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September 13, 2008
This Weekend’s Bailout

The Fed and the Treasury urge major banks to rescue Lehman Brothers.

The majors, Goldman Sachs, JPMorgan, Morgan Stanley, Citigroup, Merrill Lynch and Royal Bank of Scotland all are in trouble themselves. They do not have the capital to take on more risk and would have problems to raise additional capital under favorable conditions.

If they are willing to take on Lehman at all, they will demand that the Fed or the Treasury take over billions of the risk as the Fed did in March when Bear Sterns was sold of to JP Morgan.

But the Fed has lost $30 billion on that deal and already committed half of its balance sheet to support the financial markets. The Treasury needs to put up some $200+ billion for Freddie and Fannie and much more when more of F&F’s ‘assets’ turn out to be worthless.

To get someone, anyone to buy in to Lehman is a game of chicken and the deadline is Sunday noon when the markets in Asia open. All potential buyers want the taxpayer to take the risk and the Fed and the Treasury fear the consequences of guaranteeing such.

I expect that comrades Paulson and Bernanke of the United Socialist State Republic of America (USSRA) will lose the chicken game and will again commit double digit billions of U.S. taxpayer money to bail out the capitalists and to socialize their losses.

They will find a way to obfuscate the guarantees they will give. That may well work as the media are busy to discuss campaign trivia.

Next weekend the story will repeat with Washington Mutual, two weeks from now American International Group will need rescue. That is going to be a real biggy. It is a major insurance company with a $1 trillion dollar balance sheet and endangered counterparties. Merrill Lynch may hold out a few weeks longer, but I expect it to eventually fail too.

Meanwhile many more smaller banks will go bankrupt and the Federal Deposit Insurance Corp (FDIC) will have to commit its assets to pay out the insured accounts. FDIC is likely to run out of money before the year is over and the government will be obligated to cover all further FDIC insurance losses.

I am curious where this ends. The financial system now deleverages and deflates in unprecedented ways and size. The Fed and the Treasury can only slow down the process, but there is no way to stop it.

What might the end state of this process look like?

Posted by b on September 13, 2008 at 17:52 UTC | Permalink
Comments

b, I had a question. After last weekend’s bailout I would have thought that gold would rise and the dollar, along with U.S. treasuries would fall. But that doesn’t seem to be the case (although yields on the 10 year note did shoot up Friday as did gold a bit).
Was I mistaken to think that or just premature?
As to when this will all end…as long as the U.S. government can borrow at low rates it wont end. As soon as it can’t it will end. Badly. When that is is hard to say, but with America’s lenders, China, Japan themselves going through hardship, I can’t see how they can continue buying up treasuries.
There is the traditional “flight to safety” effect that will allow the U.S. to borrow more as all other investments appear dangerous. But how safe will U.S. debt be if they take on trillions of bad loans themselves? When the herd will figure this out is hard to know. But I don’t think it will be long.

Posted by: Lysander | Sep 13 2008 18:25 utc | 1

Some of my friends who work at Wachovia tell me the rumors are that Wachovia will be sold before 2009 arrives.
The reason given is — 2009.
Wachovia has so much garbage in the books to be written down in the first two quarters of next year that it must fail without outside rescue.
Hence, this fall is the season to make a deal, and let the new owners deal with the writedowns.
But . . . who ya gonna call?
BoA is the likely candidate, since it is a direct competitor, and there would be a lot of savings through branch consolidations, layoffs, merging data centers, issuing new stock, and so forth. But BoA may be dragged into saving Lehman or other white whales up in Manhattan, and not be available to buy Wachovia.
So who ya gonna call?

Posted by: Antifa | Sep 13 2008 18:58 utc | 2

Report: Lehman deal could come Saturday

…On Friday, a source told CNN that Treasury Secretary Paulson is adamant that no government money be involved in any resolution of the Lehman situation. The source added that Lehman has the option to borrow money from the Federal Reserve’s discount window. That option was not available to Bear Stearns and other investment banks in March.

Why Saturday and not Sunday? Unless the deal isn’t going to make Asian markets happy. I would be very impressed if Paulson balks at throwing away more taxpayer money. But if he does, I doubt it’s because of concerns about moral hazard. Perhaps he himself is beginning to fear for his ability to sell treasury debt? I don’t know, but perhaps its not a bad guess.

Posted by: Lysander | Sep 13 2008 19:00 utc | 3

b, I had a question. After last weekend’s bailout I would have thought that gold would rise and the dollar, along with U.S. treasuries would fall. But that doesn’t seem to be the case (although yields on the 10 year note did shoot up Friday as did gold a bit).
I wondered about that too. I attribute it to need for cash. The dollar: U.S. banks call home their international holdings, converse those to U.S.$ to shore up their capital. Hedge funds etc too. Hidden reserves in foreign currencies are called on and converted to US$ which gives a hefty demand pull and raises the $ value.
On gold, I think it is partly the U.S. Dollar rise but also a lot of deleveraging. Lehman, Merrill and others who had gold positions needed the cash and sold those.
That’s my theory – those markets are not transparent and numbers are hard to come by.
The interesting phenomenon here is deflation in financial assets and inflation in consumer prices. Push and pull and it is yet unclear who will win. Personally though I believe the inflation site will dominate as inflation is the only instrument the U.S. has to get rid of the debt this crisis creates.

