BREAKING THE BANK. BREAKING THE “BUCK”. JUST PLAIN BROKE.

First, the obligatory disclaimer. The Author is short the NASDAQ and the S&P 500 stock market indices. The Author is also short oil stocks. So when these indices slide, as in the current freefall, this means another dollar in his pocket. But he digresses, smarmily. And not even the protectionist Plunge Protection Team cannot screw him out of his short gains this time!

WHEN WAS THE LAST TIME THINGS WERE THIS “UNUSUAL”?

Let’s recap some of the bad economic news of late:

1. Freddy Mac, the Federal Home Loan Mortgage Corporation, and Fannie Mae, the Federal National Mortgage FNMA, were recently put under Federal Housing Finance Agency conservatorship. The liabilities could cost taxpayers tens of billions of dollars.
2. Lehman Brothers filed for bankruptcy on Monday, September 15th. Tottering brokerage firm Merrill Lynch was just purchased by Bank of America. Earlier this year JPMorgan purchased the-then collapsing Bear Stearns.
3. Morgan Stanley and Wachovia are reportedly in merger talks.
4. The Federal Reserve loaned insurance giant American International Group $85 billion dollars of taxpayer money in exchange for a 79.9% stake.
5. Last summer IndyMac bank failed. Banking giant WaMu is now close to insolvency.
6. Giant money market fund Primary Fund put a seven-day freeze on redemptions (withdrawals) as its share price fell below the industry-demanded price of $1.00 per share. In money market parlance, Primary Fund has “broken the buck”. Only once in the past has a money market fund’s per-share value fallen bellow $1. This was in 1994when Denver-based Community Bankers U.S. Government Money Market Fund returned 96 cents on the dollar to investors when bad derivatives investments forced it to liquidate.

In the case of Primary Fund, it held $785 million dollars of Lehman Brothers debt which is now valueless. Primary Fund currently has 23 billion in assets. But it had 62.6 billion in assets before the run began this week.

IS SOMETHING WICKED THIS WAY COMING?

This is an odd and somewhat unprecedented confluence of events. But not unexpected in the wake of this mortgage and liquidity crisis.

Just how bad is it, and how worse will it get? Bad, and will get worse, are the simple answers. The more definitive answers are beyond the ken of the Author.

Will banking failures be contained? Are more defaults developing? Can rising exports (due in main to the declining dollar) cushion the economy from a deep and hard bottom?

NOW, FOR A LITTLE POLITICAL PROGNOSIS…

As readers know, the Author usually abjures openly political comment. But this comment is retrospective in nature. Many historians, and many Americans, believe that President Bush is doomed to presidential ignominy. A few ask the still premature question, is he the worst ever?

His tenure is replete with foreign policy failures, domestic debacles, corruption, cronyism and abysmal economic performance. And the final days of Bush’s reign are stained with financial fractures.

The Author predicts that Milliard Fillmore will move up a notch, while Bush hovers one head above James Buchanan.


WE ARE ALWAYS ONE CHAIR SHORT IN THE DESERT OF THE REAL!