"Thats a thirty footer!"
"Thirty-Five, 3 tons of him." -Crew of the Orca upon seeing the great white shark for the first time in the film "JAWS".
The moment in "Jaws" when the shark is finally seen and the crew realizes the true enormity of the problem they face is easily applied to the current situation facing the US banking industry and the FED. In early summer the rise in foreclosures and falling home values were thought to be contained to the micro niche subprime space. As time wore on, the definition of "subprime" was found to include all kinds of paper that masquerades as prime grade. The accelerating foreclosures and price drops stopped being so contained, and now engulf almost every real estate market in the USA. "Mark to Model" fantasy prices of various mortgage related securities are now being exposed as pure lunacy. I am not going to rehash all the details, you will already know them by now. The point is the banks, hedge funds, mortgage lenders, and the FED thought the problems seemed small and contained. By using old tricks like off balance sheet holding of paper, slight increases in provisions for losses, and FED rate cuts could stop the unravelling in its tracks. Only now do the powers that be see the depths of the rabbit hole that was mortgage lending over the past 3 years. They are going to need a bigger boat.
Merril Lynch and the SIV Minifund
If you are easily amused, check out this headline:
NEW YORK (MarketWatch) -- Shares of Merrill Lynch & Co. fell more than 8% Friday, retreating in the face of a Wall Street Journal report that the company has engaged in deals with hedge funds to delay when it had to record losses on risky mortgage-backed securities.
Seems like Merril had an idea to set up their own mini SIV Superfund. The purposeful mispricing of assets that are shuffled between entities to hide losses is fraud, and it is illegal. Enron accounting it is called. Merril is going to be investigated. They should have waited a bit to join the new SIV Superfund that I have covered in the past. That illegal shuffling has the explicit backing of the Secretary of the Treasury Hanky Paulson. Timing is everything.
Citibank's Weekend Retreat
Not amused yet? here at economic Disconnect I try my best. This is a choice tidbit:
APReport: Citigroup CEO May ResignFriday November 2, 6:52 pm ET
Report: Citigroup CEO Will Offer to Resign Sunday; Board Expected to Hold Emergency Meeting
An emergency meeting on Sunday? I do not think they are gathering to congratulate themselves on the containment of the mortgage losses. Another CEO resignation? If Ken Lay had only resigned, all would be well in the fraud-o-verse.
Jobs Report is as Real as Unicorns
The jobs report today is as fake as Pamela Anderson from the waist up. The silly birth/death model adjustments are so skewed towards major job creation that the number itself is no longer a valid economic indicator. Mish has a wonderful piece on this, pay attention to the chart he provides: http://globaleconomicanalysis.blogspot.com/2007/11/jobs-report-from-alternate-universe.html
Please don't comment that you have seen a unicorn lately, we all know they went extinct in the 1700's.
In summary, the week was more funny than anything else. The rising tide of reality is slow and steady. Monday should be interesting, as both Merril and Citi should rocket up from here. In the "all the bad news is already out" mantra, an investigation into financial dealings and a CEO resignation should be worth quite a pop to the upside in this market.
Enough, its Friday!
I will do a complete Patriots vs. Colts preview and prediction tomorrow. Hint: I do not feel it will be all that close a game.
Friday is rock blogging time! In keeping with the ominous news and feelings in the market, I have selected some dark songs that convey the mood. I think I figured out how to embed even!
Black Sabbath's self titled "Black Sabbath". If there is a song that epitomizes evil and conveys a dark mood this classic is it!
AC/Dc with "Hells Bells"
Dio with "Holy Diver"
Have a good night!