Posted by: b | Sep 13 2008 19:33 utc | 4

How big are Lehman, Merrill, and AIG?

Posted by: Dick Durata | Sep 13 2008 19:36 utc | 5

I was much impressed by Antifa’s remark on the election thread that all this was going to come to a head before the November election. In the short term, this is the issue: will the effects on the US economy be noticeable before voting day? If yes, does that mean a move towards Obama?
In the longer term, I have no doubt that the US is not going to be as free as it wants in its foreign policy. In terms of Iraq and Afghanistan the effects are difficult to predict. However, in the case of Iraq, if the Iraqis prove to be difficult over the SOFA (as they will), there cannot be a new ‘surge’. I don’t see an alternative to signing to the Iraqi conditions: that is, withdrawal by 2011.
In the case of Afghanistan, the surge has not yet happened. Will it?
The scenario which one imagines, is that Palin/McCain or Obama are elected. Both are bellicose, then the economic problem hits. Who among them are prepared to compromise, or who prepared to let the US economy go to ruin?

Posted by: Alex | Sep 13 2008 20:35 utc | 6

If Merrill goes, what’s left? Goldman Sachs and Morgan Stanley? Why them? Too big to fail? Is anything too big to fail?

Posted by: alabama | Sep 13 2008 21:03 utc | 7

alex
i see the empire in constant collapse – perhaps i will not live to see it & perhaps it will not collapse in quite the same way that other empires have fallen – tho i think it will resemble the dimunition of real power – as evidenced by the collapse of french & british imperialism in the 19th & 20th century
but what was once a forlorn hope is a visible reality – i hope the people of america are sufficiently mature to live without an imperial project. for their sake & for ours, i truly hope so
the more that the power is centred in different countries the safer it will be for all of us – even the craziness, of peaceful coexistence, mutually assured destruction, & detente revealed that this is true. the concentration of power in one people has always been a menace to others but also to themselves
a strong & independant latin america would be a guarantor of a correct equilibrium

Posted by: remembereringgiap | Sep 13 2008 21:25 utc | 8

And yet the dollar rallies and the stock market acts indifferently…..as though all of this is going according to plan. A fabricated crisis, each bit player playing their contained part, the remedy being consolidation on a massive scale that wouldn’t have occurred otherwise. One step closer to a World Bank, and ultimately a return to the halcion days of feudalism. As the special few, the Elites, prepare to evolve into Cyborgs and Artilects, we will have every last ounce of blood, sweat and tears siphoned from us before we are left to die on the vine. The Unabomber had an interesting take:

If the machines are permitted to make all their own decisions, we can’t make any conjectures as to the results, because it is impossible to guess how such machines might behave. We only point out that the fate of the human race would be at the mercy of the machines. It might be argued that the human race would never be foolish enough to hand over all the power to the machines. But we are suggesting neither that the human race would voluntarily turn power over to the machines nor that the machines would willfully seize power. What we do suggest is that the human race might easily permit itself to drift into a position of such dependence on the machines that it would have no practical choice but to accept all of the machines decisions. As society and the problems that face it become more and more complex and machines become more and more intelligent, people will let machines make more of their decision for them, simply because machine-made decisions will bring better result than man-made ones. Eventually a stage may be reached at which the decisions necessary to keep the system running will be so complex that human beings will be incapable of making them intelligently. At that stage the machines will be in effective control. People won’t be able to just turn the machines off, because they will be so dependent on them that turning them off would amount to suicide.
On the other hand it is possible that human control over the machines may be retained. In that case the average man may have control over certain private machines of his own, such as his car of his personal computer, but control over large systems of machines will be in the hands of a tiny elite — just as it is today, but with two difference. Due to improved techniques the elite will have greater control over the masses; and because human work will no longer be necessary the masses will be superfluous, a useless burden on the system. If the elite is ruthless the may simply decide to exterminate the mass of humanity. If they are humane they may use propaganda or other psychological or biological techniques to reduce the birth rate until the mass of humanity becomes extinct, leaving the world to the elite. Or, if the elite consist of soft-hearted liberals, they may decide to play the role of good shepherds to the rest of the human race. They will see to it that veryone’s physical needs are satisfied, that all children are raised under psychologically hygienic conditions, that everyone has a wholesome hobby to keep him busy, and that anyone who may become dissatisfied undergoes “treatment” to cure his “problem.” Of course, life will be so purposeless that people will have to be biologically or psychologically engineered either to remove their need for the power process or to make them “sublimate” their drive for power into some harmless hobby. These engineered human beings may be happy in such a society, but they most certainly will not be free. They will have been reduced to the status of domestic animals.

