I imagine most readers are aware of the overall market collapse today. I will not rehash the final numbers nor extrapolate possible "support" areas. Technical analysis has its place in an overall understanding of things, but as I have said before it fails spectacularly at inflection points. The current market meltdown is singular in spirit to anything that has happened before (it's a whole new paradigm!) and thus little help can be gleamed from history.
The government was out in force today with the missive that there will be no nationalization of the banks. How one can pump over 50 Billion dollars into Citi and Bank of America when their combined market caps are less than 30 Billion and pretend that they are private operators is lost on me. And it is lost on the markets. AIG, never one to be shy, was back with hat in hand looking for more money. I am sure they are a "private entity" as well.
A helpful article that covers the total panic gripping the government can be read here. Key excerpt:
Folks, the government is operating in full panic mode.
If Bernanke stops printing, we're back in crash mode, if he continues printing at 20% rates, it's fierce inflation. Think about it, all the crooked adults are gone from the scene.The key Goldman Sachs players, Robert Rubin and Henry Paulson are gone. News came just yesterday that Goldman Sachs President and Co-Chief Operating Officer Jon Winkelried will retire effective March 31.
They are all crawling under rocks. They know what's coming. They have left as Treasury Secretary, a kid, who can't even get a press conference right. The president, even if given the benefit of the doubt that he is sincere, was brought up on socialist propaganda. He doesn't have a clue. The stimulus package is just the insiders raiding the till while there is still money in it.
The whole article is worth your time.
So where are we? I suggest we have reached decision time. The core plan of the banks and the FED/Treasury has always been about buying time. The assumption was that all the credit issues needed time to turn a hypothetical corner, and all would be well. If one considers the collapse of Long Term Capital Management, this was indeed the case. While the giant hedge fund almost brought the whole show down in 1998, after they were bailed out, their positions ultimately were profitable (slightly). The thinking was that this episode would turn out the same if a reasonable time span could be "bought", say 8 months to a year.
Times up. The looming shoe to drop is the incredible amount of credit (ie debt) that was extended during the lending boom of 2002-2006 that is a total loss. While this in and of itself would not be cause for panic, all that debt was then levered up (maybe up to 100-1, who knows?) and exists as a trillions of dollars of "money" that exists nowhere but in the notional sense. This is the ultimate perversion that fiat currencies can fall into. How many trillions? Again, who can say. Back of the envelope estimates range from the low end of 50 trillion dollars to a high end of 300 trillion dollars. This is money that truly does not exist and has no collateral to back it up.
The decision that must be made is this: What is going to be done with this debt?
Trying to paper over it and buy time has failed. Total and epic failure. The adults must return to their senses and start laying the ground work for the dissolution of almost all of the mythical money that is out there.
One would think that because this money never really existed in the first place that it should be no problem to simply declare it null and void. As is often the case, it is not that simple. Now understand that I do not have all the answers, in fact I have very few. The convoluted system of leverage packed into derivatives, and insured with CDO's and other exotic debt instruments makes this task both daunting and possibly a non starter. My basic question is the only one that matters still. What is going to be done with all of the debt built on assets that may never recover their value? Until and unless this question is tackled by our government, and others around the world, things will continue to erode and fall apart.
Another area that I am woefully under informed in is civics. Constitutional process and governmental process is not something I have much knowledge of. I need to get some. We all need to get some, fast.
We are fast approaching a moment when our government may stop doing anything to help it's own citizens and instead focus on placating foreign debt holders and/or giving whatever wealth the country has away to government staff. We need to know what, if anything can be done to stop such actions. You get no credit for suggestion using elections to remove politicians. First off the speed at which the fleecing of America can occur will happen well before any election can happen. Second, do you really think anyone is going to lose their seat? We had Charles Schumer saying, on camera, that the American people do not care about all the pork in the stimulus bill. That clown will still win reelection with over 80% of the vote in his state.
As a thought experiment, consider the following action by the Congress and what may be done to stop them:
-Taxes rates raised across the board to 70% of gross income
-10 Trillion Dollars allotted to both the Senate and the House to use as each member sees fit to help the economy
Such a raiding of the Treasury would have to be stopped. But how?
While the above is an extreme example, keep in mind that the TARP plans were opposed by a solid majority of voters (over 65%) and the bank bailouts and mortgage bailout plans run even higher opposition numbers. Will that slow them down? What would?
At this time we need to get prepared to defend ourselves against government actions that may represent THEIR best interests, but not OURS. By this I do not mean conflict or revolution. I mean there must be channels and a process to stop the government when it is clearly lost its way and is doing great damage to the country. A proverbial "STOP" button if you will.
If you have ideas, leave them in the comments section.
Some may think a day like today is something this blogger likes. I have been called a "doom and gloom" blog. I hate days like today. It scares the hell out of me to watch BAC go down over 90% in a few months while I have all my money parked there. This blog was never meant to be a "lets have the end of the world" kind of thing. I just wanted an end to the insanity of credit creation based upon stupid beliefs and granite counter tops.
If this could have only happened in 2003, 2004, or 2005 maybe there would be a way out of the woods that would not be so damaging. Unfortunately, the party went on right until the last minute possible. We are in no man's land, be careful!
Have a good night.