I’ve written more about this here:

The Paulson Plan: Bad News For The Bailout
http://seidlweb.com/public/item/213401

You are correct but everyone else just wants to point fingers and say screw the rich man.

Which I am all for except this is very serious and not many people understand the ramifications of this.

NO, Never.

S – this is like a bad comedy. It’s like watching Titanic with a laugh track. I’m convinced Paulson and Bernanke are the only ones who fully appreciate the severity of the problem.

Meanwhile, everyone else will wake up in 3 months and wonder how in the world this happened, and they will be p-d off big time. By then, it will be 3 or 4 times the cost, rather than an investment that you can recoup the funds from.

I just keep hoping I’ll wake up and this was all a nightmare.

The sad thing is, the politicians I expected to have an understanding of this and be cooperative were the republican’s. They are now the ones standing in the way.

I read Hank Greenberg, the former chairman of AIG decided to sell his stock, 10% of the total outstanding shares. Here’s a guy that a year ago was worth 1.5 billion, now down to his last 81 million. Not that he’s ever going to hurt, but he has lost 95% of his net worth. Not so sad. What is sad is the thousands of AIG workers that now have no hope of ever retiring. And this is being repeated in financial company after financial company.
How about the GM workers, Same story. This is just the tip of the iceberg as this plays out, unless they can get this under control.

This is going to make Enron look like childs play when examined historically.

A little over 200 years and the American dynasty crumbles. Rome lasted for what, 2000 years

/another late night blurb initiated by my lousy back pain keeping me awake..
–

you know..
we should just abolish the Federal Reserve.

-that would solve almost all our problems.
–
not to bring up old news..but do you think
its possible that all this “melting down”
of the economy and congress not signing off on the $700bill (sight unseen for the most part as well)down to 250bil will give the white house the excuse it needs(or wants) to activate the ever unpopular NSPD-51 that was written in May 2007? -so as to take control of
an obvious “non-compliant” congress.. ;p

(fwiw: nspd51 creates a new executive branch,
that can pretty much do what it pleases unchecked and unaccountable to no one but
itself and it’s self appointed henchman in a time of crisis. (its very vague and even has a secret section not even known by congress(in the name of national security, of course.)

white house link: http://tinyurl.com/NSPD51)

no doubt the news of WaMu going down and china cutting our credit line will go viral across all of our foreign lenders with a quickness..

hey….didn’t most all the other bank failures come out officially on a Friday as well?
(so as to keep market madness impact to an initial minimum, i gather.) odd..

call me a paranoid drama queen, but hey..did you ever think you’d live to see the real world events that are currently unfolding anywhere but in a movie in your lifetime?

(ps: 4th quarter report coming on Tuesday..(tic toc, tic toc..)

-wish i had some extra $$ to buy silver..its cheaper, and has medicinal values ta boot.

-s

On a side note – Who would have thought 0′s on a piece of paper could create such havoc.

Here’s a quick summary and a worst case forecast, just so you understand where this is headed. You might as well stay awake at night, along with all the people in the know

The banks made mortgage loans, and rather than put up their own money to fund them, they did the same thing the first house borrower does, they borrowed 95% of the money for the loan and paid 4% for it, while they made loans at 6%. Worked out OK as long as homes were being paid for and were going up in value. These were called enhanced yield products, because you could earn 20-30% on MOrtgage interest, if you were willing to take the yield risk. A sweet deal. (For those that can’t fo the math, here it is. If you had $1,000,000 of your own money to make loans with, through leverage, you could loan out $20,000,000 – 20 to 1 leverage. So for the 2% difference in cost of capital vs what you could loan it out for, multiply 2% x 20 = 40% less underwriters and others fees of 10% and you have a yield of 30%.)

When things started to head south a few months ago, the leverage which made them extremely profitable for a few years, came back with a vengence to put many of them into bankruptcy. Also, a provision in the accounting standards to mark down assets to the market value accellerated the decline. When there is not a market for an asset, you just guess. So Merrill was marking the loans down to 20% of the original value. This was a function of non-payment and leverage. Doesn’t take many non-payers to effectively put you out of business. (In the case above, you loaned out $20,000,000 and it’s now worth, $4,000,000 resulting in a loss of $16,000,000 while you only put in $1,000,000. The other $15,000,000 has to come from somewhere called capital infusion). So Lehmann Brothers, almost 150 years old is out of business. Stunning!!

Make no mistake, every major bank and insurance company and hedge fund owned some of these loans. China probably owns more than anyone else.