Unabomber’s Manifesto

Posted by: Laura | Sep 13 2008 21:29 utc | 9

The conjectures above are based on the idea that money and wealth are someting material, palpable. But wealth is nothing of the kind, it is sets of relations, it is power. Money circulates, the money that is created by the US government falls in the hands of its citizens, also of foreigners and it circulates and creates possibilities of development. There is the crux, the money manufactured by government has to be productive, creative. If it is merely an enjoyeable means, then inflation occurs but if people work thanks to all that money, progress follows. When I pay my taxes that money goes into someone else’s pocket and it is the activity of that individual the one that will generate or sterilize progress. The Fed could produce any amount of money and that amount might be inflationary but that depends on the activity of the recipient of the money. Money might be thought as circulating potential intellect. The consequences of this mode of thinking are manyfold and it is tiresome to follow them but any reader could reach those conclusions. In this process some people become important and others decay. Nature actually doesn’t care. Americans ought to care, be generative and productive.

Posted by: jlcg | Sep 13 2008 22:30 utc | 10

Thank you, r’giap,for your remarks, especially as I think you and I live in the same ville, P, en France, même si je ne suis pas français, and we share a good deal of political vision. I wish you good health.

Posted by: Alex | Sep 13 2008 22:52 utc | 11

If you imagine the Pharoah held aloft on a feathery down cushion of yes-men and commission-men, each standing on an ivory pillar of academic think tanks and gold leafed lobbying firms, and those many pillars carefully balanced by mortgage and brokerage plate-spinning dwarves, massed onto the shell backs of giant leveraged debt tortoises, each spanning the vaulted arches of hundreds of small US savings banks, and each of those banks supported at their gilded corners by a multitude of laboring artisans, craftsmen, white- and blue-collar contractors and consultants, …
… until suddenly up from the earth compressed with a billion feet, pops a brick wall and chasm of credit.con resets which the multitudes now have to leap over …
…while, on a more peripatetic note, traveling by e-mail, compiling ad hominem accounts of dozens, of hundreds, of peers and friends in their own locales,…
… multitudes of tradesmen and contractors are on their knees now, crawling or crushed, the bank’s few remaining coins have spilled into the dirt, the leveraged fund tortoise a mere skin sack buzzing with bottle flies and maggots, dwarves drunk and demented, ivory pillars wobbling, teetering, gilded plates spun out of control, and yes-men and commission-men goggle-eyed and bloat-tongued with fear, not just at starvation of their fee feast, but the very real possibility they might plummet to earth and have to earn a living with their hands, among the dwarves and tradesmen.
Sadly, Der Pharoah, cushioned and comforted as He is, sees only the event-horizon, and hears only the crack of the whip, the groan of the slaves,… and smiles.
“My friends, tonight we’re launching a debt monetization and economic socialization effort, which holds the promise of changing the course of human history. There will be risks, and results take time. I may not get there with you, but I believe Mrs. Palin can do it. As we cross this grigri threshold, I ask for your prayers and your support. God blast America, er, uh, bless, just as we bless our fellow travelers!”
Grave of the Fireflies

Posted by: Tante Aime | Sep 13 2008 22:52 utc | 12

Americans ought to care, be generative and productive.
Yeah, that’s right, be the good slaves we have trained you to be. I suppose you consider the speculators who drove the price of oil up to $150 were generative and productive? How about all those generative and productive sapps at Enron who listened to ol Kenny Boy and invested their earnings in Enron stock only to see it pissed away in a flash?
The responsible thing to do at this point is for citizens to take control of the Corporations, refuse to pay their taxes and refuse to fight the wars for these cocksuckers. Be a decent person and spit in the face of an Investment Banker when you see one, or drop your pants and shit on the well-manicured yards of the wealthy in your communities. Afterall, that’s what Jesus would do. Turning the other cheek was not a submissive gesture, it was a sneer, an insult that said to the recipient that you may do what you will, physically, to me, but you won’t get my respect.

