So, This is What Financial Armageddon Feels Like
Posted on September 18th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research
Sit back, take a deep breath and remember what is happening around you at this point in time. Today will be written about in history for quite a long time.
What this week ending today boils down to is the financial system imploding. This is financial Armageddon. In the past several months they have spun the truth, injected hundreds of billions of dollars not including today’s global injection and bailed out massive companies like AIG and the GSE’s. Still the markets did not clear.
Credit markets today were still locked up as tight as ever and stocks were ready to crash again today. Now, they are turning to legislation. Remember this moment. This is what financial Armageddon feels like. As of this moment in time, we are imploded. Without emergency action tonight, the fall out from this week is what would have caused the real devastation. -Best, Mr Mortgage
September 18th, 2008 8:55 pm
I am stunned ….
SEC Plans to Temporarily Ban Short-Selling
September 18th, 2008 8:56 pm
Mr. Mortgage, why do you think it is armageddon? The government is printing all the money required…that’s should instill confidence in the markets for at least a while right?
September 18th, 2008 9:04 pm
Not so bad. I don’t see people jumping from buildings.
At least so far.
September 18th, 2008 9:09 pm
People jumping from buildings? That was so yesterday. Today is blame someone else.
September 18th, 2008 9:12 pm
Banning short selling is a gross interference with capital markets. It is the short sellers who cover who save the long’s asses when the shit really hits the fan. It is short sellers who say “Hey, something’s wrong here” who warn the longs to be especially carefull. This will be a prelude to a tremendous crash. Probably much worse than 1987 or 29. I’m going to go long gold, big time.
September 18th, 2008 10:00 pm
Opps! I just remembered. In a crash gold’ll probably crash too.
September 18th, 2008 10:06 pm
Well said.
So tonight its Jazz at Jesse’s, so at least we can have a little better orchestra than the Titanic did, with some cool tunes as we slide under the waves of history.
Jazz at Jesse’s
September 18th, 2008 10:09 pm
I think it is Armageddon postponed. Perhaps postponed until after the election.
Stocks like GS are partying after hours like it was .. like it was .. last week!
What i find most amazing is the total ban on any kind of financial stock shorting in the UK. That boggles my mind. It is one step away from the russian reaction: just close the market.
September 18th, 2008 10:55 pm
This is getting “STUPID SILLY”!!!
September 18th, 2008 11:16 pm
They just opened the door to hyperinflation by their actions today. Forget about the short sale bs. Our government just inhaled trillions of dollar of garbage and they are going to have to print their way out of it. Remember they will be taking debt not just from investment houses but, every hedge fund, bank etc that has bad debts and can shove it in this entity.
September 18th, 2008 11:23 pm
Tony Buzan
My best judgment states the following will happen over the weekend:
1. Morgan Stanley will be “saved” by an injection of funds by the CIC. Brad Setser notes, within a link contained at:
http://tinyurl.com/3uc4s4
that early last month, the Federal Reserve gave a special exemption to CIC from the ban on foreign entities owning more than 5% of a bank holding company.
This was not reported in the financial press, to my knowledge.
This is ironic because of course it was the Morgan family that repeatedly bailed out the US government prior to creation of the Federal Reserve as a response.
This bail out of Morgan comes at a heavy price.
That price is that now China shall assert important controls over US economic and foreign policy in return, similar to IMF austerity regimes.
This “ringfencing” of toxic waste is the first step.
Additionally, I believe that President Bush will be forced to agree to be more “cooperative” on the future of Taiwan.
Just as Argentina and scores of other nations lost control of their destiny at the hands of IMF shock therapy, the US is now held hostage by the self interest of a foreign power.
The Chinese Communist Party will assist the US in its transition to service of their empire.
But it will be on their terms.
Welcome the feudal state!
This is the end of the American era in world history. The Asian epoch has now begun.
Please adjust your conduct to these new realities.
Thank you.
