Saturday, September 27, 2008

Houston: We have a Debt Problem!

Good Afternoon!

Just a note today. It looks like significant progress has been made on the housing bill. I expect it to be passed within the next day or so. It appears that Congress looked at the pressure on financial system and decided something had to be done or most of our banks were going to die.

Take a look at this graph from Deutsche Bank on lending from the discount window:

My Take:

As you can see, the lending from the discount window soared in September as the crisis continued to worsen.

Bloomberg reported that banks were borrowing $180 billion a day from the Fed last week. This is why Paulson frantically ran to the government begging for a bailout. He realized that the lending escalation from the Fed along with a run on money market funds was about to blow up the whole financial system.

What I find funny is how the invesmtent banks stopped lending all to together late in the summer in an attempt to show the world that they were strong and didn't need to. I guess that idea went out the window when all hell broke loose this month!

Now as I have said before, I don't think this $700 billion is going to be enough to solve the problem. This is nothing more than another band aid that will hold things together for a little while longer. This dam is eventually going to burst because the leverage in the system needs to be unwound.

Our economy is drowning in debt and we can no longer afford to service this debt. Our politicians realize this.

Why do you think the Democrats didn't approve this plan yesterday on their own if they were so confident that it would work? They had enough votes to do it. The reason they didn't is because if this plan doesn't work and the Dems passed the bill, they get blamed for it.

If they were confident in the plan, it would have been a no brainer to jam it through because they could be annointed as the political party that "Saved the financial System!". I think everyone in Washington realizes this bailout is a "Hail Mary".

Bottom Line:

Expect the mother of all bailouts to be passed by Monday or Tues. at the latest. It will be interesting to see how the stock market and world reacts to it. If the credit markets don't loosen up significantly from this, expect the fear to be right back up to the pre-bailout levels.

Lets see what happens!

Stay tuned!


ZMonet said...


I first want to thank you profusely for taking all the time and energy to post each day. I must say, I look forward to your posts, often checking in a few times a day, and I just wanted to let you know it will be appreciated.

I was initially thinking that we would see a bounce post-bailout and was thinking that this might give me (and others) an opportunity to reapportion as necessary. I'm now thinking that the bounce might be short-lived and that there are a lot of people who are going to reposition. Still others will get in quick and get out quick. We shall see, but I do think that the government is tapped out and we are about to see the fallout in the next month.

If things get too bad, I'm not sure all the repositioning will do all that much good, at least for me. My strongest/best asset is my job. I lose that and, like most others, I'm screwed.

Anyone actually think they'll do better in a failing economy because they've seen it coming and positioned accordingly? I don't know how you invest in this stock market when the government changes the rules all the time.

Jeff said...


Your welcome. I enjoy doing it everyday. I hope the information helps!

I think you will see a bounce on a bailout but I agree with you. This could be a "sell the news" trade on the bounce.

I was going to take off some of my short hedges but I decided to keep them on as the bailout bill got less and less friendly towards Wall St.

Could we rally 1000 points from here? Maybe. I will have a better idea once I see a few days of trading.

I see very few people doing well if the economy fails. The only way to be positioned right for a failure would short up to your eyeballs and owning lots of metals like gold.

That obviously is way too risky to ever attempt.

People who have essential jobs and can keep them will do pretty well

Lets hope we just end up with a long deep recession that allows us to avoid a Mad Max world!

Jeff said...


Bailout bill talks are getting heated. Screams have been heard by reporters outside the room according to FOX news.

Republicans may kill the bill. All Blackberry's have been confiscated so that there is no contact with the outside world.

Republicans are demanding that their insurance version be used. They want no taxpayer money going towards this bill.

This bill is not a done deal and it sounds like its falling apart. WOW!

johndaniels said...

i would wager this major has something to do with bank of america behind the scenes;;;they dont want to go public with that. just look at what BAC is carrying...MER lost -4.95 in Q2 and CFC lost -1.91 in Q1.

Avl Guy said...

Well Paulson & Bernanke have admitted that one of their goals of "No Bank Left Behind" is to deliver a confidence-building 'sign' to the markets. Whenever talk descends to 'confidence', we might as well revert to 16th century spell casting; all hocus-pocus and smoke not even rising to the bogusity-level of chart trending IMHO.
Fundamentals ..remember those Hank & Ben?
The fundamentals for this consumer-based, debt-laden, globally-embarressed, foreclosure-ridden economy do not merit the Dow at 11,000, let alone some conjured-up 'bounce'.
So I guess that means there will be a bounce in between Belgium's Fortis Bank tanking, Britain's Bradford & Bingley PLC joining Parliament, and China slyly de-coupling from the US, cuz we've seen stranger.

BTW, do ya think Ben "It's Contained" Bernanke sealed his fate...would anyone re-appoint him by Feb 2010?

Jeff said...

JD, Avl

This whole thing stinks doesn't it?

There is a lot of stuff floating around the blogosphere regarding this whole bailout, and both of you hit on it.

I am going to talk about it tomorrow.

The issue here is confidence and Hank and Paul are destroying confidence.

THe manipulation by the Fed is borderline criminal, and they seem to be picking favorites like BofA and JPMorgan and Goldman?

Why is the Fed decided these banks are the "chosen ones". They are ripping down companies like WAMU and allowing the chosen ones to feast on the spoils for pennies on the dollar.

WAMU should have folded to the FDIC just like any other bank failure.

Instead, the Fed forces the bank to sell their assets for pennies to the "chosen ones". Its bull**** and its going to create chaos and fear among the banks that are not in the Fed's "circle".

This is horrible policy. Both of these clowns need to be fired.

Avl Guy said...

I live 100 miles from Charlotte, NC, home to Wachovia and BofA, but not 4 long cuz BA's Ken Lewis wants to relocate to Wall Street so he can "party like a "big d**k-swinging rock star" with the other annointed 'winners', JPM and GS.
They say Wachovia's suiters now wait for Wachy to get that "WaMu treatment". Charlotte may go from 2 mega-global banks to NONE ...a 60,000 executive & managerial local payroll simply evaporates.
Ouch, that'll leave a mark. Ah the nastiness of 21st-Century capitalism..."Like the Fresh Smell of Napalm in the Morning Air"

Jeff said...


And now Hanky Panky may have $700 billion in his back pocket that allows for even more corruption.

I will be sick if this legislation passes.

They are voting on it tomorrow. Lets see what happens!