Sunday, September 14, 2008


Well, I'm not even going to try to link this. Just go to any news site. Let's just say that the future of the Western financial system has clearly taken a left turn. Regulation? Taxes? Inflation? Higher borrowing costs? These are all in our future.
In the past six months:
- Bear Stearns goes down
- Lehman goes down
- Merrill goes down
- AIG tells the Fed it needs a $40 billion loan in order to keep its credit rating (doesn't that mean it has already lost its rating...can you be Double A rated if you occasionally need a $40 billion short term loan to avoid a death spiral)
- Freddie Mac goes down
- Fannie Mae goes down
- Ten investment banks pool $70 billion to protect against bank runs
- The Fed offers to take equity...Equity...EQUITY as collateral. EQUITY!?!?!?! I mean, how long until hedge funds start shooting at the Fed balance sheet? I'm guessing it's a matter of days

Can I say that Ken Lewis has no balls? There's no way that Merrill doesn't open as a low teens or lower stock price on Monday and he pays $29/share. Helicopter Ben and his Boy Wonder Tim Geithner have their hands all over this.

I put in an order for $800 calls on gold on Friday and my order never hit. Ugh. Couldn't be more pissed about that.

It seems absolutely clear to me that the $70 billion bank capital pool is in place to protect the next weakest player. I suspect Morgan Stanley and, to a lesser extent, Goldman Sachs are shitting their pants. This is a Morgan Stanley prop. And they are smart to do so. Without this, Morgan Stanley would be under attack on Monday. And, frankly, they may very well still be under attack. And if the attack happens fast enough and hard enough, it will weaken several of the other members of the liquidity pool.

Strap your boots on. Hope everyone is prepared to be a fully equitized buyer of assets going forward...

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