We have been talking about this for a while. Now Christopher Dodd is talking about the next helicopter drop of cash to American consumers.
Andy Sutton's Extemporania
Weekly Commentaries and Occasional Observations
Archives: 16 September 2008
Markets can't dodge Lehman bullet
Yesterday the major indexes succumbed to what was described by a floor trader as ‘complete and utter panic’. Truly, it was a spectacle to behold as billions in shareholder value was wiped out in a span of 7 hours. In fact, half a trillion dollars was wiped out as measured by the DOW Wilshire 5000 total index which captures the market capitalizaion of the top 5000 companies by value. The rest of the world did no better, and in fact Tuesday’s session which is now over in Asia, and well underway in Europe looks in fact to be WORSE than yesterday.
Unfortunately, there is not going to be much of a respite as AIG now appears to be well on its way to insolvency as it scrambles for funds. Ironically, the the beleaguered company sought $40 billion yesterday (see story below) from the Federal Reserve – the lender of last resort – in order to prevent its demise.
AIG seeks $40 Billion loan from Fed
If this morning’s pre-market action is any indication of what is to come, AIG’s road to ruin will be short. It’s share price, after already losing almost 62% of its value yesterday has already lost another 40% in pre-market trade today.
It would seem now that the financial system was lucky to dodge the Bear Stearns bullet back in March. Unfortunately, there are more bullets out there; lots of them. And it would appear that the rate of fire is getting faster, not slower as we have been assured these last 12 months. Since September 5th, we have had $5 Trillion of liabilities put on the public’s balance sheet in the form of Fannie and Freddie, the Fed has kicked at least an additional $200 billion into the financial system, Lehman has gone bust, and the focus is now shifting to AIG and mortgage giant Washington Mutual who saw its bonds downgraded to junk status. This will make it considerably harder for the firm to get additional capital.
The Fed and Treasury put up a good front with Lehman, maintaining that public funds should not be used. Will they be able to maintain such noble aspirations in the face of multiple simultaneous failures? My guess is no, and it will be back to business as usual – bailouts, bailouts, and even more bailouts.
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