Posted by: Laura | Sep 13 2008 22:55 utc | 13

alex
than you too. if we live in the same vill perhaps we should have a café when i am not in the hôspital

Posted by: remembereringgiap | Sep 13 2008 23:43 utc | 14

@ Lysander 1
I would have believed that the Dollar goes down, too.
But there are some forces (in addition to what b in 4 wrote) which will stabilze the Dollar: All over the world there are Producers who want to sell to the US. Since everywhere politicians do what the industry leaders demand, the states and natinal banks are still buying Dollars – as much as needed as to keep it halfway stable. Also: Many foreign banks have lots of Dollar-Assets and need to keep the worth of them, if necessary by putting more money into the Dollar. On the other hand in the US the election is near, and a plunging Dollar would hurt the voters (since they would not be able to buy gas for their SUV, new toys, clothes…) -> the US Govt. has an incentive to keep the Dollar afloat as well.
Right now my prediction that after the election some steps which will cause hurt cannot be longer postponed. A month or so ago b wrote that he would expect the US to let the Dollar loose value, to balance the trade deficit, and I expect this will happen in early 2009. Also massive inflation will reduce the value of the current debt (while hurting foreigners more than anyone else).
Maybe the US Govt. will also find some pretext to seize foreign assets (terror…) but it is unlikely this will make a dent.

Posted by: No So Ana | Sep 14 2008 7:08 utc | 15

Maybe the US Govt. will also find some pretext to seize foreign assets
Now you’re thinking like a good Roman! Except that in our delightful global economy, those so-called assets you seize may be financed by the same friendly porky people you’re trying to bail out: openly or furtively. So assets ain’t always assets.
So plan B?
We can’t print our way out of this one!<------------->Print, print,print anyway!
The world is a circle. We’re all fucked together. And when it finally happens we’ll see an end to the tragic voodoo Reagan years. So what will be left? I had a friend of mine quip, “Well the buildings are still there, the machines are still there, the houses and people are still there, technology is still there, natural resources ares still there, so no big deal”. to which I answered, “Yes, just like during the Great Depression! And you forget…the nukes and armies are still there too.”
My, we live in interesting times. In the past, if the collapse was traumatic enough, it would be followed be political and economic decentralization, lots o’ war, a dramatic decrease in international trade, the occasional famine, the rise of local economies, usually founded on agriculture, a simple local coinage of base metals for the peasants and silver for the elite and even the loss of technology. After the fall of Rome, the technology to make something as basic as concrete was lost until the 19th century. A few billion humans will die. The life span of the survivors will shrink. Then new centralized powers will form within decades or centuries, and the dance starts all over again. Oh Hell. I’m just playing the Jeremiad. But Jeremiad may equal realist if this continues.

Posted by: Diogenes | Sep 14 2008 13:19 utc | 16

“What might the end state of this process look like?”
Obama will fix it. McCain will take America into bankruptcy.

Posted by: waldo | Sep 14 2008 14:56 utc | 17

tell us something about yourself Waldo, why on earth are you so confident that Obama will save you? Do you really think he could act any differently than any other previous president? Do you think he will not be constrained by big money and big corporations? Other than tell us he will change things, what can he actually do? He will continue to occupy Iraq, He will escalate the war in Afghanistan and most likely open another one with Pakistan. He will carry water for Israel in its beef against Iran.
I wish I could get excited about Mr Obama but his vote for FISA demonstrated to me his true colors.
The very real possibility that the democrats will increase their majority in both houses will cause a significant number of independents to vote for McCain just to keep from having a repeat of the first 6 years of the cheney administration, i.e., all four branches of the government in Republican hands.
If you are not prepared to back up your candidate I can tell you that you are wasting your time posting one liners here. There are a couple of reasons for that and the first is that a significant number of posters cannot vote for either candidate and the rest are quite capable of making up their minds without soundbites.

Posted by: dan of steele | Sep 14 2008 15:28 utc | 18

WSJ: Barclays Emerges as a Leader
In Talks Over Lehman Brothers

Barclays PLC, the U.K.’s third-largest bank, is emerging as a leading contender for Lehman Brothers Holdings Inc. as discussions continued Sunday in London and New York in what is a highly fluid and pressure-charged environment.
A sale of Lehman to either Barclays or Bank of America Corp. remained dependent on government financial support, according to people familiar with the situation. According to these people, Barclays appeared to be moving more aggressively in trying to find a way to complete a deal.

Would the U.S. really put taxpayer dollars to sell Lehman to a BRITISH bank?
Hehe – that would make some folks pretty angry …

On Saturday afternoon, the credit-trading heads of major investment banks gathered at the meeting to discuss how to deal with their exposures to Lehman in the intertwined credit-default-swap market. The lack of a central clearinghouse in this market means that dealers, hedge funds and others are directly facing each other in insurance-like contracts that are tied to trillions of dollars in debt instruments.
Credit derivative traders at some firms were asked to come to work over the weekend to help quantify their exposures to Lehman and compile lists of outstanding contracts they have with the investment bank.

If you wonder why these idiots are failing in the business this tells you all. These banks should know their counter party risk any minute and update it after each deal they make. A day before the bankruptcy of the counter party is pretty late to think about how one might be effected. Idiots.

