Tuesday, September 09, 2008

Another Day of Infamy

December 7, 1941 has gone down in history as a "day of infamy" due to the attack on Pearl Harbor by Japan. I believe that September 7,2008 will go down in history as another "day of infamy", due to the clear abandonment of any pretense of free markets in the United States.

Anyone who still thought there was anything approaching a true "free market" in the United States certainly ought to be re-evaluating that position in light of the latest government bailout of certain corporate sweethearts (in this case Fannie Mae and Freddie Mac). While this may surprise some folks, this is about what you would expect in a truly totalitarian globe-spanning empire and now you've got it. All pretenses are off - the US government is trying to convince the world that it and it alone is capable of saving the entire global financial system.

September 7 will be the day that marks the beginning of that process. This last week has seen the process accelerate drastically. Remember those alerts from this summer about a possible stock market crash for this autumn?

RBS Offers global stock and credit crash alert.

Morgan Stanley warns of a 'catastrophic event'.

In a recent quarterly report, the Bank for International Settlements (BIS) warns that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.

Paulson & Co. Says Writedowns May Reach $1.3 Trillion

All of the above articles were prominently displayed by sources like Bloomberg, Yahoo, etc., earlier this summer. These warnings were issued by major players, not by me.

Look at what has happened this week:

  1. Russian Markets Halted as Emergency Funding Fails to Halt Rout
  2. The US market is down almost 800 points in 3 days.
  3. Lehman declares bankruptcy.
  4. The US government steps in and nationalizes AIG to the tune of $85 BILLION dollars.
There is panic in the streets (Wall Street). So far we are down nearly 1000 points from recent highs and almost 4000 points from 10 months ago. Think about that.

"Lehman Brothers Holdings has gone bankrupt. Here is a firm that was founded in 1850. It survived the Civil War and the Great Depression. It did not survive the current breakdown. Anyone who thinks this crisis is some minor affair is not paying attention." - Dr. Gary North
Now please attend to me what is happening.

1. Lehman has declared bankruptcy. Lehman therefore must be liquidated by the courts. Lehman's "assets" (CDOs, derivatives, etc.) have a nominal value of about $640 BILLION dollars. To be liquidated, these assets MUST BE SOLD. But who is going to pay full price for these $640 billion worth of fake assets? Nobody! Ergo, the assets will be sold at firesale prices. Expectations are that the court will get 5-40 cents on each dollar. In other words the court will find that the assets have lost between 60-95% of their claimed value!

2. Because of #1, the assets of every other financial institution will finally have to be marked to market. When this happens, every other financial institution will find itself officially under-capitalized and selling more assets to get capital.

3. But no one is buying! No one is buying these assets! Ergo the price will fall even further.

No human being can say with complete assurance that this is the end of the line but right now, today, global civilization stands at the precipice looking down towards its own death.

Now why does this matter to you? Because your job is with a business that has a 99+% certainty of being with a company that operates on debt alone. Imagine this scenario - banks cannot lend so they don't lend money to the oil companies who then cannot refine petroleum which results in total loss of fuel from the marketplace keeping all workers home from their jobs. There are dozens of other scenarios in which loss of credit destroys companies that are fundamental to the existing economy. What happens if the grocery chains cannot get credit to buy food to stock their shelves? There are dozens of other ways in which the collapse of credit can mean the end of many if not nearly all jobs in the global economy. What then? Do you think that Uncle Sam will come cuddle you? If you do, you deserve whatever happens to you.