are now off

Any bank harbouring hopes of an end to the credit crunch had a rude awakening today. Lehman Brothers' bankruptcy has dealt the money markets another crippling blow, incapacitating them for who knows how long. Since the crunch struck last year, the markets have been in seizure. But, with the careful nursing by governments and central banks, they appeared to be on the slow road to recovery. No longer. Fears about other banks' exposures to Lehman and renewed uncertainty as to where the crisis may strike next will freeze the wholesale markets up again. The crunch is back with a vengeance. It's not hard to see why. Lehman's collapse into bankruptcy protection is the biggest corporate debt default in history and, in the complex interwoven world of modern banking, no one properly understands where the risks lie. Wall Street's titans gathered on Sunday afternoon to start the process of working out their positions by sitting down with other banks and tracking the paths of these impenetrable credit structures. It will take months at the very least for them to establish their "naked" exposure.

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  thanks to Politics in the Zeros

The transformation of the USA into the USSRA (United Socialist State Republic of America) continues at full speed with the nationalization of AIG

Last week we argued that, with the nationalization of Fannie and Freddie, comrades Bush, Paulson and Bernanke had started transforming the USA into the USSRA (United Socialist State Republic of America). This transformation of the USA into a country where there is socialism for the rich, the well connected and Wall Street (i.e. where profits are privatized and losses are socialized) continues today with the nationalization of AIG. This latest action on AIG follows a variety of many other policy actions that imply a massive - and often flawed - government intervention in the financial markets and the economy: the bailout of the Bear Stearns creditors; the bailout of Fannie and Freddie; the use of the Fed balance sheet (hundreds of billions of safe US Treasuries swapped for junk toxic illiquid private securities); the use of the other GSEs (the Federal Home Loan Bank system) to provide hundreds of billions of dollars of “liquidity” to distressed, illiquid and insolvent mortgage lenders; the use of the SEC to manipulate the stock market (restrictions on short sales); the use of the US Treasury to manipulate the mortgage market (Treasury will now for the first time outright buy agency MBS to manipulate and prop up this market); the creation of a whole host of new bailout facilities (TAF, TSLF, PDCF) to prop and rescue banks and, for the first time since the Great Depression, to bail out non-bank financial institutions; the recent extension of the collateral available for the TSLF and PDCF facilities to a much wider range of toxic securities including equities and thus allowing the Fed to effectively manipulate even the stock market; and a whole range of other executive and legislative actions (including the recent bill to provide a public guarantee to mortgages for banks willing to reduce their face value). So, with the nationalization today of AIG, comrades Bush, Paulson and Bernanke welcome you again to the USSRA. At least in the case of Fannie and Freddie these two institutions were semi-public to begin with as they were Government Sponsored Enterprises (GSEs). Now we get instead the first pure case of a fully private company, actually the largest insurance company in the world, being nationalized. So the US government is now the largerst insurance company in the world. So the transformation of the USA into the USSRA goes a step further.

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The Federal Government Is Now the World’s Largest Housing Company

Socialists could never have done to the market what the free marketers have. The socialization they never wanted done, they're now down on their knees begging for. "Buy us. Please buy us. Save us from ourselves". As the news that AIG has sold 79.9% itself to the Federal government for 85 billion dollars, Scarecrow wrote to me: Seriously, this is staggering. The US government is about topurchase and operate as a government entity the world's largest insurance company for $85 billion. So the US now owns/operates the entities that purchases home mortgages from banks/S&Ls (and owns $5 trillion of that) and the largest entity that insures the transactions that repackages and resells those mortgages.

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Fed Blinks, Offers Lifeline to AIG, Hypocrisy Replaces The Bull As Symbol Of Wall Street

During this whole crisis I have come to learn a few things about myself. (I'll get to AIG in a moment.) The main thing I have learned is that I am a lot more of a 'free-market' person than I ever imagined. I shouldn't be surprised, I guess, having lived and breathed markets for 11-plus years. But there is also another reason for this: hypocrisy. I do believe markets and the market mechanism are amazing things. And when properly regulated, overseen, transparent and when all the true costs are included the market mechanism is the greatest wealth creation machine there is. But, it must be allowed to function as reasonably free and unfettered on the upside as well as the downside. That's where the hypocrisy comes in for me. All this palavering about short-sellers is just the tip of the iceberg. But it's the most prominent complaint we're hearing about right now. Why is it ok to have a market that always goes up, but not one that goes down? What's free about that? Again, this is just the tip of the iceberg. Short-sellers aren't the enemies here, they serve a very useful purpose, much like culling a herd of the weak. No, it ain't a pretty business--just ask any hunter or farmer, but it's a damned vital one. And the powers that be show just how hypocritical they are when they talk about the evils of the short sellers. Let them short! What's even more worrisome are the absolutely staggering levels of government intervention in our financial markets. Enough is enough! We can nationalize the nation's largest insurer but not have national healthcare? Good grief! They should have let Bear Stearns fail. (Not Fannie and Freddie, however, as there is and was an implicit Federal guarantee, but the way it was done by wiping out shareholders in favor of a certain class of bondholders was the wrong way to go about it; just goes to show you what happens when you have a 'bond-man' like Hank Paulson at the helm.) They should have let AIG fail. They should let every Wall Street institution with a poor balance sheet fail. They all deserve to fail if they didn't hedge their risk properly and save for a rainy day. But the rich? Well, they own the country. They own our government. The financiers, the paper-wealth pushers and the bond-men who spent the better part of a decade getting us into this mess are now terrified of losing their ill-gotten gains and they are using every lever of the government, your government, which they own, to protect their wealth. As for the future: we won't see any meaningful or helpful regulation until the markets are allowed to fall, freely. We certainly won't get it under a McCain Administration (imagine Phil Gramm as Treasury Secretary, terrifying, eh?). And I don't think we'll get meaningful regulation under an Obama one either--most likely a reactionary overshoot, instead of thoughtful and studied reforms (no, I'm not calling for a McCain-like 9/11 Commission). But, I'm convinced the markets need to be allowed to clear this out, without government intervention. We can't avoid a Japan-like lost decade. It's too late. And all the intervention in the world does is forestall the day of reckoning. There is too much risk in the system and it needs to be cleared out. Let it burn! We're all going to suffer, regardless.

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You Know The Banking System Is Unsound When....

1. Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one." If the banking system was safe and sound, everyone would know it (or at least think it). There would be no need to say it.

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Report: Regulators Looking for a Buyer for WaMu

Insanity is Doing the Same Thing and Expecting Different Results: Real Reform Means Reinstituting Glass-Steagall at Full Strength and Breaking Up Financial Conglomerates

Ok, enough already. I'm sick of people talking about modern markets as if they are something wonderful. No, they aren't. Obama is absolutely right, they completely fell down on their job, not just for the last 8 years, but for most of the last 28 —whenever Republicans were in charge, and a fair bit when Dems were in charge. Ordinary people haven't had a raise in damn near 30 years. This is success?

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