It seems like we’re hearing about failed banks and institutions on a daily basis now. Hitting that point of no return, insolvency, seems to do the trick. At the same time, bank-to-bank lending rates (Libor rates) have been spiking, and that means that banks are relucant to give out cash. This is despite the massive injections of liquidity that the Treasury has been making.
To this casual observer, it would seem that the game is to hoard as much cash as you can, to try and survive longer than your competitors, and also buy out as many competitors as you can on the way down. Also, try to predict the end of the game so you can time your acquisitions well, and also know how much cash to hoard. If that’s the case, then injecting liquidity is just giving the players more time on the clock, it’s not restoring confidence or any such rubbish.
And if the game doesn’t end, and all banks are ultimately insolvent regardless of however much time they get on the clock? I think that’s what the bailout plan is trying to avoid; by providing an end to the game, they hope to stop the cash hoarding and return to normalcy. However, I haven’t heard any indications that the $700 billion is any more than a guess. It’s scary to think that the network of complex financial securities (“innovations”, as they like to call them) may ultimately be more in the value of trillions than billions. There may be no way to bail out these banks at all.
If so, is it worth it to even try? My guess is that it’s worth it to try, but if so, it’s important to either go the Buffett strategy of getting a real market price (instead of a make-believe hold-to-maturity price), or to go the Swedish route that involves buying the companies directly. Even a solution that attempts to stem the tide of foreclosures is woefully inadequate to deal with the majority of Americans in financial distress for whom a mortgage is only one aspect of their difficulties. There’s also massive amounts of credit card debt, car loans, etc. that won’t disappear through renegotiations of monthly house payments.
Sorry for the doom & gloom, but I’m hoping someone can step in and tell me why i’m wrong, because this is the best understanding I can come up with so far.
Tech
I found out something really interesting (to me, anyway) today. It’s something that I took for granted – public records at city hall. I knew intellectually that I could go there and ask for information, but had never done so.
Large packets of information, folded neatly, going back to the decade of construction hold some sort of voyeuristic appeal. You can easily look through the history of a building, finding out that it’s been a toy store, a department store, and so forth. Knowing what’s been in the floors and corners lends an air of reality, an air of tangible history, instead of the anonymous and soulless relationship that i’ve had with most buildings.
I know that it puts me in the minority, but I had a lot of fun looking through old public records. I wonder what sort of emotional impact it might have to have these old records scanned and put online for public use. I know that I wasn’t asked for an ID, my name, or even my purpose when I went there, so I imagine that these are freely available for people to see. I can imagine the difficulty, but what if there were a time slider in Google street view?
Tech
First off, the $85 million (ed: billion) AIG bailout scares me, not because of future bailouts that it most definitely encourages, but instead because it still seems like it’s not enough to cover the sheer volume of credit default swaps that it has outstanding. I don’t get the feeling that $85 million billion is enough to cover the trillions of dollars outstanding in the whole international ponzi scheme that AIG has foolishly insured.
The second thing is that the whole “Change” message being put out by the McCain GOP campaign reminds me of the unintentionally funny Match.com “6 Months Free” campaign that’s all over TV commercials right now. The gist of the promotion is that if you use Match.com for 6 months and totally strike out… they’ll give you another 6 months for free. Hey, if you pay for our service and it doesn’t work for you for half a year, waste another half a year of your precious time, on us! It reminds me of the GOP message of “Change” on the economy. If the last 8 years haven’t worked for you, we’ll be happy to serve you with the same administration for the next 8 years!
Tech
In the handful of news articles I read today, I nearly passed over a link to one of Warren Buffett’s Berkshire Hathaway shareholder letters from 2002, the one where his predictions for the derivatives market seem eerily close to the unfolding of current events on Wall Street. Reading his conversational, informational letter is like finding an oasis in the desert. I’ve read other shareholder letters, and most of them feel as if they were written by drones who have no interest in providing anything but cheery opacity.
I was very pleased to find that Berkshire Hathaway publishes all of Warren Buffett’s Letters to Shareholders on their website. Please dig in and enjoy.
Tech
