Saturday, September 20, 2008

Jim's Wins

From the Good News Department (yes, contrary to popular opinion, there is some good news to be had), a federal judge has cleared Jim's Gun Jobbery of Fayetteville and Wilmington, NC of charges that they willfully failed to keep their government-mandated records properly--and ATF has been ordered to stop harassing the company:

"According, the court finds [the BATFE] was without authority to revoke peittioners' licenses and ORDERS that respondent's previously issued orders revoking petitioners' federal firearms licenses are hereby overruled and set aside," the judge said.

If you've been following things gun-wise, you'll know that this is a common tactic used by ATF in order to revoke the licenses of as many FFLs as possible.

Sometimes, the good guys win.

Well, that was a short intermission

Smelling "free money", everyone is lining up for a taste of the pie:

Senator Christopher Dodd, the Banking Committee chairman, said the plan's framers should consider the full debt load of U.S. consumers, possibly including credit cards.

"We have got some strong concerns about what's included here,'' said Dodd, a Connecticut Democrat. ``They haven't limited this conversation exclusively to residential mortgages. So I know that other securitized debt is also going to be considered.''

In other words, in the best Washington political tradition, there must be something for everyone on this bailout. So rather than the $500 billion of 48 hours ago, or the $1 trillion of 24 hours ago, expect to see the dollar figure truly mushroom.

This was a bad idea to start. As others have noted, if we remove the element of risk from the markets, there is no premium for making good decisions. "Hell, John, let's really shoot for the moon with this one...if we flop, the government will bail us out."

Then there is the cost. I for one am very curious to see if they can actually raise this kind of money from our creditors. Face it, the Federal government is going to absorb a lot of bad debt. That's what sunk companies like Morgan and Lehman. After doing so, why should US government debt remain rated AAA?

I opening the bidding at $1.25 trillion. Do I hear $1.5...?

Friday, September 19, 2008


Yes, it's intermission time here at the Panic of 2008.

I don't think I'm overstating the situation. What those of us who watched the world-wide capital markets saw Monday-Wednesday of this week was the beginning stages of a panic, the likes of which have not been seen in decades, if at all.

Thursday, rumors began to circulate that Something Was Going To Be Done. The markets recovered a bit. Thursday night into Friday morning, the big news came out: $50 billion to guarantee various mutual funds, a 10 day ban on all short selling (not just the abusive sorts that have contributed so much to the present predicament), the Fed opening the monetary floodgates to lend directly to financial institutions and the centerpiece of it all, the unveiling of a new Resolution Trust Corporation-like entity to hoover up all of that bad debt out there, allowing corporations to put their books right with a few strokes of the pen--not to mention a healthy dose of the taxpayers' money.

Folks, Paulson and Company may call this what they like, and Congress can treat them as heros until the cows come home, but this is market manipulation. It's just out in the open this time.

Will it work? After all, it seemed to work out OK during the S&L crisis. After all, that crisis occurred when the savings and loans started lending money into a real estate boom, only to get caught up in the collapse of the boom. (Sound familiar?)

I doubt that we will be so lucky this time. It isn't the 80s/90s any longer. Our manufacturing base is gone in large part, our government's finances are in far worse shape now than then and I suspect that our overseas money lenders aren't going to be all that interested in financing our financial arson habit forever. (And there are some folks, like Senator Richard Shelby of Alabama, who insist on noticing that the emperor is running about the house nekkid as a jaybird.)

Add to that the opinion of some that we are only about 1/3 the way through the necessary write downs of the accumulated bad debt (and thus less than 1/3 through the financial pain), and this looks to be only an intermission in the Panic of 2008.

Most others, from Alan Greenspan and most of Congress to our two jackass illustrious Presidential candidates believe that this is a Good and Necessary Thing. Our hard-working civil servants in Washington are goign to work through the weekend to have bills ready for quick passage by Congress next week. (Sounds like the Patriot Act passage--and we all know how well that's working out for those of us who give a crap about the Constitution.)

Who's right? We'll see. Actually, I hope that Greenspan, Congress and candidates are correct. I hope we're not seeing the collapse of the global financial system. I hope that I don't have to finish raising my kids in a depression.

But I'm unconvinced.