——————————————
So, what will happen if this is not “bailed out”

First, the major investment banks who have the exposure will liquidate. – Done.

Then the major commercial banks who put a lot of their money into the enhanced yield products. – In Process

Then the insurance companies that are exposed go under. – In Process

Along the way their stockholders will bail out. Losing significant funds. – In Process

Then the hedge funds will go broke. And also several mutual fund companies will go under. In Process

Then, auto’s and other major applicances will stop selling. In Process (Check last months metrics)

Then, all of the people who worked at the failed banks, insurance and manufacturing companies will be on the street looking for new jobs after those companies wind down. Probably 3 months down the road.

Oh, and the retiree’s of these firms will see significant parts of their pensions and 100% of their medical benefits evaporate. Probably 6 months down the road.

Then, the states will begin to decline from a wave of unemployment. Probably 6 months down the road.

Then the hospitals will begin to decline from a wave of uninsured. In Process

Then the cities will decline.

Then the federal government will have a wave of baby boomers retire early just to get access to money and the federal government will stoke inflation by printing money to cover the bills. You think $700 billion is a lot, just wait. Probably 6 months down the road.

Then, everything goes up in price worldwide significantly. 2010

Then civil order comes to an end as people can’t eat and begin stealing to cover their basic needs. 2011

Then, China and other countries who have significant exposure to these products decide to take their pound of flesh from the US. 2012.

Kinda reminds me of this:
http://www.youtube.com/watch?v=ueuauKKjPZI

Why do they say it is too complicated to work out the derivatives? There are 100 million loans maybe and tens of thousands of bank workers. I think they can summarize the status of their loans, and get an exact picture.

Some great deals, look at this slightly used constitution, I can’t beleive its only 5 cents!!!
Its hardly used, and still has George Bushes footprints on it.
http://www.buymyshitpile.com/node/2752

seriously like the clean layout of the current site, hope you don’t lose that part in the redesign, Great job John, always enjoy reading your stuff. Stock up on canned goods, looks like we might be having some problems soon.

“WaMu Seized by FDIC, Deposits to Be Sold to JPMorgan, CNBC Says”

http://www.bloomberg.com/apps/news?pid=20601087&sid=ai28jpSnP4IU&refer=home

cant wait to see how the market reacts tomorrow…

other thought…JP Morgan has been a key player
in all sorts of financial treachery from the beginning of time it seems…

china just told its banks to stop interbank lending to US banks…just heard on the radio
that germany is thinking about the same..

http://www.reuters.com/article/marketsNews/idUSPEK16693720080925

now, i dont know squat really..but i remember hearing somewhere that if china stopped lending (and buying our debt) us money we’d sink pretty fast..?

-s

Also, why are they still staying “bailout”, and never a phrase like “corporate welfare”? Or in this case, a case of the most massive corporate welfare? And since when is it our government’s job to selectively bailout anything. I’ve seen plenty of commercial entities go bankrupt or fail, and the feds or state government never stepped in to help. But they do seem to worry only about three entities. Anything aerospace, banks and finance, and gambling concern. In my state they fret every year about the state of horse racing. Yet our local steel mills when belly up, without them barely noticing. Obviously, the reason is that state has a vested interest in the revenue one generates. If the tobacco industry started to fail, do to people getting there heads straight about the product. I have no doubt the government would try to rescue them too. So I see this financial industry bailout as much the same thing. Politicians mostly interested in saving their nest eggs, at taxpayers’ expense.

Another way of looking at this. Just a few years ago, experts were talking about a “market correction” coming, because some things being traded were too over valued. Most likely there were referring to mortgages. But now that we’re finally seeing a “market correction”. The government is attacking like the free market can’t be trusted to recover. And it’s a correction of the wrong thing (by their opinion). Ok if something else get a correction. Just not the financial sector. That’s apparently sacred cow land. I say let it correct, just as a free market is suppose to. And quit pumping air into a leaking balloon, just to keep it high up in the stratosphere. If it came down to earth a little, it would make it more accessible to all who wanted a ride. But these financial giants are more about buying and trading among the super rich. And obviously their opinion is what’s being heard the most by congress.

I find it very hard to believe this is all genuine. This segment of the economy was due for a hit as it was, why act shocked?

Link

I’m all for doing nothing until January.

Now you get it? Politicians in Washington are not there to serve the people, they’re there to serve special groups of interest. To these individuals working people are nothing but scum not worth even the food they’re eating and they’re only valuable (if any) during the election years.