Tag Archives: insolvent

Bernake admits financials out of control…

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In an article from the Chicago Tribune

“We have lost control,” said Hale, quoting Bernanke. “We cannot stabilize the dollar. We cannot control commodity prices.”

Hale is an economist who had a private meeting with Ben Bernanke several months ago. Now, we are finally feeling the full effect of the loss of control.

I really hope that many of you have hedged your portfolios already or gotten out of the markets. The dollar is next unless perhaps interest rates are raised as an emergency measure to prevent the fallout. Expect housing prices to continue their descent as liquidity evaporates.

The banking system is insolvent.

Black Monday 2008?

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Black Monday?

Really bad news, and I’m going to the store to get some consumer staples, and cash. If the banking system collapses then cash may not be good for anything. I don’t know if everything is going to crash in one day, but the next week is going to be very interesting. My blood pressure is rising. The entire banking system may be frozen next week… yes this is extreme I know, but look at the facts:

I love how HUGE matters occur over the weekend, and particularly on a Sunday. The market was listless on Friday. As I watched it fluctuate from positive to negative I had a sinking feeling in my gut that I didn’t do much about. Something told me this weekend was going to be big as far as news went, and it wasn’t probably going to be good. Just watching the prices of financial stock you had to wonder that something might be amiss. Merrill Lynch last week took a big hit, which concerned me.

  • Well the Dow December futures are down about 300 points
  • The dollar opened sharply lower on ForEx markets
  • Lehman is insolvent, and nobody wants to buy them
  • Bank of America may be merging (saving) with Merrill Lynch
  • AIG is doing a reorganization, and may sell off it airline insurance arm as well as trying to raise $40 billion in additional capital.
I don’t know about you, but this looks like a major issue. Oh and I haven’t mentioned that the ISDA (International Swaps and Derivatives Association) is saying that if Lehman doesn’t file bankruptcy by midnight tonight that the trades in credit, derivatives, commodities, and currencies will be canceled.
Yikes! What does this mean?
Well, at the moment dealers who had agreements with Lehman are trying to match up with each other. Essentialy for every trade there is someone on the other side. So, I’m long and trading with Lehman and you are short also trading with Lehman if we don’t match up with each other by midnight our trade is now gone. Thus, effectively taking Lehman out of the picture and now those trades are with eachother and not Lehman. At least that is the hope as traders only had from 2pm till 6pm EST today.
Checkout the Bloomberg article.