The Grand Old Partying continues....
In the deteriorating climate he sees unfolding, Gundlach said, the Standard & Poor's 500 Index could fall another 30%, giant Citigroup could become an "AIG-sized debacle," Morgan Stanley would merge with a banking company, Wachovia won't be able to stand alone, default rates on even prime mortgages could soar, and European banks' woes are just beginning.
"This is no market for old men," said Gundlach... "This is no market for old-school thinking."
Below the fold: the result of 28 years of deregulation... Keating 5... ENRON loophole... credit default swaps... all starring bad old John McPain and Phil Gramm.....
...GOP-caused economic meltdown that may reverberate til 2022... but sooner, an inconvenient October surprise: your Money Market (& Bank & Credit Union) accounts at risk... so come with me below the fold for plenty of ammo for educating your voters about why they are having horrible experiences and where the CHANGE needs to take place... in the central focus for election 2008: ECONOMY, ECONOMY, ECONOMY.
More hangover from the Greedy Old Party....
Kathleen Day, a spokeswoman for the Center for Responsible Lending, a consumer-oriented research group, explained the regulatory lapses more starkly: "The job of regulators is that when the party's in full swing, make sure the partygoers drink responsibly," she said. "Instead, they let everyone drink as much as they wanted and then handed them the car keys."
Ronald Reagan led a movement that came to power in 1980 proclaiming faith in free markets and mistrust of government. That conservative philosophy has dominated America for the past 28 years.
Even after taxpayers had to rescue deregulated savings and loans, or S&Ls, with a $200 billion bailout in the late 1980s, the push to loosen regulation paused only briefly.
It was former senator and McCain economic advisor that is primarily responsible for the law that caused this economic meltdown. Chair of the Senate banking committee at the time and under the cover of darkness, then Sen. Phil Gramm pushed through a bill titled the Commodity Futures Modernization Act (CFMA). Gramm did so right after the Bush v. Gore decision in 2000 when only financial industry lobbyists were paying attention in Washington. Then Senator Gramm and the REPUBLICAN CONTROLLED CONGRESS secretly slid through the CFMA. The bill deregulated swaps which has thus caused the biggest financial meltdown since the Depression. Yes, it the deregulated swaps and lack of oversight that are "at the heart of the subprime meltdown" says Michael Greenberger, former director of the Commodities Futures Traders Commission division of trading and markets in the late 1990s. Sen. McCain has been very much for deregulation of the financial markets and it was that deregulation and McCain confidant and "the smartest person [McCain] knows" Phil Gramm that caused the crisis. Gramm, then Chairman of the Senate banking committee, routinely turned down SEC Chairman Arthur Levitt’s request for more funds to police the financial industry. McCain now claims that he plans to clean up Wall Street but until yesterday the Arizona senator stood firmly behind the policies, (deregulation) that put Wall Street in its current dire situation. Gramm’s recklessness in the financial industry or free market policies has not dulled the glow on McCain’s belief of Gramm being an "economic guru." If McCain gets in the White House, you can bet that Phil Gramm policies will be the driving force in the financial industry. The two senators have been close friends since they served together in the House in 1980s. McCain chaired Gramm failure of a presidential campaign and Gramm was McCain’s senior economic advisor until six weeks ago when he called the American people "a nation of whiners." McCain’s entire presidential campaign staff is comprised of people like Gramm. How can someone who admits to "not understand the economy" and surrounds himself with the very people who caused this problem in the first place possibly represent reform or bring reform for that matter?
McPain's hangover headache isn't cooperating with his plan to get back to Partying-as-usual by tonight...
Gundlach based his assessment on a belief that housing prices still face several more years of decline, a protracted slump, he said, not seen since the Great Depression. Moreover, Gundlach said it's possible that home prices could be sluggish until 2022.
"If it's like the Depression experience -- and it sure is shaping up that way -- it could take several years. Maybe we won't see a bottom in home prices until 2014," he said.
...financial institutions may suffer write-offs that could surpass $1 trillion before conditions improve... As of late August, credit losses and writedowns at the world's 100-largest banks and brokerages topped $506 billion...
