It's Friday Night! Party Time! Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy! Well, not really this evening. It is more like time to breath. We need an educational catch up on the real causes of this financial crisis and resulting bail out, which is derivatives (and not falling housing prices per say).
This weeks video clip theme is education on derivatives and credit default swaps (CDS). These vehicles are so complex frankly it's tough to find material which explains them clearly.
This is actually a continuation or sequel to yesterday's updates on the proposed plan to clean the bad debt. As news comes forward, I will update ASAP. I've been up most of the night, considering that Washington has been as well, attempting to nail something out.
There is no doubt that the weeks we are living through now will be remembered and studied in the decades to come. In this post I compare and contrast our crisis with the great crisis of 1929 and thereafter.
After it initially appeared that financial hemorrhaging had been staunched, in rapid succession long-standing titans of American finance -- Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, AIG, and more likely than not Washington Mutual and Wachovia Bank -- all have failed in one way or another.
This just in, Treasury Secretary Paulson now confirming that the government is pursuing a plan similar to what happened to the savings and loan.
While the exact details haven't been released. I will be updating this as more news comes out. For those who aren't aware of what a Resolution Trust Corporation or RTC is, basically it's an outfit that buys the bad loans from failing banks to supply capital. Well, it's a lot more complicated than that. I will be posting a primer on this tonight. Anyways, below is an excerpt from CNBC's site.
Treasury Secretary Henry Paulson is working on a plan that would set up a government facility to take on bad debts from financial institutions, preventing a worsening of the global credit crisis, Wall Street sources have told CNBC.
The facility would be similar to the Resolution Trust Corporation, which was set up in the late 1980s to take on all the failed thrift assets during the savings and loan crisis, these sources said.
I just got back from listening to Thomas Friedman do a lecture about his new book Hot, Flat, and Crowded. I left the lecture with a sense of disgust, but not for the obvious reasons. I'll give TomTom this, at least he's realized that that there limits to growth that at the very least must be overcome. This is a start.
What bothered me the most was they you had an articulate individual. Who I honestly believes wants to be constructive. Recognizing that there is a problem, but presenting an absolutely shitty solution. I left the lecture thinking about one of my childhood friends.
All of a sudden words are buzzing like flies over the carnage. Swatted and flying in rapid succession from analysts everywhere is the term DeLeveraging. Now what kind of beige, innocuous glossing over term does that imply on what's really happening? Seeking Alpha defines deleveraging as Feedback Loops Gone Wild. Ok, so what does that mean?
Virtuous circles (and their accompanying animal spirits) give way to vicious cycles, in which lower prices beget write-downs, which beget lower prices
Today, that is an oxymoron. We all know that politicians, even those who mean well, sometimes make promises they can't keep. It is a sad fact of life that, to get elected, they make promises that they just can't deliver on once elected. But we, as Americans, expect them to make promises: bigger this, better that, or more of everything. We expect our politicians to make our lives better than it was the last election cycle (this time, that won't be hard). But have they been misleading us just to get elected? Whose fault is it that they are forced to make promises that in reality we know can't be forefilled? Why can't politicians just be honest with us?
Can't sleep, been thinking about the price of oil, worrying about it to be honest. Now you may be thinking "Venom, what are you crazy? A putz? A drop in the price of oil is a good thing!" And I would reply, yes, under normal circumstances it is. But these days, things ain't so normal. Actually, right now, oil is up since yesterday, but it's been in a slide for the past week or so. A prophetic lunch
A couple years ago, I had lunch with a trading friend/mentor of mine at Hackney's on Harms Road. He was an older gentleman, made his money in options, in fact was one of the first to trade at the CBOE back in the 1970s. We had just gotten back from one of those sales seminars from Equis, a company that makes a product called Metastock. While gobbling down on Hackney's infamous onion loaf and later cheeseburgers, topics ranging from the software to commodities came up. This was around 2002, and Enron was still in the headlines.
Not all the details have been released, so I will update this as new things come forth.
Bottom line, the government is going to offer American International Group (AIG) a bridge loan. The amount of the loan will be to the tune of $85 billion. In return, from what we know now, AIG will begin to sell assets ASAP to serve as collateral for the loan. Also, the company will grant the government Warrants.
Back in early July, I wrote a diary called Neutron Bomb over Wall Street in which I speculated that the ongoing old-fashioned "slow motion bust" was destroying Wall Street finance but leaving the Main Street economy largely intact. Shortly afterward, a few mainstream economists such as Prof. Brad de Long of Berkeley picked up on the same point.
After the bloodbath on Monday, a bloodbath that seems to be spreading almost by the hour to other banks and financial houses, it is worthwhile to revisit that idea: just how much of the financial system disaster is spreading into mainstream Main Street America?
It's Friday Night! Party Time! Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy! Well, not really this evening. It is more like time to breath. We need an educational catch up on the real causes of this financial crisis and resulting bail out, which is derivatives (and not falling housing prices per say). 
All of a sudden words are buzzing like flies over the carnage. Swatted and flying in rapid succession from analysts everywhere is the term DeLeveraging. Now what kind of beige, innocuous glossing over term does that imply on what's really happening?
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