Random Notes from Panic Alley (formerly known as Wall Street)
AIG-The management of AIG thought they needed $30 Billion to save the firm. 72 hours after the Fed (and others) finished looking at their books, it turned out they needed $85 Billion. WTF-How could the managers be that far off from knowing their own cash flow shortfall? They’re a god-damned insurance company, not a casino.
Morgan Stanley-Wachovia Merger-As Charlie Gasparino intimates, Wachovia has just as much exposure to sub prime toxic waste as Morgan Stanley. This is like two drunks leaning against eachother and thinking they are steady.
Bear Raids-Morgan Stanley and Goldman Sachs are both obvious victims of a bear raid. The hedge funds who are shorting these stocks are putting all the pressure on the downside. For those of you who don’t understand what’s going on, I refer you to my March 23 post on Savage Capitalism. Libertarian idiots like Larry Kudlow have defended the savage shorts, but they are destructive to the fiber of our economy. The SEC should immediatly force hedge funds to disclose short positions every 24 hours. At least we could embarrass these assholes who are profiting on everyone else’s misery.
Money Market Liquidity-The world’s central banks poured $200 billion of liquidity into the banks this morning to avoid a melt down in the Money Market funds, which investors are fleeing. This temporarily boosted the stock market, but the rally was short lived. $180 billion of this came from the US Treasury. We are just printing money as fast as we can to keep the market from crashing.
Writing in The Financial Times on Thursday, Kenneth S. Rogoff, the former chief economist at the International Monetary Fund, said the United States would have to spend 5 to 10 times more than it has already on bailouts, an amount closer to $1 trillion to $2 trillion.
History tells us that this tactic always ends badly. Foreign investors will flee the dollar. The Yen, Euro and Swiss Franc have all traded higher against the dollar in the last five days. Asians are completely rethinking their support of the U.S. economy.
U.S. Auto Company Bailouts-Congress is rushing to supply the Big Three with billions in loan guarantees.In the midst of all the other craziness in the markets, this is a really stupid bit of pandering. Both Presidential candidates want to suck up to Michigan workers. Pelosi and Reed should wait until after the election to make any more bailout deals. As I said yesterday, the Chrysler bailout in the 80’s, did nothing to solve the long term problems of the industry.
Reviving the RTC-That paragon of Laissez Faire Capitalism, the Wall Street Journal editorial page, is calling on the government to buy all the toxic debt from the banks.
The best and perhaps only recourse is to create an entity on the order of a new Resolution Trust Corporation. Such an agency could become a buyer at a fair and transparent price for distressed debt, as well as the workout home for institutions like AIG that failed because of accounting rules and bad subprime debt but retain great underlying value.
This is the ultimate in Corporate Socialism. Privatize the profits, socialize the debts. So the banks and their shareholders get a clean balance sheet and the American taxpayers get stuck with all the crap.
This must be stopped.