My fellow Americans, may I suggest that we pause for a moment in celebrating the lower mortgage rates this week to review the actions of our U.S. Treasury Secretary, Mr. Paulson, over these last two years. During this time... 1) Mr. Paulson joins the ranks of the politically powerful becoming the U.S. Treasury Secretary after leaving Goldman Sachs as CEO. 2) He forces the sale of Bear Stearns to JP Morgan Chase under terms he dictated. 3) He promises Congress and the American people that he will save the GSE's "in their current form" if given the authority to do so. 4) He declares that the GSE's are too big a risk for U.S. taxpayers with help from Morgan Stanley's advisors. 5) He uses said authority to take control of the GSE's advocating that their current form be eliminated. 6) He establishes a private sector secondary mortgage market that could make billions for Wall Street firms such as Goldman Sachs, Morgan Stanley, JP Morgan Chase and others.
Well, I say, how about pausing for this:
Have we as Democrats communicated to the voting public that the Republican caused and orchestrated bailout of Fannie and Freddie has added $5 Trillion to the national debt?
Does the American voter know that the US national debt has risen to $9.7 Trillion!?!
But the tab for the Grumpy Old Porkers' binge may go even higher... much higher...
... and as you read the following, remember the key equation:
"swaps" = Gramm-McPain
September 9, 2008 --- Fannie and Freddie's New Derivatives Cliffhanger --- The bailout triggers settlement of $1.4 trillion in unregulated credit-default swaps. Do the hedge funds have the money?
In taking over Fannie Mae (FNM) and Freddie Mac (FRE), Henry M. Paulson Jr. and the U.S. Treasury Dept. cleared up uncertainty surrounding the companies' common stock, preferred shares, and senior and subordinated debt. But Uncle Sam's intervention also triggered a default event, according to the International Swaps & Derivatives Assn., and now roughly $1.4 trillion in outstanding credit-default swaps, a type of derivative contract, must be settled.
You remember the credit-default swap (CDS). It began life as an "insurance policy" that big players such as hedge funds took out to hedge investment risks. Over time, however, the CDS became a tool that big funds, financial institutions, and others used as a way to place bets on whether a company would go bankrupt. They're contracts negotiated between two parties and—unlike insurance policies—there's no regulator verifying that companies can actually make good on the $62 trillion of swaps outstanding.
Ever since Warren Buffett described derivatives as "financial weapons of mass destruction" in 2003, the market has been waiting for signs that the Oracle of Omaha's vision may come true. That's why the federal government's decision to take over Fannie Mae and Freddie Mac could turn out either to demonstrate that the auction system to unwind such contracts works or to set loose financial Armageddon. In a worst-case scenario, the default swaps could lead to monumental writedowns and overall financial gridlock as companies bicker over prices and unpaid obligations.
So isn't there safe harbor in the storm for little folks like you and me?
The takeover of Fannie Mae and Freddie Mac is likely to cause big problems for hundreds of community banks nationwide and could lead to a new round of bank failures.
That's because many smaller banks had a large amount of funds tied up in the preferred shares of Fannie and Freddie, depending on the dividends for reliable income, and the value of those shares to meet the capital levels required by regulators.
Now the dividends have been scrapped and the share values are in question.
"For many banks it was a safe and steady income stream," said Brian Gardner, senior vice president and chief political analyst for Keefe, Bruyette & Woods, an investment bank that specializes in financial firms.
"It's cutting off an important source of income for the banks at time when income is not easy to come by."
The GOP... the party that wrecked America... wants you to pay the bill... for a party you never got an invitation to.
McCain-Palin have nowhere to go now but down, and I will tell you exactly how this will happen. They can run away from President Bush, but they can't run away from the Republican Party. The Republicans will be regarded from now on as "the party that wrecked America." Over the weeks ahead, as carnage in the economy and the financial markets ramps up, it will become increasingly clear. It is important that this meme be spread through the internet. I urge all commentators who read this blog to adopt and spread the idea that the Republicans are "the party that wrecked America." It will work because it is the truth. Use it freely. Don't bother attributing it to me. Just spread the word. Get the meme going.