On Saturday afternoon, the credit-trading heads of major investment banks gathered at the meeting to discuss how to deal with their exposures to Lehman in the intertwined credit-default-swap market. The lack of a central clearinghouse in this market means that dealers, hedge funds and others are directly facing each other in insurance-like contracts that are tied to trillions of dollars in debt instruments.
…
sorting out the firm’s CDS positions promises to be a difficult and time-consuming task, because many of the contracts have different terms and maturity dates.
It is not known how much in CDS contracts Lehman has. In a survey last year by Fitch Ratings, Lehman was listed among the 10 largest CDS counterparties by number of trades and the amount of debt to which the contracts were tied.
…
One trader said conditions in the credit default swap market and the short-term repo markets are more stable today than they were in March, when Bear Stearns nearly collapsed, but still, “if they go into liquidation,” it is going to be a bad situation on Monday.
A disorderly unwind of Lehman’s derivatives trades is only one worry. Another worry is that if Lehman collapses, its distressed assets — such as commercial real estate — could suddenly hit Wall Street for sale, forcing prices even lower and potentially forcing other dealers to mark down once again the value of their own holdings.

Somehow the trillions of CDS will have to unwind. If not in a Lehman bakruptcy, then in the next one. They are only trying to prevent the inevitable crash of that market for now. But that will not solve a bit of the larger problem.

Posted by: b | Sep 14 2008 16:11 utc | 19

Roubini: If Lehman collapses expect a run on all of the other broker dealers and the collapse of the shadow banking system

It is now clear that we are again – as we were in mid- March at the time of the Bear Stearns collapse – an epsilon away from a generalized run on most of the shadow banking system, especially the other major independent broker dealers (Lehman, Merrill Lynch, Morgan Stanley, Goldman Sachs). If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system. That is the reason why the Fed has convened in emergency meetings the heads of all major Wall Street firms on Friday and again today to convince them not to pull the plug on Lehman and maintain their exposure to this distressed broker dealer.

Posted by: b | Sep 14 2008 16:35 utc | 20

b, how long can we keep claiming incompetence and idiotic with all of this? There’s a pattern, and what I contend, as outlandish and paranoic as it sounds, is a plausible explanation. It’s too idiotic not to be by design. I know this bursts the bubble of those who think they have a handle on the complexity, but the complexity is there to obfuscate and divert from recognizing the pattern.

Posted by: Laura | Sep 14 2008 17:04 utc | 21

Where does it end? Fuck knows.
Best case scenario is a two-decade Japan-style grinding stagnation during which the “debt excesses” get sweated off via hard labour, austerity and “hard” asset transfers, at a hefty discount, to the more forebearing foreign creditors.
After Bear Stearns, the Fed’s alphabet soup, Countrywide, IndyMac and the Freddie/Fannie repossession it seems to me that both the Fed and the Treasury are now out of ammunition ( unless they start printing money ) – which means that the various financial institutions that are currently on the chopping block – Lehmann, AIG, Merril Lynch, WaMu, Wachovia and others that are accelerating their way towards it – and the Automakers that are pleading for bailout cash are going to go belly up. This is going to have utterly unknowable systemic effects.
The Gustav-Ike double act is propelling a large portion of the US into a gasoline crisis at just the wrong time for the election….

Posted by: dan | Sep 14 2008 17:14 utc | 22

About 3 months ago [and for the life of me cannot remember the website..but it was European definitely] I read an item that stated “according to Swiss insiders, the US is facing close to 1000 bank closings”. wish I kept that. Which brings me to this.
is America great or what? Banks, bond houses, Wall Street traders do live in a fantasy world. last Christmas several of the big names on WS such as Goldman, Sachs, Merrill Lynch, etc,. etc,. were reported to have given their big guys close to 30 bllion in bonuses.
Nine months later the same big guys are “being saved” from the poor house by the compleat Federales. Some of these “big guys” have been playing the American Joe and Jane’s use of Hummers and SUVs like an accordion at the NY Mercantile Exchange and at the gas pump, thats after screwing the same J and J out of their easily mortgaged homes.
All the while the politicians that represent J and J in Washington have been pumping several million dollars a day into Iraq and Afghanistan and recently divulged almost a million a day to Georgia [the one near Russia] even Israel still gets its allotment of $14 million dollars a day 365 days a year.
By having the socalled Federales bail out and/or finance foreign activities can one term such financial operations as the beginning of socialized economics in the US? If so then when are the “peasants” [those making under say $36,000 a year with a family of four and those unemployed because of outsourcing] will be bailed out by those the peasants are required by law to support through taxation like the ones who make the bail outs decisions?

