10/10 update

[muldoon]

What a day and what a week.  To some extent it was quite historic, things are happening that will forever shape our nation and possibly our entire planet – for good or bad.  I wanted to post a summary of where we are and where were headed as best I can.  Previous caveats apply, I do the best I can and some of this is just opinion.

Start with the good, yes we had some good today.  Thank the sweet lord for the few crumbs we got.
1)Overnight dollar LIBOR came down from 5.0 all the way to 2.47 this morning.  The 3 month libor didnt come in and opened at 5.87 but the overnight did.  This opened up some lending in the intrabank lending on the extremes but left things mostly broken as they were.  The good news in that is that overnight lowering signifies something.  The market believed that today was better than yesterday.  They believed the financial world would not end today, it still may end in the next 3 months but it wouldn't end today.  Success breeds confidence, and since we didnt see any new governments default, I think it will remain unwound on Monday-Tuesday.  In time, longer term treasuries *might* relax as well. 
2)China government announces "health checks" on foreign companies to determine who is solvent.  http://www.telegraph.co.uk/finance/markets/3172566/China-clamps-down-on-foreign-firms-as-Asian-panic-spreads.html  Yes, it sounds odd that I would consider this good news but I do.  The fact is as far as I am concerned that in a crises of confidence that we need to know WHO is bankrupt and who we can trust.  Then we simply stop dealing with the broken companies and do more business with the good ones.  The old bankrupt debt washes away and a new book of business is built around good choices.  The fact that COMMUNIST CHINA has to teach us how capitalism works is unsettling to say the least.  But I'll take it and count it as a good thing.
3)Jaime Dillon of JP Morgan state that suspending Market to Market is a bad idea.  He issued a public statement opposing any relaxation in mark-to-market rules.  He understands that removing transparency would further damage the markets.  Thank you for understanding that marking something to market is the only sane valuation, you might have a house that sold for 300k, and if the neighbors house sells for 50k you cant keep it on the books at 300k because that does not reflect the market or reality.  Only by valuing assets at TRUE numbers and being honest will investors have confidence.  Investors can handle bad news, they cannot handle uncertainty with no way to know the exposure. 

Had some bad as well today. 
1)As I noted above the 3 month libor didn't come in and with that a significant chunk of the credit market didn't move. 

2)Line of credit offer letters are not being written by banks, being revoked across the board, and many exporting nations are finding containers cannot be shipped. Apparently grain and other goods are piling up on the docks because of lack of credit.  http://www.financialpost.com/story.html?id=866522  This has the potential to be seriously un-good.  This is the kind of thing that results in supply chain breakdowns.  With a just in time delivery system, food rotting on the docks and in containers on ships could be disasterous. 

[muldoon]

3)This one really really pissed me off.  While it was good for 600 points on the dow in the last hour and is a big reason why we closed down 128 instead of 700+ it still is a horrible thing in my opinion. http://www.marketwatch.com/News/Story/Story.aspx?guid={b9acbb03-9607-44fa-8ea4-110138703ca6}
Last update: 3:17 p.m. EDT Oct. 10, 2008
SAN FRANCISCO (MarketWatch) -- Fannie Mae (FNM:
Fannie Mae said Friday it will stop collecting the principal and interest payments on loans from institutions servicing its mortgage-backed securities in a bid to free up additional liquidity for these institutions. The move comes in line with the Federal Deposit Insurance Corporation's new policy which effectively safeguards these principal and interest payments.


All I could say to this was "f*** me".  So this is the new fdic rule they reference
http://www.fdic.gov/news/news/press/2008/pr08097.html
Note the "Under the interim rule, coverage will be provided to the lenders/investors, as a collective group, based on the cumulative amount of the borrowers' payments of principal and interest into the account. "

Now, lets look at what this means.  Some bank or mortgage broker somewhere wrote a loan.  Then they sold it to Fanny Mae, FNM now hold this paper.  However no one sends a check to Fanny Mae, they send it to a servicer – these companies like Chase, Wells, Bank of America, and such handle the servicing of the loan.  Take payments, handle PMI, escrow, insurance, taxes, change of address and such.  They take a fee from FNM and send the rest up to pay the bond holders.  With this new twist, the servicer can keep that money and NOT send it to fanny or the bondholders.  The loss is insured by FDIC. 

Heres the deal, the banks are broke (see the H3.1 report from yesterday).  They collect these mortgage payments and are supposed to pay the holder like FNM.  However, they have been seeing extreme bank runs with some 8 trillion new dollars in circulation (see H4.1 from yesterday).  They dont have the money to pay FNM.  So the taxpayer gets to eat it. 

To be clear, heres a picture
Normal money flow:
Homeowner->Wells Fargo->FNM->MBS Investor

New money flows:
Homeowner->Wells Fargo-> (keeps free money!!!)
+
Homeowner->IRS->FNM->MBS Investor
...
Maybe I misunderstood that article, but thats my take on it and it made me really mad.  Yes, its a way to "capitalize" the banks and give them some cash since they are bankrupt and need it.  At the expense of us. 

