The Brink of Collapse...

$20 Stacks
Originally uploaded by Phalanx.

So the Fed offers up to Wall Street US Treasuries to open up the credit markets? Is Bernanke insane? How can he and the rest of the Fed Governors even entertain that the Big Banks can use their troubled mortgage-backed securities as collateral? How does this make sense? When:


a) the whole mess with the credit markets is rooted in the mortgage-backed securities market?


b) no one YET knows how to value the mortgage-backed securities, and since the default rate is climbing by the hour, there’s no way to measure the risk of these investments?


c) you know damn well that they are going to use their most difficult, sub-prime securities as collateral, so effectively this is a bail out at the general welfare of the country’s expense;


d) this type of extreme horsetrading the reason why the credit markets are in freefall in the first place.


e) the Fed traditionally refused to accept private label securities for collateral – and with good reason, if the Wall Street Warriors can trick even their shrewdest competitors be sure they can trick the Fed and the SEC long enough for their to be cataclysmic damage committed.



Look at the Credit Derivatives market, it’s predicting that Citibank has a 17% of defaulting on its obligations in the next 5 years!!! That’s a whopping, if not astronomical number. And since no Sovereign Wealth Fund has bought into Citi (and I suspect none will), they might be in some trouble. So that 17% might not be as outrageous as it seems…



And what’s up with Carlyle Group? They’re just about to go under and smash the industry again. They’re about to lose their Triple A-rated mortgage-backed securities to cover their massive debt; this will no doubt flood the market with AAA securities, therefore driving the price down on this top grade shit and just think what it’s going to do to the value of the bottom-of-the-barrel crapola that’s the root cause of the market meltdown?

Treasury Secretary Paulson was issuing edicts to have more supervision and greater controls so this type of bursting of the bubble doesn’t happen again… well at least anytime soon, because those sons of bitches on Wall Street make the big bucks because they figure out ways to jook the system, and they sidestep any kind of serious fallout – no one goes to jail or is seriously fined. Secretary Paulson’s biggest hurdle is going to be getting the Ratings Companies (i.e. Moody’s and Standard & Poor) to act in the best interest of shareholders and the general market – not the investment banks who had the game rigged, whereby they would demand a rating from say Moody’s (usually a high one) and pay for their rating of an investment issue AFTER that’s right I said, after the investment bank sold the security to bamboozled investors!

The thing is no matter what Bernanke or Paulson do, there is no Silver Bullet for the killing the GREED PRINCIPLE, which fuels all the excesses in capital markets that we’ve seen since the 1987 Crash – and their have been a few: internet, real estate, financials, commodities (oh wait that crash hasn’t happened again yet), Asian Tigers, etc from recurring – again and again and again. All those Wall Street and Fed Economic Gurus never foresee the raping of the system until the System has been ransacked much like Rome when the Germanic Barbarians where invading, and it’s too late to save it as the Centurions scratch their heads wondering why didn’t we stop this when we saw it coming?