market-ticker.denninger.net
Credit Bubble Stocks Monday, March 17, 2008 Boooooooooooooommmmmm! CNBC started running their Asia coverage last night as the markets pretty much literally fell apart. For once, Americans got to hear some truth - from people not in America. Specifically, claims that "its all the shorts fault", and "The Fed could actually make money on the BSC backstop", along with all sorts of other nonsense. And I might - just might - find a lucky shamrock and some fair Irish Maiden may suddenly appear next to me this evening and ravish me all night long. Of course it is far more likely that this will happen in my dreams..... Can I just watch Asian and European CNBC coverage all the time? At least they tell the truth some of the time, instead of being a cheerleading squad herding Joe Six Pack straight towards the cliff, below which there is...... Exciting, dangerous, and for some (myself included) insanely profitable. Not my best day ever in the futures, but in the top 5 - and it was the overnight session. I quit chasing it around 10:00 PM as the odds of yet another "surprise" started to go up to unacceptable levels. The Fed is out lying again too, although yesterday they were playing the part of Bully instead. Never mind that the right move was clearly to let Bear go down. But that would expose the truth - there are trillions of dollars in interlocked derivatives, none of which have been marked to anything but dreams and lies, and were they to be forced to actually have to be paid off via specific performance the dominoes would begin to fall. The final "washout" will eventually come, and by delaying this day The Fed is in fact doing much damage to our economy and nation. They "sticksaved" with the surprise "Burn the Shorts" OpEx morning discount cut. In point of fact none of these "sticksaves" will solve the problem because the problem is that there is no truth in the balance sheets of these financial institutions and until there is, we will not find the bottom, nor be at the end of this mess. As I have repeatedly said we can do this the difficult way or the easy way. The easy way is for The Fed and regulators to force all these banks to mark their "assets" to the market and eat whatever may come, take all off-balance sheet games back onto the balance sheet, and clean house. The difficult way is for confidence to continue to evaporate and these "bank runs" - what dumped Bear Stearns into the Hudson - will continue, firm by firm, until we find out the hard way. The problem with "The Hard Way" is that if The Fed and regulators choose this path we could literally see most of our large financial institutions taken to the woodshed and cleaned out just as Bear was, because there is no reason for investors and creditors to trust people when they have reason to believe they are lying! A warning to those who think this is a "buying opportunity" - what happened to Bear Stearns could quite easily extend to virtually EVERY SINGLE MAJOR INVESTMENT AND NATIONAL BANK WITH "MARK TO MODEL" AND "MARK TO LIE" EXPOSURES. This is precisely why what The Fed has been doing since AUGUST is foolhardy and ultimately self-destructive to its own balance sheet. Had Bernanke stood up in AUGUST and told The Street that he was NOT going to keep providing whiskey to the drunks having DTs until they DETOXED we would have had a huge washout in the equity markets back then, but we would know where the bodies are and confidence would be orders of magnitude higher than it is now. The Fed now has hard proof that their strategy - that is, every time the market starts to collapse there is some sort of "sticksave" intervention, rather than addressing the root cause of the problem, has FAILED. It CANNOT SUCCEED because the fact of the matter is that this is not about liquidity. It is about solvency and LIES, which The Fed is ENABLING, just like a drunk's spouse continues to enable the boozing by refilling the fridge with beer whenever it gets empty! You'd think that "Mr Student Of The Depression" would know that the root cause of The Depression was precisely this - that people lost confidence in the system and simply said "no mas!" Once those with REAL MONEY - not credit - decided they were not going to lend until they knew where the bodies were the bankruptcies began and continued relentlessly until everyone who might have gone broke actually did! The reason is simple - the question is capitalization - NOT LIQUIDITY. Without KNOWING what the VALUE is of these "things" are which are on bank balance sheets there is no way to know what sort of capitalization a bank or other institution actually has! And since Bear Stearns has now proven to either not known itself or lied just three days before they blew up, until we get clarity nobody is going to believe anyone else's pronouncements about THEIR capitalization! Congress should step in and exercise its lawful right to force The Fed and regulators to do the right thing here and now, but it won't until and unless you, and hundreds of thousands of people like you, step up and start hollering loudly at our lawmakers. I have written three separate petitions on this matter and spent a couple of thousand bucks faxing lawmakers.
But this is more than just about you - your 401k, your IRA, your retirement, never mind that they're all going to go straight in the toilet. to our government, as is already becoming apparent via failed treasury auctions, our government's ability to spend beyond its means - $400 billion worth in the current fiscal year - will instantly evaporate. It is also about your children and grandchildren, and what is likely to be served up upon them as a direct and proximate result of apathy by those who can speak up and stop the madness. To put this in perspective there is roughly $8 trillion in national debt that requires service every year. If the cost of that funding is 5% a year the cost is $400 billion. Should foreign investors continue to flee that cost could more than double, instantly wiping out the ability to fund 15% of The Federal Budget - for instance, all of Medicare's funding ability could disappear overnight.
Or even better, spend $500 and go out to Washington DC, or to a campaign event, and tell all of them up front that this issue must be addressed right now, not after the election. We absolutely must force transparency into our financial system - today. Get the "stagflation" or "hyperinflation" nonsense being paraded about by many "pundits" out of your noodle right now. We are in the middle of a huge deleveraging and all of the excess credit that has been created over the last 10 years is disappearing in a poof of electrons. That is the definition of DEFLATION and The Fed is powerless to stop it so long as they continue to allow the lying and obfuscation to continue. If not, I hope you like living in this sort of fashion, because its coming - for a second time, and for the same reasons it happened the first time - to a town near you.
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