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Sunday, September 7, 2008

Financial Ground Zero, part Deux

The government, under direction of Heny Paulson, is taking on much of the debt, "rescuing" the "strongest world economy ever seen". World markets are rallying, as I expect USA will too. Dow 12,000 here we come.

In any event, the Asia markets immediately spiked US Treasuries, as I wrote in the previous entry, there is no free lunch. If the interest rates are now on a "rising slope" instead of a "declining slope", more, not less, real estate will fail. The near term "save" will just save us until the next administration has to deal with an even worse problem. Time will tell if the interest rates spike is just a knee jerk reaction or a trend change. If it is a trend change, the USA just "jumped the shark" and this recession is heading for a depression.

In related news, 11th bank this year went under, and taken control by the US government. With the "bailout" of Freddie Mac / Fannie Mae underway, the government expects more banks to have issues, as I also stated in previous post would likely be a side effect of a bailout. (UPDATE: Washington Mutual has entered into "Memorandum of Understanding (MOU) with the Office of Thrift Supervision", this is NOT a sign of strength for WaMu.)

All common and preferred stock is likely to go to zero as part of the bailout plan. The fall out by pension funds, banks, and other institutions will start to be reported next fiscal quarter. And the rating agencies that protect us common folk for ensuring we invest in only sound companies, in reaction to the news, has slashed Preferred stock to junk. That's real helpful, it is at least 6 months too late. Why bother paying these clowns for ratings, if the real value/rating is only realized after the dirty laundry can't be hidden any more?

Through the rally we will see Monday, keep this in mind, the WORST fiscal failure in the history of mankind is not a good thing. In the near term, it may give confidence, but the cracks will re-appear as the debt starts to be serviced by the US government. The next administration will have a rough time, and more importantly, can CHANGE the promise being made today, if they are willing to lead this nation through this, rather than pander.

If you care to watch a video of some analysis of the long term effects of this decision, click here.

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