Wednesday, September 17, 2008

In other news

While we've all be fixating on Wall Street, Jihadistan decided to take a swing at us in Yemen, bombing the US Embassy in that country. It seems Al Qaida may be down, but not out. As I've said before, it's like killing cockroaches--you're job is done when the last one is dead.

At least they've shown us a silver lining in the impending collapse of Wall Street--the media is so taken by that story that this one has gotten relatively little air time. Being terrorists, that's about the worst outcome they could get.

Venturing into the undiscovered country

We've now entered into the early phases of the grand liquidation of financial derivatives I wrote about last June. The most stunning—indeed flabbergasting—event so far has been the “rescue”, or more precisely effective takeover, of AIG, the largest insurance and financial services company in the United States by the Federal Reserve, which granted a two year credit line of US$85 billion secured by all of the assets of AIG. In return, the U.S. government receives a 79.9% share of AIG's equity, diluting existing shareholders' stake in the company by 4/5.

To my knowledge, nothing like this has ever happened before in U.S. financial history, at least not in the last century (you always wonder about railroad deals in the 19th century, but I don't know if precedent exists there; in any case that was before the Federal Reserve was founded, and the financial system worked very differently in that era). Certainly there have been bailouts before, such as that of Chrysler in 1980, but even that deal, controversial as it was at the time, was, in inflation-adjusted dollars, less than one twentieth the size of the credit line provided to AIG and was a pure government loan guarantee: the government took no equity stake in Chrysler at all. In the case of AIG, the U.S. now has effectively nationalised the largest insurance company in the country, with not just a controlling interest but an overwhelming ownership stake of around 80%, and the whole deal was done overnight without, as was the case of the Chrysler loan guarantee, extensive debate in the Congress and the enactment of a bill explicitly granting the guarantee.

That's part of John Walker's take on the AIG "bailout". (You should read the entire thing.)

I won't predict that this is the first domino. However, the precedent is now set--the Federal Reserve can now acquire a controlling stake in a troubled company at will, simply by declaring that the "disorderly failure" of a given firm will "add to already significant levels of financial market fragility". (Yes, those are the words of the Fed, reported by Bloomberg in this article.) No formal government action required--just the Fed cutting a deal with the desperate.

Watch carefully. One occurrence may be what we should hope--one occurrence too many. (I believe AIG should have been allowed to fail, as happened with Lehman Brothers. Better to get the pain over with quickly, than sink into a decade long slump like Japan (You may need BugMeNot for that link)). Multiple occurrences, well, let's just say I would exit the equities markets very quickly, before the already beaten value of my stock was diluted by 4/5.

Or I would exit if I were still there. If you aren't out now, leave while there's still time. I'm expecting a long fall and a cold winter--and praying for spring.

I guess that didn't work...

U.S. stocks tumbled as bank lending seized up in the wake of the government's takeover of American International Group Inc., raising concern that more of the nation's biggest financial companies will fail.

OK, so last night's bright idea isn't working out so well. (I'm shocked--shocked I tell you. Nationalize the largest insurer in the US and you can't see that the markets may not take it so well?) So, Fed governors, do you have Plan B? Or should we just start the bank runs now?

Tuesday, September 16, 2008

This is uncomfortable

Remember when the Fed "persuaded" Bear Stearns to sell itself to JPMorgan Chase for $2/share, only to eventually have the price go up to something like $10/share after a good dose of investor outrage?

Been following the AIG saga the last few days? One of the developments was when the Fed pushed the same JPMorgan and others to make a bridge loan to AIG to meet capital needs brought on by its exposure to toxic mortgage paper. That fell through. Interesting, though.

Well now, it seems that the Fed has decided to just cut out the middle man and keep the goodies to itself. They are going to fund an $85 billion loan to AIG--in return for 80% of the company. A company with reported total assests of slightly over $1 trillion dollars.

Ya think they got 'emselves a good deal, there?

Ross on Palin

John Ross is enthusiastic about Sarah Palin. Nothing of earth-shaking import here, but Ross is always fun to read.

Sunday, September 14, 2008

Your Sunday Firepower Video

And you too can own this one:

Of course, I bet the reloading press and dies for that brass are kinda steep....