What A Mess

Market Ticker lays out the basics;

"So this weekend everyone who is a "who's who" huddled in New York at The Fed to figure out what to do with Lehman Brothers. 

I'm here to tell you that there is no resolution, no fix, and we now face a stark choice between most of American Finance being sucked into the vortex, and everything, including you, being sucked into the vortex. 

Yes, those are some stark - and harsh - words.

They're also true.

Let's begin with what we were told wouldn't happen after Bear Stearns.  We were told that Bear was an "extraordinary" event, and that it was a "liquidity run" that doomed them; absent that, they were "fine."

The media, led by CNBC and Fox Business has paraded every analyst they could pay, er, find, to tell us all is well and the crisis is over. They have consistently done this for the past two years. Not one major US news source has gone against this trend.

Bernanke, Paulson and the White House have also been consistent. So far, the count is over 100 announcements in the past eighteen months alone that all is "contained" and the need to spend taxpayer money to give to the banks that made bad bets is in our country's best interest.

"Our best interest" will increase the deficit by at least $3-5 Trillion over the next few years, and it could be a lot more. The banks knew, after 1998 with LTCM, that the Fed would put a floor in to prevent market collapse. So, they decided that pawning off risk through loans made to people who had no possibility of repayment would be OK, as long as someone else held the bad paper, and the government would come in and bail them out if it went bad. For the banks, it was a no lose situation. Huge fees, huge profits, huge bonuses would be paid out, and if their bets went bad, the taxpayer pays for the loss. Pretty sweet deal, for the banks. Pretty crappy deal, for the taxpayers.

Market Ticker continues;

"So America, what are you going to choose to do about this?  Sit on your hands?  Tap your foot?  Drink another beer?  Turn on the NFL?

Its your money they're spending in DC, you know. You've been lied to repeatedly by the clowns inhabiting Washington. Democrat, Republican, elected, appointed, its all a piece of the same mess.

Here, once again, is The Truth for those of you who wish to hear it:

Homes cannot sell, on average, for more than three times average incomes.  Period.  Short-term distortions can and do occur, but over longer periods of time (decades)house prices cannot advance faster than wages.

• We will not see the bottom of the mess in housing or the economy generally until houses sell for that three times income.  Those who say we will are simply wrong.  Attempts to delay or reverse this adjustment will make the total economic impact far worse and in fact can easily lead us to an economic depression.
• Those firms who made bad investments must be forced to eat them.  If this results in their insolvency then it does.  We cannot clear our credit and economic systems until we know who is bankrupt and who is not.
• We as individuals and our nation as a whole must stop spending more than we make.  This is not negotiable.  We as a nation are beholden to foreign interests at present to the tune of $2 billion per day in external funding requirements.  If that funding is interrupted for any reason - such as a loss of confidence - we are instantaneously plunged into DEPRESSION. 
• The market is vastly overvalued with essentially the entirety of its "future earnings appreciation" predicated on a resumption of the "FIRE" (Finance, insurance and real estate) economic boom.  The only "boom" that is occurring and will occur is a series of explosions.  The S&P 500, without that "acceleration", has a fair value somewhere around eight hundred.  Yeah - 1/3rd lower from here and fully half off its all-time high."
  
  
  Will we hear the news on what's next? Will it be accurate? Or at least try to be. 
  I can tell you this, if there is a happy face put on the events over this last weekend, watch out. Bank of America has to be the in the race for "Most Stupid Bankers." First, they buy Countrywide. At the time, Countrywide was bankrupt by at least 5 or 6 times their assets, and BAC bought them for $4 per share. The pesky bondholders from Countrywide refuse to lose their money, so BAC's plan to pick the good assets and scuttle the rest of Countrywide has been hampered. They are afraid additional lawsuits will only add to their losses.
  Now, it looks like they will buy Merrill Lynch for $29 per share. MER is not worth anything. They have exposure on derivative losses exceeding capital by 10 times, they are bankrupt. The only reason the market doesn't know it is because accounting rules allow them to hide the losses in level 3. Those losses can never come back, because they are on bets on MBS that has already gone bad. 
  BAC knows the Fed will give them taxpayer money to cover the losses. 
  McCain and Obama know this, too. Both candidates have people advising them who created this problem. Just google Gramm Leach Bliley Act for McCain. Google Penny Pritzker for Obama. Don't take my word on it, read for yourself.
  The more the Fed and the government try to "save" some of these banks that got us into this mess, the bigger the mess will be.
  When will we have the media tell us this.