Strong Medicine: Wall Street Swallowing its First Dose of Financial Reality

 

With the bankruptcy of Lehman Brothers, the first true consequences of the greed and stupidity of the Sub Prime crisis has finally come due.  Lots and lots of pain: but pain that reflects the reality of the foolishness that caused it, and in so doing, suggests many of the ways we might legitimately correct the system.  As President Bush said; “Adjustments are painful” and so they are, but better a painful adjustment than endless agonizing uncertainty. Clearly we’re not done writing off bad loans and clearly this continued crisis has become a global crisis with global consequences.  Anything can happen now that reality has been reintroduced to the market.  On the table are a massive overhaul of banking regulations as well as a clarification of the proper interface between government and banking that’s long overdue. 

I doubt that we’re going to come out of this thing smelling like a rose and lots of investors around the world will, necessarily, begin to question the wisdom and security of making investments in the USA. It’s not just Americans and American companies that will feel the pain but national banks and foreign investors around the world.  The United States may become something of a pariah nation if governments around the world who trusted us begin to lose their shirts because of bad American investments.

So are we going to face a catastrophic event?  Are we heading for a great Depression?  Are we due to see the American Dollar become a joke? To be honest it’s quite possible.  This crisis isn’t over, not by a long shot, and the stakes are the biggest threat to our national security and way of life since the Revolutionary War.  No, I’m not kidding.  The one big thing we have going for us now is a more sober, clear eyed willingness to face the ugly truth of our own greed and the mismanagement of investment banking.

 There is the possibility now of figuring out a real solution to problems we’re at last ready to admit.  That’s a start.  I suspect that the “lesson” to be learned is about the global nature of the financial system these days and at the end of all the bloodletting that’s sure to come we’ll see a massive concentration of financial power in the hands of a few giant multinational corporations that’s unprecedented in human history.  Banks are going to continue to go down the tubes and be acquired, at fire sale prices, by the global financial elite. 

Essentially the United States Taxpayers have been sold out like an indentured servant to pay the massive debt that our government has guaranteed to the global financial elite to keep the corrupt financial system afloat.  Despite all these gallant efforts by the government, selling our grandchildren as slaves, and the global banking elite( The Fed),  loaning the money necessary to enslave future generations over a crisis they (The Fed) created it’s likely that a new great depression is unavoidable. It could come at any time.

AIG, (American Investment Group) WaMu, (Washington Mutual) are in deep trouble and are likely to go down the tubes to bankruptcy too.  Washington Mutual almost certainly will be bought out or file bankruptcy, and AIG has a better chance of dodging the bullet.  If AIG were to declare bankruptcy then the global effects would really be nasty as there’s a lot of foreign money involved. We’re not going to be very popular in the world. 

 As usual I would urge everyone to track the decline of the dollar, today it was down sharply, a ten year low against the Japanese Yen. 

We’ve been clobbered by Hurricane Ivan and while the damage is severe and in the tens of billions it appears no big time trouble to our offshore assets or our refining assets but the insurance companies are about to get hit hard. 

The Obama Campaign is launching an aggressive attack, blaming the financial crisis on Republicans and the economy is the one polling “internal” that Obama has held a consistent lead over McCain.  Democrat Governor Paterson made a grandstanding play on behalf of AIG and called for additional federal intervention.  The politicization of this crisis is underway and likely to increase rapidly to the detriment of everyone. If this issue resonates with the electorate then a President Obama would have something of a mandate to indulge in massive government regulatory interference which would perpetuate the crisis perhaps indefinitely.  I think we’re in for a long slow economic decline that will be a couple more years before it begins to turn around.

Globalization of the financial industries is predicted by the Bible when it talks about a one world financial system.  Up until the last year or so I would have laughed or smiled at that idea and would have regarded the proponent of such an idea as a loon.  If lots of countries get hurt by our fantasy island valuations of real estate in the last few decades that’s now blossomed into a full blown global banking crisis than the push for a world currency, as a stable system of value, and world regulation of investment banking to ensure confidence, may be the inevitable policy outcome.  This may well be the crisis that makes for something of a true global financial system. 

For the indefinite future I think there’s going to be terrible uncertainty in the market and rising fallout from the uncertainty until we have a financial system that’s transparent and that has proper regulatory oversight for the new global economy.  As this insanity continues people will demand that something be done to restore confidence and security and that’s when we’ll see the real endgame of what this crisis was intended to produce.

It’s going to be a very difficult week on Wall Street because they’re still dealing with the financial hurricane that’s taken up permanent residence over lower Manhattan.

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One response to “Strong Medicine: Wall Street Swallowing its First Dose of Financial Reality

  1. You have an interesting blog. I have been reading it for awhile. Keep up the good work.

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