Posted by: omop | Sep 14 2008 17:50 utc | 23

OK, so I’m going to defend Obama as the best choice in this situation. Mind you that I’m not thrilled with him, but still, I think he is the best choice. Let me explain why. . .
Let’s face it, this financial crisis has no real solution besides a collapse followed by a lot of hard work to build a new economy, one that is not so reliant upon fragile systems for moving energy and product from one side of the world to another, and one that does not have at its heart a banking system that is operated as a vast and inscrutable Ponzi scheme. Continuing to shore up these failures on both the financial and production side with vast public expenditures will only drag down the US government with them when the house of cards finally falls. I’m not sure that is so bad at this point; I can think of no more potent engine of corruption that the Washington appropriations process, and the mindless violence that has flowed out of that process has painted the world red.
In this situation, I’m looking for a presidential candidate who will not over-react, or try to fight against the future to preserve the past. In other words, we need someone who will not use the current, Pharaoh-like powers of the president, and in so doing greatly worsen the situation. Thus far, Obama has shown that he will be the more constrained of the candidates, not only by his words and actions but by his situation as well:
1)His campaign has said they would pursue criminal charges against the lawbreakers in the current admin. Thus, at least they think that the President can break the law. Further, Obama’s answers pertaining to the powers of the President are also much more constrained than the vague and open ended interpretation that McCain has given to such questions.
2)Right wing protest groups are much more effective than left wing ones. For instance, when Bush sent in his private army Blackwater along with US Martials to snatch guns from hurricane victims during Katrina, the NRA was silent, and then tried to (laughably and despicably) blame local Democrats for the actions of a mercenary force under FEMA contract. Obama would not be able to get away with any sort of gun confiscation, it would trigger a revolt. As we’ve seen, Republicans can get away with this sort of behavior consistently and repeatedly.
3) Racism works for the Constitution in this case. A lot of childish people will be picking apart Obama’s every action as President, and so there will be much wider alarm about unconstitutional BS than there would be under a white Republican president, “cause he’s one of us, don’t cha know?” Add into this the fact that McCain is very old, and might not see any great consequence to himself for doing something very radical, and the constraints that Obama’s situation places upon him are most welcome by comparison.
4) McCain has all of those warmongering, constitution shredding neocons behind him, and those people are crazy-cakes.
Let’s not shoot ourselves in the foot here. I’m a big believer in third parties, and if I could wave a magic wand it would be to make a viable third and fourth party in our body politic. But we don’t have time for that, and McCain would be a disaster on top of a disaster. At least we can hope that Obama will get out of the way and let the world change unhindered by foolish, tyrannical actions.

Posted by: Li | Sep 14 2008 18:08 utc | 24

Now Barclays have dropped their interest in Lehmann’s, for lack of certain guarantees over commitments due tomorrow morning.

Posted by: Alex | Sep 14 2008 18:19 utc | 25

Uh oh.
The porkers over at Barclays Bank in London just pulled their snouts from deep in the Lehman corpse, and in some haste. In a trice, they’ve put their vests, bow ties, and cuff links back in place, raised their noses to a respectable elevation, and to everyone’s surprise, after leading the pack in the race to get to Lehman’s vital organs while they are yet warm, suddenly announced that they are not hungry at all. Not even peckish. With a firm, “Good day!” they depart for distant shores.
How did they put it, when speaking to the assembled ladies and gentlemen whose confirmed vice is journalism? Here it is — “while Lehman was attractive, the investment bank did not meet . . . Barclay’s stringent requirements.”
Meaning, the deal wasn’t without risk. Meaning, the US Government didn’t kick in, and agree to eat the garbage assets entire.
None of the players were even looking at the vivisection of Lehman Brothers in the first place except on the implicit understanding that the risk would be carried by the US taxpayer, now or later, by some means or other.
But the US Government didn’t kick in.
The markets are up and open in Asia, and Lehman Brothers is still facing collapse tomorrow morning, around 9 AM sharp. As of 3 PM EST, that is twelve hours from now.
The US Government didn’t kick in.
They can’t. Or, they won’t. Could be either reason. But they didn’t. They didn’t kick in.
And if these next twelve hours bring no taxpayer bailout, then we will likely see no rescue of Lehman, and this week will likely bring events as significant to American history as Black Friday or Pearl Harbor.
Because, once these bankers and speculators know that they are all on their own, they will bring out their dead, eat their young, rape the helpless, close the gates, burn the books, hide the seed corn, and settle down behind stone walls with a good book, a fireplace, and a goblet of something Napoleon left corked.
It will be a long while before it is worth venturing out to raid the peasants barns and homes again. Why, the poor sods will have to lie fallow for half a generation, at least.

Posted by: Antifa | Sep 14 2008 19:26 utc | 26

And if these next twelve hours bring no taxpayer bailout, then we will likely see no rescue of Lehman, and this week will likely bring events as significant to American history as Black Friday or Pearl Harbor.
really? this bad this week?

Posted by: annie | Sep 14 2008 19:59 utc | 27

In these tumultuous times, let us take a moment to recall the good ole days….