I have ranted enough. 
..

The last section, the crazy.  I am giving serious consideration to starting a new business.  Filed for a corporation chapter C this week, have a few others involved, maybe some funding lined up.  It might be bad timing, or it might work out really well.  Cant talk about the details right now but I am somewhat excited.  I love creating things, I guess that part of why I am here. 

[John Raabe]

Thanks for the update Muldoon,

Poking a big stick into a functioning beehive, especially when the hive is edgy... seems like a move that might create more problems than it solves.

Good luck on the new business! From Chaos, Comes Opportunity.

[glenn kangiser]

Thanks for the  analysis and opinions. muldoon.  It helps me to try to understand it better.  

Looks like we continue to get the sh-tty end of the stick in most of this bailout of the fraudsters.  

[muldoon]

Thanks for the  analysis and opinions. muldoon.  It helps me to try to understand it better.  

Looks like we continue to get the sh-tty end of the stick in most of this bailout of the fraudsters.  

Glen, I wish that wasn't the case but it certainly looks that way.  Try to look at the bigger picture here as well.  While us getting shafted is bad, a collapse is worse.  I WILL NOT defend them, nor will I say they are doing the right thing, however I will say that us paying the taxes for this is preferable to 99% of our nation than us marching to a collapse of commerce. 

In my opinion, it doesn't make it right, but it does make the decisions understandable in context.  I am not disagreeing with in principle you at all but I just want to point out that in the bigger picture they will always strive to grow the system as a solution.  It is how it is designed.  The alternative to it at this point is rather deeply scary.  No one would voluntarily choose it . 

[glenn kangiser]

I started reading this and it is pretty deep for me, muldoon.

Is there anything to this?  Does this guy know anything?

http://www.theinternationalforecaster.com/International_Forecaster_Weekly/The_Quadrillion_Dollar_Powder_Keg_Waiting_To_Blow

[Sassy]

Makes you kinda wonder what surprises the G7 group will shower us with after their weekend get together...   

Worrisome that they keep talking about "New World Order", new international currency...  kinda like after 911 - they said "things will never be the same" then they pulled the Patriot Act out of their hats...  but that had been drawn up at least a couple years before - seems like deja vu with whats going on now...  things are falling into the hands of a few, just a little too easily...    

BTW, even Glenn Beck's talking about the "New World Order"...  but he's blaming it all on the mortgage mess - like all the other talking heads with their canned talking points...  seems like the mortgage mess is small potatoes compared to the trillions that are actually involved....  or am I way off base?   

[apaknad]

WOW!!!

what an article. it hurt my brain to read it. does not look good. i was thinking that the bail out would calm things for awhile but now i don't know. Muldoon, this is more up your alley.

[glenn kangiser]

The bailout is only a small bandaid and a completion of the largest possible rippoff  of the American middle class the elite can master at this time --no doubt about it, so don't get any nice warm fuzzy feeling. Sorry to have to put it that way.  I think muldoon will agree on this.

As muldoon mentioned earlier -- it is only an extension of time to possibly protect yourself a little more.  Only the elite benefit, but the way I see it, it will likely and hopefully drag them down along with us. 

Don't get me wrong -- I don't want to see our friends lose a bit, but I do want to see the fraudster criminals that created this theft of the total American financial system lose everything.  I would even be willing to send them a single bullet if they need it and can't afford it. 

[ScottA]

Crazy reading. The way I see it they are driving down the value of assets so they can buy them up cheap. Banks seem to be the main targets here atm. I suspect there will be alot less banks when this is all over and those that are left will make a killing.

[peternap]

No one seems to be buying the buyout.

I expect next week there will be an improvement in the stock market. I think it's near bottom. That may calm things for a while but remember....the stock market is NOT the economy and the economy is toast.

I don't think we'll  see a new currency. The Euro is showing how much trouble a multi national currency can cause.

[muldoon]

I dont know how true that article is.  It doesnt jive with some of my understandings of things and my numbers are not that big.  The world does not have quadrillions of dollars, it doesnt exist. 

The CDS market is roughly 54trillion dollars, which is down 8trillion from the 62trillion it was a few months back.  Yes losses are staggeringly bad.  As one blogger I found today put it, were scroomed

If I had to make some assumptions on this here is what I would say.   It's not a if we crash, or a when we crash.  We crashed.  Last month, somewhere in the week of the 18-19th or so. 

I'll post a image I saw today

This is from the slosh report, which shows the open market operations of the federal reserve bank.  They routinely make daily interjections into the markets to set monetary policy.  Notice something here, the column call Treasuries Held and Agency Held.  They are broke.  This bailout was for the country to try to fund itself.  This is not a united states problem, it is a global problem. 

[glenn kangiser]

Thanks, muldoon.