Risk Rap

Rapping About a World at Risk

Retreat to the Alamo

As the country waits for the government bailout package to become law, large banks are retreating to a new Alamo. The new Alamo will protect a club of 5 bank’s that the Fed and Treasury desperately wish to protect. The five banks are Goldman Sachs, Morgan Stanley, Citigroup, Bank of America and JP Morgan. It is upon these TBTF rocks that the American banking system will make its last stand in an Alamo fortress to weather the capital market storm.

The FDIC has arranged another marriage between Citigroup and Wachovia. Its truly a combination of weak sisters. Wachovia’s equity holders wiped out.

Hedge funds are cashing in their prime brokerage accounts. Three EU countries have acquired major stakes in Fortis Bank. Iceland an island country in the North Atlantic has nationalized its third largest bank.

New bank holding company, Morgan Stanley has just received an equity investment of $9 bn by Mitsubishi a Japanese bank that has also acquired 98% ownership in Union Bank California. The other new bank holding company, Goldman Sachs admits to a $50 bn war chest (recently augmented by Warren Buffett) in capital to make acquisitions of distressed banks assets. Once taxpayers assume ownership of the non-performing bank assets GS and other Club of 5 members will emerge from their bunker and get first pickings on a bunch of equity distressed regional and community banks at bargain basement prices. The banks are deleveraging while the Fed is asking the US taxpayers to leverage-up on more debt to fund that deleveraging.

President Bush made a statement this morning on the economic situation. W said he is ready to sign the EESA (Emergency Economic Security Act). This is an emergency situation said W. W also said he “appreciates the leadership of our legislators to come together and the true spirit of bipartisanship to serve the greater interests of our country.”

I wonder if anyone in this country knows what the word bipartisan means let alone willingly set aside parochial interest and actually practice it. This inability to come together is the result of twenty years of the fine art and practice of radical partisanship championed by Republican Rovian attack politics.

This Rovian posturing was ably demonstrated and on display for all the world to see during Friday’s debate. The Arizonian Maverick a self proclaimed champion of bipartisanship couldn’t find the courage in his Country First heart to look at Barack Obama to engage in a substantive discussion concerning this nations problems. His contempt for his opponent and his refusal have a dialog with him was truly ugly as it is despicable and exposes McCain as a Me Firster. Country be damned.

Due to a system malfunction the opening bell at the NYSE failed to ring. What kind of omen does this augur?

Music: Queen, Another One Bites the Dust

Risk: leveraging, political dialog, democracy, depression

September 29, 2008 Posted by | banking, credit crisis, EESA, rock, TARP | , , , , , | Leave a comment

GOP Scuttles EESA

The Republicans have turned their back on Wall Street and the EESA. Apparently their feelings were hurt when Nancy Pelosi gave a partisan speech that made some GOP’ers cry.

Other then Ms. Pelosi’s rhetorical fusillade that blew a gaping hole in the collective ego of the GOP, I don’t know what their real reason is other then an ideological commitment to a policy direction that has brought the banking system to the brink of collapse.

Oil is way down on the assumption of much lower demand due to an economic slowdown. Gold is going up as a safe haven for assets. The DOW is down 600 points and the yields on Treasuries continue to plunge.

Republicans can boast their populist credentials as they return to their districts for the coming election. They can blame majority party democrats who control both houses for the legislative failure. Maybe their constituencies are sufficiently capitalized to weather this economic storm.

Liquidity in the credit markets is critical. An important barometer will be lending activity of community banks. No liquidity will acutely show itself in community bank lending.

We seem to be entering a state of perpetual crisis. Anything that is perpetual in nature is not a crisis it is the usual state of things. Any condition of perpetuity is a falsehood and cannot abide.

Welcome to the new normal state of things.

Music: Rolling Stones, Gimmie Shelter

Risk: markets, banking

September 29, 2008 Posted by | EESA, politics, republicans, rock | , , , , , | Leave a comment