Thursday, March 27, 2008

SAR #8088

Vampire bats are more community-minded than Wall Street.
Naked Capitalism

Self Centered: We're so fascinated by the Ben Bernanke show that we've not been aware that our British cousins are deeper in debt that we are, for the same dumb reasons. Brits spend more than they make, too. Their household debt-to-income ratio is 1.62 compared to our 1.42 . Why, that's un-American.

Wrong Question: Joseph Mason asked, at the Wall Street Journal's economics blog, "Should the Fed Save Wall Street Firms?" Of course it shouldn't, but it will. The question should be "How Big Do You Have To Be To Be Saved?"

Re-Do: Pension systems in Pennsylvania and South Carolina see mortgage-backed derivatives as so cheap they can make a killing if they buy them now, on the hope of strong yields and capital appreciation as the country comes out of this recession. Suicide is a form of killing.

Clarity: Houses cost too much for most people to afford. The median income is $49,000. The median house is $234,000, which takes a monthly payment of about $1,500. An aftear-tax income of $3,000 a month will not cover a $1,500 house payment and things like food, electricity, etc. Anything the Fed or the Congress does that does not lower the price of the house to about $150,000 is not going to work.

Alleluia! Roubini (Global EconoMonitor):"This is the worst US financial crisis since the Great Depression... It is not the job of the Fed to bail out insolvent non-bank institutions. If a bail out should occur, that should be decided by Congress... after the relevant equity holders have been wiped out and senior management fired without huge severance packages." Amen and Amen.

One Hand Clapping: Aren't all of these big brokerage firms competitors, exposed to the same challenges? Stearns was leveraged at 34:1 and couldn't meet the margin calls. Lehman is leveraged 40 to 1, Carlyle was at 32:1. Citi is at 41:1. Citi is a counterparty to $34 trillion in derivatives. The Fed's piggy bank is not big enough..

Dilemma: Americans don't have enough money to pay back their mortgage and credit-card debt. They are not ever going to earn that much. The Chinese, the Arabs, and the bankers are going to get tired of losing money and insist that consumers to change their ways. No, not going back to our parent's level of frugality. Our grandparents'.

Rumsfeld Economy: The markets are not jittery because of the risks they face, they are jittery because they don't know the risks they face. Unemployed mathematicians invented credit derivatives, credit swaps, off book accounting, conduits and all the rest. A new one surfaces every day. And that's what is spooking the markets - the woods are full of unknown unknowns that come stumbling into the light only to expire.

Statistical Static: John Williams over at provides non-government versions of government statistics, "without the business bias." M3 (the "old" money supply data the gov. stopped tracking) grew at 16.9% last year. GDP declined -2.3% instead of growing 2.5% as the gov. claimed. Inflation, they say, is running at nearly 12%. And unemployment now tops 12%. Who benefits from which set of data?

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