There They Go Again
Last we looked the financial stocks were dropping like stones. They have since recovered but the other shoe dropped. WAMU broken and sold to JPM, WB broken and sold to C. Surprised C did that deal since they have been hurting but I bet the Feds strong armed them to take it on their balance sheet. In turn C will probably dump WB bad assets into the bailout pool. The mess continues.
My view may be naive but collecting all these assets into one large smelly pile doesn't make them go away. Yes, it will cool things off but too many financial institutions are hurting and new lending is probably immaterial at this point. But we can't overlook that balance sheet improvement will occur and that will matter at some point. And we can't overlook the potential that the Big Five - JPM, BAC, GS, MS, & C - have over everyone else. But there is much to worry about, too. Just how will the Feds manage these new assets. What other dangers lurk that will stress a bloated Fed? How bloated can bloated get?
The mess must be paid for and I wonder about how will this happen. Will taxes get raised to foot the bill and just how bad will it be? What if taxpayers revolt or demand an alternative. What if the Gov't sells off other assets it owns instead? Talk about reducing the size of Gov't. Imagine the cronyism on those deals.
The market is breaking down this morning but so far the inherent braking system of the bear is doing its job. The Fed is at it again with massive open market operations to add liquidity. Hooray but I can't imagine any good coming from all of this, especially in the short term. In fact, in the short term I don't understand why we aren't much lower. And I mean MUCH. I think that earnings are generally going to be horrible and when the street wakes up to that there will be some bad days. Realistically, the fact that we aren't much lower suggests that the street may be thinking that this could be much worse. Maybe the Govt's steps are working in that we are not falling apart. Its something to think about.
Stay tuned.
My view may be naive but collecting all these assets into one large smelly pile doesn't make them go away. Yes, it will cool things off but too many financial institutions are hurting and new lending is probably immaterial at this point. But we can't overlook that balance sheet improvement will occur and that will matter at some point. And we can't overlook the potential that the Big Five - JPM, BAC, GS, MS, & C - have over everyone else. But there is much to worry about, too. Just how will the Feds manage these new assets. What other dangers lurk that will stress a bloated Fed? How bloated can bloated get?
The mess must be paid for and I wonder about how will this happen. Will taxes get raised to foot the bill and just how bad will it be? What if taxpayers revolt or demand an alternative. What if the Gov't sells off other assets it owns instead? Talk about reducing the size of Gov't. Imagine the cronyism on those deals.
The market is breaking down this morning but so far the inherent braking system of the bear is doing its job. The Fed is at it again with massive open market operations to add liquidity. Hooray but I can't imagine any good coming from all of this, especially in the short term. In fact, in the short term I don't understand why we aren't much lower. And I mean MUCH. I think that earnings are generally going to be horrible and when the street wakes up to that there will be some bad days. Realistically, the fact that we aren't much lower suggests that the street may be thinking that this could be much worse. Maybe the Govt's steps are working in that we are not falling apart. Its something to think about.
Stay tuned.
posted by David Geller at 9:45 AM
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