A few weeks back, we saw IndyMac bank get seized by the government, marking the biggest bank failure ever to happen in these United States’ history. So what happened today, you may ask?
The biggest bank failure ever EVER in these United States’ history.
Yessir, in a thrilling display of one-ups-manship, Washington Mutual imploded under the weight of it’s own bad debt and was acquired at bargain basement prices by J.P. Morgan Chase. Mind you, this is the same Chase that picked up the irreparably busted Bear Stearns a few months back.
So, with all these “too big to fail” companies experiencing shotgun weddings on Wall Street, what would happen if one of these newly consolidated “super-duper too big to fail” giants happened to take a sudden media friendly turn for the worse?
We don’t know. And if Hank Paulson and Ben Bernanke have anything to do with it, we never will.
The financial markets are in a controlled seizure right now as Congress puts together a ‘financial rescue plan’ (i.e. a Wall Street bailout bill) with a cost of 700 billion taxpayer dollars. The provisions within the bill have been described as “involving a lot of experimentation”. Evidently, this is as good a time as any to try new and exciting things with our money.
The fact is, something is going to be hammered out, because legislature is too scared of the speculated alternative. And, since they have until Sunday at 8 pm (the time when Asian markets open), they’ll probably get it approved without doing their due diligence and will probably screw up a lot of stuff.
Hopefully, the overall effect of the plan will be worth the mountain of debt it will put us into.
Mortgage rates have gone up incrementally on the news, as a huge bailout will require printing more money, higher taxes, and a general erosion of our economy as a whole.
Here’s the bright spot amidst all of this: when the financial markets are whip-tailing all over the place, it gives you a chance to time the markets. With the right advice and knowledge, you can capitalize on an overly-large downswing in interest rates to buy a foreclosed property who’s value is artificially deflated. It’s like getting a good deal inside of another good deal (like a calzone, only with money). Lots of opportunities are out there for those looking for long-term benefits, and I would love nothing more than the chance to discuss them with you.
John McCain also changed his mind about needing a definitive answer to the financial crisis before debating Barack Obama. It’s always fun to see two political juggernauts go head to head in the midst of a growing and evolving crisis. Nothing says ratings like a nice bloody battle of wits.
Saturday, September 27, 2008
Friday, September 19, 2008
The bailout nation is alive and well
Economic bulimia. Binging and purging. That’s exactly what our country’s financial markets are experiencing. Over the course of ONE WEEK, we’ve seen the following happen:
Lehman Brothers declares bankruptcy and Merrill Lynch narrowly dodges bankruptcy by being taken over by Bank of America, leaving only 2 of the original 5 major investment banks standing.
Goldman Sachs and Morgan Stanley (the 2 remaining investment banks) saw their stocks get trashed as our investment community threw the baby out with the bathwater during the mass exodus from failing financials. As such, Morgan Stanley is now entertaining the idea of a partnership with Wachovia...who now may also need a lifeline form the government.
And, now it appears that Morgan Stanley and Goldman Sachs are being taken over by Uncle Sam as well. There goes the entire investment banking community.
In a moment of exceptional restraint and poise, the Federal Reserve opted not to change benchmark interest rates on Tuesday (because, even if they did, little to noting would have changed).
Insurance giant AIG stared failure in the face, only to be bailed out by a taxpayer-backed bridge loan to the tune of 85 billion.
The Treasury agreed to buy twice as many Mortgage-Backed Securities than previously stated (translating to artificially lowered rates in the short-term for you, the mortgage borrower). They also have offered a broad-base bailout plan for money market funds, guaranteed up to 50 billion (so far) and are offering a housing market bailout whose price-tag has yet to be determined.
In 48 hours time, gold prices both rose then fell by the largest amounts seen in 28 years.
Short sellers (day-traders who tend to exacerbate stock price plunges) have seen increased regulation and forced transparency. The SEC has gone so far as to ban short-selling on many financial stocks.
A Resolution Trust Corp.-style of entity is being formulated, providing somewhere for the government to dump all their newly acquired terrible assets.
I could go on. For a while. But the fact is, we are going through a historic period in our economic evolution. Absolutely unprecedented stuff. Banks are failing and consolidating, the government is back-stopping everyone who asks politely enough, and free-market capitalism is withering in the wake of this greed driven calamity. There is no methodical thinking and hard solutions provided. No, a go in and cut out the tumor and hope no arteries are hit “operation”.
Our day of reckoning is upon us, kids. Ironically, 2 months before a presidential election. We can look forward to incrementally lower interest rates for mortgages and a very beefy set of tax hikes in the next presidential term, regardless of who we elect.
Lehman Brothers declares bankruptcy and Merrill Lynch narrowly dodges bankruptcy by being taken over by Bank of America, leaving only 2 of the original 5 major investment banks standing.
Goldman Sachs and Morgan Stanley (the 2 remaining investment banks) saw their stocks get trashed as our investment community threw the baby out with the bathwater during the mass exodus from failing financials. As such, Morgan Stanley is now entertaining the idea of a partnership with Wachovia...who now may also need a lifeline form the government.
And, now it appears that Morgan Stanley and Goldman Sachs are being taken over by Uncle Sam as well. There goes the entire investment banking community.
In a moment of exceptional restraint and poise, the Federal Reserve opted not to change benchmark interest rates on Tuesday (because, even if they did, little to noting would have changed).
Insurance giant AIG stared failure in the face, only to be bailed out by a taxpayer-backed bridge loan to the tune of 85 billion.
The Treasury agreed to buy twice as many Mortgage-Backed Securities than previously stated (translating to artificially lowered rates in the short-term for you, the mortgage borrower). They also have offered a broad-base bailout plan for money market funds, guaranteed up to 50 billion (so far) and are offering a housing market bailout whose price-tag has yet to be determined.
In 48 hours time, gold prices both rose then fell by the largest amounts seen in 28 years.
Short sellers (day-traders who tend to exacerbate stock price plunges) have seen increased regulation and forced transparency. The SEC has gone so far as to ban short-selling on many financial stocks.
A Resolution Trust Corp.-style of entity is being formulated, providing somewhere for the government to dump all their newly acquired terrible assets.
I could go on. For a while. But the fact is, we are going through a historic period in our economic evolution. Absolutely unprecedented stuff. Banks are failing and consolidating, the government is back-stopping everyone who asks politely enough, and free-market capitalism is withering in the wake of this greed driven calamity. There is no methodical thinking and hard solutions provided. No, a go in and cut out the tumor and hope no arteries are hit “operation”.
Our day of reckoning is upon us, kids. Ironically, 2 months before a presidential election. We can look forward to incrementally lower interest rates for mortgages and a very beefy set of tax hikes in the next presidential term, regardless of who we elect.
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