Record Christmas bonuses on Wall Street
By Naomi Spencer
27 December 2007
[…]
Investment firm Lehman Brothers reported total compensation of $9.5 billion, a 9.5 percent increase over last year, and bonuses of $5.7 billion. CEO Richard Fuld Jr. received a $35 million stock bonus. According to Forbes, Fuld’s five-year compensation total, excluding this latest bonus, is nearly $312 million.
[…]

Posted by: Colin | Sep 14 2008 21:09 utc | 28

Bank of America for Merrill Lynch to save the day – or at least the overnight futures session.
Early link, details to evolve, I’m sure.

Posted by: mats | Sep 14 2008 21:23 utc | 29

omop it was … Tuesday, 1 July 2008
Fortis Bank predicts US Financial market meltdown within weeks
Fortis Bank predicts US Financial market meltdown within weeks
Posted by sakerfa on June 28, 2008
Fortis expects bankruptcies amongst 6000 American banks which have a small coverage currently. But also Citigroup, General Motors, there is starting a complete meltdown in the US”
Fortis Bank predicts US Financial market meltdown within weeks…
Fortis is a large bank and insurer in the Netherlands and Belgium. It took over ABN Amro last year, together with RBS and another bank. Last Thursday, its share lost 17% because Fortis attracted foreign capital.

Posted by: ziz | Sep 14 2008 22:17 utc | 30

As a few have noted, Barclays whose arms were probably twisted by some government anyhow pulled out of the Lehman buyout. The markets are open here and about to open in asia and the feeling I am getting from Oceania commentators is that Lehman’s is small enough to go broke without causing a major catastrophe, so the investors in this part of the world particularly the sovereign funds are going to sell sell sell.
This is a sort of microcosm of the entire crisis and also answers why there has been an uptick on the US$ in the past month or even building since the G8 summit.
As everyone knows amerika has been running a huge trade deficit with the rest of the world. not just China although China is amerika’s biggest creditor.
One of the reasons the CDO scam came about was there wasn’t enough things in amerika foreign creditors were allowed to buy or hold as collateral against the money they were owed.
Not because there weren’t enough ‘things’ in amerika , but that there aren’t enough ‘things’ amerikan politicians want to allow to be sold to foreign interests. Two main readons for this reluctance.
The first is obvious, seen during the shameful Kuwaitis Port buyout racism. That is amerikan voters don’t like the feeling of powerlessness they get when unwhite people own “their” stuff.
So amerikan voters hassle their pols. Some populist pol aided by the racist gutter media cranks up the issue and suddenly there is no sale.
That Port redneckness instigated a lot more financial woe than just that one deal. The potential buyers had invested considerable in getting the deal so far, which they lost and more importantly the sellers were foreigners themselves (albeit white foreigners – the brit P&O company) the seller took a big hit too because amerikan pols pandering to amerikan racist trash had slashed the book value of assets across amerika. Something is only worth what it can be sold for. If the peeps with the most dough aren’t allowed to buy in then an sset is worth less, but worth even less if the asset isn’t truly owned by the buyer. ie a bunch of corrupt vote-hungry pols cranked by lying circulation chasing media, can exert control over the free trade of the asset.
So we have a situation where the rest of the world holds amerikan paper which they aren’t permitted to do a helluva a lot with. Sure we can invest in amerikan real estate but that has pushed up the price of property in amerika to the point where the locals couldn’t afford to use it. The result has been the property crash.
So as I said above, the amerikan banks came up with CDO scam. They claimed to know the market and the players so they lent money and the foreign creditors underwrote the loan risk by buying the CDO’s. A very round about and fraught way of investing otherwise useless paper. The property collapse compounded by the fact that the banks got careless, created the massive sub prime mess Lehmans, and all the others, are in hock for. Since the amerikan banks had no particular interest in the risk they were creating as it was packaged and sold off they sold a heap of shit loans underwritten by CDO’s.
What goes around comes around and all that. At the start of this mess a number of Asian and East european sovereign funds did bail out some of the amerikan merchant banks (eg Merril Lynch) since they figured they would take a hit but that is the price for keeping the system’s integrity.
It turned out to be good money after bad as the CDO mess blew across the world contaminating everyone else.
So at the G8 certain undertakings were given. That is amerika would stop abusing it’s control of oil supplies to speculate for the next while. That was fine by the amerikans since the pols were already complaining about the likely result electorally if prices stayed high, amerika would also grab muggin’s taxpayers health and education taxes and bail out the mortgage guarantors who were going to be the next to go down. Muggins prolly wouldn’t notice since they would be pleasantly distracted by the fall in oil prices. (an aside – have y’all noticed how little effect these last 2 cyclones through the gulf of mexico have had on oil prices. everyone is following the agreed script.)
In return the foreign holders of all this paper would start propping up the US$. That is good for them too. A reserve currency is only useful if it is stable. The volatile US$ was upsetting the market equilibrium on every deal between two countries negotiated in $US, some deals were now being written in other money specifically the euro, and that was driving the dollar further down.
If amerika stabilised a few things and everyone went back to the $US then the markets may recover.
Looks alright on paper but there are too many imponderables to see it working short term and it cannot possibly continue to hold together after the Dec 08 quarter ends.
Firstly the amerikan financial institutional liabilities are just to big and too unknown to be completly under-written. Hence the Lehmans mess. The amerikan govt can’t do it because it wouldn’t look too good so soon after the Fannie Freddie nationalisation, but more importantly they could be signing up for squillions in liability they just don’t know and the interventions thus far are going to distort amerika’s domestic economy in unpredictable ways. Any more such adventures are going to make shit hits fan time arrive sooner and worser [soon is very bad when one considers that getting through November safely is #1 priority. ie getting a prez elected who hasn’t had to make outlandish (in their view outlandish) undertakings to muggins the voters].
So Lehmans is the proverbial hot brick being tossed backwards and forwards between the amerikan govt and foreign banks, neither wanting to buy it. By the time I get this posted Lehmans will be a dead duck in all likelihood unless either BushCo and maestros Paulson and Bernanke (irony alert) suck it up and kiss their asses goodbye.
Ya see all of this is about as effective as sticking a no name sticking plaster on yer favourite blow up doll. Not only is the doll gonna deflate the next time you get a bit keen, that big strip of beige on yer favourite bite zone has got to be a turn off.
Eventually the nub of the problem must be confronted. That is amerika’s trade deficit is out of control and as much as the foreign creditors don’t want to rock the boat they have too will no choice The next administration is going to have to allow a much less restrictive foreign investment regime in amerika otherwise trade will cease.
This isn’t something that can be fixed by drilling in Alaska or anywhere. That alone will not be enough. In theory amerika could try to become self sufficient, but let’s get real here. Even small quite simple economies have tried that, we did here, and I miss part of it but a lot is thankfully gone. Cuba and Zimbabwe are closest to self sufficiency one of out choice, the other thanks to USuk. It isn’t the lifestyle amerikans have been indoctrinated for and wouldn’t last past an the first twinkie shortage.
But the amerikan lifestyle is about to be put up for negotiation in the worst possible way. With no input from muggins the peeps and by that side of the ruling class meant to be looking out for muggins. ie you thing this lot are bad, be even worse with the rethugs. The old left plays right scam that has been pulled out by the elites everywhere when the needs of the people threaten elites’ power.
I have been thinking for a while that Obama is gonna be the fall guy but maybe he wised up or maybe the media is pretending to make a race outta a yawn.
McCain is economically illiterate so maybe his unknowing stewardship of the renegotiation has been judged to be a ‘safer’ pair of hands than Obama’s obeisance to Wall St.
If Obama does get up I can’t help but feel we are going to see life imitate art (perhaps that is too much. Inferring ’24’ is art may not be swallowable).
That is after Obama makes the changes necessary to keep the rich rich and the amerikan empire’s dominion intact, he will be so unpopular in ‘middle amerika’ that whitey will demand his head. Then ‘honest Joe’ Biden the whitefella’s friend will take the prez gig until one of the ‘reliable’ rethugs none of whom even sought nomination this time, can take over in 2012.
Meantime out here in the real world the rest of us will move away from the $US as the reserve currency for trade deals. No so fast as to take a hiding on it but fast enough to make sure yer not the last one carrying the paper and no one left to pass it to.