This morning, Manhattan is strewn chest-deep with the debris of banking and at this hour (seven a.m.) nobody knows how far, deep, and wide the damage will spread. The fear, of course, is that we are witnessing a classic "house-of-cards" or "dominos-in-a-row," situation, and that the death of Lehman Brothers and Merrill Lynch will cascade into a generalized collapse of the entire consensus of value that supports mediums of exchange.
At least one thing ought to be clear: this has happened due to the negligence and misfeasance of the regulating authorities, namely the Republican Party, and that now all the hoopla surrounding Sarah Palin can be swept away revealing that group to be what they actually are: the party that wrecked America. I hope one or two Barack Obama campaign officials are reading this blog. You must commence the re-branding of the opposition right now. The Republicans must be clearly identified as, the party that wrecked America.
The wreckage is ugly, ugly, ugly.
Worse yet, we can't just gawk.
Because even if you didn't party, even if you didn't drink, even if you're not driving.... the drunkards are driving right in your direction.
Investors need to know that money-market funds aren't insured, even though they have come to be used much like bank accounts, said Andrew Tignanelli, a fee-only financial planner in Hunt Valley, Maryland. He said the belief that money markets are risk-free is ``an illusion.''
Jittery investors reacting to Reserve Management Corp.'s decision to delay redemptions in a money-market fund don't have a lot of safer alternatives, financial advisers say.
Reserve Management, a pioneer in the money-market business, became the first fund in 14 years to expose investors to losses yesterday. Shareholders had withdrawn more than 60 percent of the New York-based fund's assets over two days. The fund yesterday wrote off $785 million in Lehman Brothers Holdings, Inc. debt.
Bank accounts insured by the Federal Deposit Insurance Corp. and U.S. Treasury bonds are among the few alternatives for investors who pull out of the $3.58 trillion money-market industry. The three-month U.S. Treasury bill paid its lowest rates since at least 1954 today as investors fled the stock market and drove down yields.
U.S. money-market mutual-fund assets were $3.58 trillion as of Sept. 10, just below their peak of $3.59 trillion set a week earlier
There are painfully real reasons why America's savers feel they've got the short end of the stick.
American savers, take a bow. This is your moment of vindication. Your hour of glory. And you earned it (in a manner of speaking).
You resisted the siren call of plastic teaser APRs, dutifully living within your means to store money for a rainy day. You never took out an interest-only mortgage. Never had to pawn the copper pipes from your exurban McMansion to pay the reset on your liar loan. Your credit score would have gotten you into Harvard at age 12.
Good for you! Your reward: injurious savings yields, inflationary rot, and election-season neglect, all served up with a dollop of institutional insecurity.
Even with a current account deficit that, starved of domestic savings, requires $2 billion a day in foreign financing, economic policymakers are fixated on propping up credit and giving the participants in the housing bubble second chances. In order to do so, they are stripping the hides off of net savers.
Maybe savers' ultimate vindication will arrive when and if every asset is so deflated, credit is so choked off, and misery is so prevalent that only those with cold hard cash can lob in lowball offers for homes, cars, and everything else. Assuming, of course, they didn't stash all their money in one of the many banks that is about to go under; the feds are closely watching 117 of them—and counting. The phone lines have never been so jammed with nervous clients.
I don't have all that much, but I've been progressively disengaging. I pulled out of the stock market last year. I pulled out of money markets as much as I could this week. I stocked up on rice and beans. I pulled a bunch of cash out of the ATM yesterday. (You might want to do something similar, so you can free your mind and focus on the remaining weeks of this campaign.)
Now, please, arm yourself with the following:
Sen. Barack Obama’s Plan for this Financial Crisis (transcript)
by progress — published on September 17th, 2008
Remarks of Senator Barack Obama
Confronting an Economic Crisis
As Prepared For Delivery
Tuesday, September 16th, 2008