Thursday, September 18, 2008

Everybody gets it, the whole crew

You know shit is getting telling us to stay tuned to its "coverage" of the breakdown of our financial system, CNBC is playing actionmoviejingle. FishLips looks beaten. Dubya got this morning on and looked geuinely pissed. Either he's sore that they've made his brother look like a piker, or he must not like it when he can't crack jokes. I want to believe that he just wants to get the hell out of there.

With the this credit crisis ratcheted up another level, the government has stepped in to save AIG. It deemed that Lehman was not worth saving. This is all- I think- unprecedented in US history, where the government, through the FED, which it funded through T-Bills, has taken a position in a company. Surely, there's more to follow.

Is this a landmark point of the corporate state, a furthering of corporatism, or, perhaps more properly, corporatocracy...probably worth considering, but another game for another day.

Regardless, comparable level of government market intervention must have occurred during the Panic of 1907. Even then, it took J.P. Morgan to rally the banks to pull off the move the FED is now attempting. This time around, the banks don't appear so healthy. They own these non-performing assests
  • directly
  • in securitized form, through their brokerage/investment banking units
  • exposed, via credit default swaps, through their insurance/inverstment banking units.
It's the credit default swaps that must be protected. Its holders are, in theory, responsible for making good on those non-performing assets. Apparently, there's about $60 trillion of these instruments out there, easily enough to derail the world's financial system. The possibility of such a meltdown came into play in 2002, where the Dow tanked to 7286 (lowest point was 7181). Back then, the banks had money, so it wasn't as much of an issue. As we're seeing, this time, it's going to take a little more finagling.

Somewhere along the line, maybe two or three days into my career, I- someone who only pretends to be smart- learned to never (all caps emphasis wouldn't do it justice, so imagine Yosemite Sam yelling "never") chase yield. I guess those in charge of this Ponzi scheme are too smart for their own good.

Both the causes and effects of the failures here are systemic. A la China, the citizens (taxpayers) have been told to sit down and shut up at every step, starting with the Gramm-Leach-Bliley Act (didn't take that long for them to fuck up shit, did it?).

Of course, in China, whenever someone exhibits such (criminal, in my view) negligence, they usually get executed. These muthafuckas would be getting off lightly.

However, I favor capitalism over government intervention. My suggestion: Put the prosepect of a 30 or 40 year prison term in front of those deemed responsible, put out the Ken Lay poison pill punch bowl and let the market take its course.

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