The Fallout and the Bailout.

I feel like I keep repeating myself, the crisis is related to property and leverage. Unlike the tech bubble the issues caused by property and leverage affect the financial systems much more than technology did. The degree of leverage in the system is astounding, much of the whole wealth of the world is currently ‘borrowed’ and that’s a very scary thing, at least for me when I dwell on it.

Some institutions are leveraged differently than others but in general commercial banks are leveraged at 10 to 1 so for every dollar they actually own they owe 10. Savings institutions are about 8.4 to 1 and credit unions are the same. Brokerage firms and hedge-funds are at 32 to 1. Be afraid, that means for every Euro or Dollar they have they owe thirty two! Is there any lender out there that would give you thirty two times earnings? If you average out all institutions you come out with an over all leverage of about 12 to 1.

But stop right there… this doesn’t include derivatives! and they are not …

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The ECB won't cut rates? A central bank doing exactly what it should.

The Fed is still trying to bail out the US economy, there must be a fundamental belief there that a recession is the worst thing in the world. Personally I would feel that the 1,000,000 lives lost in Iraq outweigh the damage a recession might do but for some reason the efforts to end the war pale in comparison to what politicians and policy makers are willing to do to avoid an economic downturn.

Bear Stearns was bought for $2 a share by JP Morgan Chase, their stock price was about $38 recently, and the money to do the bailout was Fed backed. In fact the Fed is evoking laws designed during the great depression to lend direct to banks.

The USA has recession aversion, it’s almost like the economy there is one giant dog dry heaving to Pavlov’s recession bell. The issue is that the budget still has to be met, these bailouts cost money and the money …

Read More

The ECB won’t cut rates? A central bank doing exactly what it should.

The Fed is still trying to bail out the US economy, there must be a fundamental belief there that a recession is the worst thing in the world. Personally I would feel that the 1,000,000 lives lost in Iraq outweigh the damage a recession might do but for some reason the efforts to end the war pale in comparison to what politicians and policy makers are willing to do to avoid an economic downturn.

Bear Stearns was bought for $2 a share by JP Morgan Chase, their stock price was about $38 recently, and the money to do the bailout was Fed backed. In fact the Fed is evoking laws designed during the great depression to lend direct to banks.

The USA has recession aversion, it’s almost like the economy there is one giant dog dry heaving to Pavlov’s recession bell. The issue is that the budget still has to be met, these bailouts cost money and the money …

Read More