Friday, September 19, 2008

Live Blogging The Financial Crisis

Dateline: Gaithersburg

As a follow-up to the story from our sister blog Echomouse in Canada about some of the problems in Canada, we are rushing to press this morning to announce that the beginning of the end of the financial crisis is at hand. Henry Paulson, Bush's third Secretary of the Treasury, and the first one with the "right stuff", is the hero of this debacle. There is no time to wait for the election, the time to act is now.

Here's why. Yesterday, the Fed and the European Central Union's Bank (euro) did a $183 billion swap. Regardless of what you see and hear, the World still runs on dollars because of our political stability. We got $183 billion in euros and we gave their central bank $183 billion in dollars. Their central bank lent the cash out to its member banks, such as England, Switzerland, etc. Credit should have become immediately available world wide, credit spreads should have narrowed. It did NOT happen. The banks did NOT trust each other to lend each other money overnight. They each know what they have hidden in their own balance sheets, so they know they cannot trust each other. It's simply that simple. Circular, but true.

Remember the option arm loan, where people weren't paying the whole mortgage, and refinanced after two years? And all the other mortgage gimmicks? They got sold into pools, and the banks were buying them, because they were making money. Today, most of those loans are toxic, non-performing loans, and they are on the books of the banks. Want to lend a bank money against them? I didn't think so. Well, there are still billions of dollars of those mortgages floating around out there, and there lies the problem.

How do you get the toxic loans off the books of the banks. But that is just the beginning, the short term, the bailout of Wall Street. The real issue is how do we fix the system? This has been going for a long time. Fannie Mae was established in 1938, Freddie Mac in 1970. We repealed Glass-Stegal and allowed investment banks and commercial banks under the same roof around 2000, and we abolished the uptick rule for shorting last year. The unregulated mortgage industry has been in business for quite a while. Who regulates the Insurance Industry (your state) and co-ordinates policy (no one)? I don't want to sound like a Democrat or a Republican here, but everyone who cared to know saw what was happening. On the other hand, Freddie and Fannie had excellent lobbying arms.

The market will rally on the news that Paulson has crafted a solution to buy toxic loans and dispose of them (details to follow), plus a few other issues. The SEC has also banned short selling in financial stocks for the next two weeks. This guarantees a rally. A lot of what will happen will be political. When Nancy Pilosi or Harry Ried caused heartache, the market will fall. But for the most part, the bottom is probably in place, Have a great day, and a wonderful weekend.


Echomouse said...

"As a follow-up to the story from our sister blog Echomouse in Canada about some of the problems in Canada, we are rushing to press this morning"

LOL We're our own international breaking news consortium!

Didn't I read yesterday about infusion of billions from various countries? Canada gave 10 billion I know, which was the smallest amount but you know, we don't have the same amount of money the rest have. Anyway, I read...darnit wish I could find the article...this will stop the rush of selling shares and spare anymore failures.

I'm definitely hoping this is the bottom and it doesn't get worse.

The CEO said...

Hi Carrie, that was the $183 billion dollar/euro swap that happened yesterday. See, I knew you were on top of the entire financial situation. Last night, Paulson started pulling off the last piece, by proposing an RTC-type solution to buy the bad loans out of the banks. The markets opened up over 400 points. Can you sing Yahoo?
Take it Toronto, Gaithersburg out.

Echomouse said...

Get this, today, the Toronto Stock Exchange is stopping all short selling too. Everyone is having a fit because our markets are not in the same trouble. If they stop all short selling, it will cause a crisis financially apparently? Gah. This whole thing is extremely worrisome.

Today, a 9 page document arrived in my inbox from our former financial advisor. He's a good guy. But 9 pages!!!! I'm going to make coffee so I can sit and read it.

Mel said...


I'm embarrassed to admit that I know little if anything about any of the above.
But I will say--ya'll are scarin' me...

(probably have reasons TO be scared, huh?)

Echomouse said...

Mel, speaking for myself, it's better to remain oblivious. Unless you have money in the stock or money markets. If you do, Monty will be able to advise you I think ;)

The CEO said...

Hi Mel, even fewer people have a clue as to the magic you do daily. In simplist Enlish, last week, the Republicans side-stepped the next great Depression. There's a world-wide slow down coming economically. We are about to start a major program of Governent spending/intervention.

Recent (yesterday) statistical projections show Obama with a 2 point lead over McCain. It's that old Chinese curse, may you live in interesting times.

Hi Carrie, it's going to get interesting with the govt guaranteeing money market funds. Details to follow.

Echomouse said...

The government is guaranteeing money market funds??!! Wow.

I've stopped following the financial news for the weekend. Between that and politics, my butt has widened 2 inches at least from sitting. It's so depressing. lol

The CEO said...

You must be reading my mind, Carrie.

NoRegrets said...

But what about the statement by Bush that this is risky?

cmhl said...

I haven't even had the heart to check my funds in the last few days.

I am firmly in the "head in the sand" camp.

Crankster said...

Gotta say, I'm pretty frightened by Section 8, which basically gives Paulson carte blanche to do whatever he wants without any oversight whatsoever. Beyond that, it seems to me that buying up all this bad debt without any provisions will pretty much open the door for these bimbos to do the same thing all over again.

Right now, I'm pinning my hopes on Chris Dodd's plan, CEO!

Glamourpuss said...

The whole thing is a case study in greed.