Posted by: Debs is Dead | Sep 14 2008 23:21 utc | 31

@ziz
no wonder Fortis is worried
add Luxemburg to the Netherlands and Belgium and you get 28 million citizens (and an odd number of people without papers)
according to this website http://www.moneymorning.com/2008/09/11/fnm/ these 3 countries together hold 95 billion or $6.33 % of the agencies (F&F) debts
I assume that these warnings (like the one from Bank of Scotland a.f.a.i.r.) were unintended wake up calls made in a panick to defend their positions at home

Posted by: constant | Sep 14 2008 23:41 utc | 32

Thanx b and NSA for your answers. I hadn’t considered the possibility banks may be selling gold and foreign currency to raise cash.
As for BAC buying MER??? at 10 points above its Friday close?????? 2 possibilities;
1) Its a stealth bailout. The FED and U.S. Treasury may have realized they are low on ammo and LEH is a gonner no matter what they do. So…retreat to the next line of defense and save Meryl before a month from now they too are staring at bankruptcy. Instead of bailing out LEH, they will guarantee BAC’s bailout of MER.
No one can see the Fed’s books so no one knows how much ‘real’ money they have left. However much it is, they had better conserve it for even rainier days than this one.
2) The other possibility? BAC has no intention of buying but though the market devastation tomorrow could be ameliorated with a buyout rumor.
The Nikkei is closed Monday for respect for the elderly day. Not sure if the Hang Seng is open. European markets open in a bout 7 hours.

Posted by: Lysander | Sep 15 2008 0:19 utc | 33

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