Liquidations Flood Wall St.

Good Evening Everyone

MUST WATCH ALERT!

Before you read this post, PLEASE watch this interview of Meredith Whitney today.

You have seen Meredith on here many times before. She is the best financial analyst on the street IMO. Here is a wonderful explanation as to why we are not out of the woods and in deep trouble. As you can see, Meredith has now increased her peak to trough in housing from 30% up to 40-45%.

She also commented that banks like Citibank and others are expecting 20-25% losses in housing. You know what this means folks: All of the CDO's the financials are sitting on will be worth much less than they expected or planned for. This will trigger another string of writedowns for the financials.

Liquidations

I didn't have a full grasp of how crushing these liquidations are for the financials until I watched Meridith today. When you are forced to liquidate like Lehman and others, you have no leverage to negotiate fair pricing. As a result, assets are sold well below market value. This is simply devastating to the banks that hold the same assets.

Massive liquidations is why you saw oil go under $100/barrel today. The toxic loans that are on the banks balance sheet just got a little more toxic as Lehman is forced to mark to market and dump all of those sh*t sandwiches. Commercial real estate also got killed because Lehman holds huge amounts of commercial assets that will now have to be sold at bargain basement prices.

I am sure Donald Trump wanted to puke after watching this slaughter in commercial.

AIG

Folks, if AIG does not get funding tomorrow, run as fast as you can for the exits. Here is the story from Bloomberg:

"Sept. 15 (Bloomberg) -- American International Group Inc. is seeking a loan for as much as $75 billion through Goldman Sachs Group Inc. and JPMorgan Chase & Co. after the Federal Reserve balked at providing funding for the insurer, according to people familiar with the situation.
Representatives of Wall Street's biggest firms convened at the New York Fed for a fourth consecutive day, this time to discuss the funding crisis at AIG. The Fed urged AIG to seek private capital and discouraged the insurer from expecting a loan from the central bank, according to two people with knowledge of the discussions.

New York-based Goldman and JPMorgan are working with AIG to determine how much the insurer needs, said two more people, all of whom declined to be identified because negotiations are private. The loan would involve temporary financing, a so-called bridge loan, through a syndicate of banks, the person said, adding that there's no assurance an agreement can be worked out.

``We're still working on a number of alternatives,'' said Nicholas Ashooh, spokesman for New York-based AIG. JPMorgan's Brian Marchiony and Goldman's Lucas van Praag declined to comment.

AIG fell $7.38, or 61 percent, to $4.76 at 4:15 p.m. in New York Stock Exchange composite trading, bringing its loss for the year to 92 percent"

My Take:

AIG is big enough to take this whole market down my friends. They have a $1 trillion balance sheet. That makes them almost twice the size of Lehman. The stock dropped 61% today and now trades under $5. This is unbelievable. AIG is one of the USA's great companies. To see them in total shambles is a travesty.

When push comes to shove IMO, the Treasury is going to be forced to come to the rescue here if Wall St. fails to lend them the $75 billion they are asking for.

Anyone notice how the dollar amount on this loan keeps growing? Last night they supposedly only needed $40 billion. Now we are at $75 billion. The problem AIG has is I am not sure there is $75 billion left to borrow on Wall St.!

Bottom Line:

We are at sticksave levels folks. There is a FOMC meeting tomorrow and a rate cut would not surprise me. In fact, I wouldn't be surprised to see a half point cut. The strengthening of the dollar along with the commodity drop has given the Fed enough room to drop rates.

If a ratecut doesn't happen, expect something creative tomorrow by the Fed in an attempt to shore up the markets. The DOW was gushing red during the last hour of trading on very high volume. This was an ugly way to go out today. Market crashes occur at times like these although I am not predicting one.

As a result, expect more fireworks and a sticksave on Wed. This could lead to a bounce. Also, keep an eye on WAMU. They dropped under $2 today and could fail tomorrow. The FDIC loves to clean these messes up on a Friday.

If the Fed decides to make a "No More Bailouts" statement tomorrow to Wall St. and decides not to lend AIG any money then I have one piece of advice: Run for your life!