Tony Buzan
September 18th, 2008 11:27 pm
This really bother me because what about the people that did the right thing? What about the people who played by the rules? What about the people who protected their assets? These folks were all made to look the fool. The gov’t has done the incomprehensible and destroyed the very principle that founded this nation over 230years ago. Freedom is now just a word we can look up in the dictionary because it no longer exists in this country. Will we look back on this day as historic? Absolutely, but not for financial turmoil. Today is the day America officially lost its way in the world. Today is a sad day indeed.
September 18th, 2008 11:50 pm
I’m curious, how much pain must be felt before you think the coast is clear? I for one, don’t want to experience a great depression part II. It seems as if a number of people that post here want that to happen. I can only imagine that you don’t have a job in the private sector/own a busines/home/stocks/assets/etc. IF I have to pay a bit more in taxes even though I wasn’t one of the idiots, I’m ready to do that to prevent armageddon.
We don’t want the cure to kill the patient.
September 19th, 2008 12:19 am
“Please adjust your conduct to these new realities.”
Tony,
What kind of conduct might that be?
September 19th, 2008 12:22 am
I don’t see people jumping from buildings.
You can jump off an 80-(floor) building and pretend you’re flying for the first 79 floors.
http://thehousingbubbleblog.com/?p=4943
I think that we’re half way down
September 19th, 2008 12:43 am
So how can one hedge against this upcoming massive printing at the same time as massive deflation? Is it a global deflation, and all currencies will suffer the same? Will the dollar be held up because of demand by foreign debtors? Or will we have asset deflation at home while the dollar turns to toast globally?
I’ve got a bunch of cash from my house sale in April…trying to find someplace to put it where it won’t devalue like crazy.
September 19th, 2008 12:56 am
Blaming short sellers is like blaming people with umbrella’s for the rain. This will probably hasten the crash. This is gonna sound perverse, but I think the US$ is going to be the king for a while. What with a global collapse going on, it is the still the player. Not sure for how long, though. Gold’s got to come out of this looking good. But it may take a while. I still cant believe the markets are rallying?!!
September 19th, 2008 6:10 am
Ban short selling mid day before options expiration day? Short sellers (I agree naked short selling is wrong) getting blamed because prices are falling? Why isn’t the SEC putting regulations against CEOs who come out and say they have capital, don’t need to raise any, cheer up their company to drive up the price – all awhile they’ve overextended, made risky bets, are on the brink of BK, and have debts greater than the company is worth? Oh, let’s not forget the level 3 asset games to inflate earnings. So…. that’s ok? I cannot believe what we’re seeing. Talk about China rigging their market! Pretty soon it will be illegal to even sell your stock. Why doesn’t the SEC look into illegal pumping of stocks that are overvalued? This works both ways. Manipulation of a free market isn’t wrong? Listen to the crap in the media about “look at the gains from investor confidence coming back into the market.” Please….
September 19th, 2008 7:13 am
Mr. M, As the largest insurance company, isn’t AIG supposed to understand and know how to insure against risk? It would seem that their failure to do this with their own company is the most repugnant irony to come from all this.
And as far a actions being taken, the parallels between ‘08 & ‘29 are chilling.
J
September 19th, 2008 9:10 am
I don’t think at all we witness armageddon ; rather financial warfare before the 4th november between Obama’s and McCain big backers .
September 19th, 2008 9:31 am
HEY MARC!!!!
Any updated thoughts on this “EMERGENCY ACTION”?????
WTF is going on, and isnt this just a bandaid on a ruptured jugular? Isnt the bottom line that the failures won’t stop??
“Totting up the numbers of Bear Stearns, AIG, Freddie Mac and Fannie Mae, and with now what we’re hearing about today, on top of a budget deficit which is already over $400 billion, and it’s possible to get number approaching a trillion dollars, that’s 7% of GDP in an environment where the U.S. economy is very weak,” James Shugg, senior economist at Westpac Bank, said. “It at least raises the question, ‘for how long can we continue to regard the US government as an ‘AAA’ organization?’”
September 19th, 2008 10:14 am
Stopping short selling should really bounceup some Bank stocks. The theory must be that higher bank stock prices will make it easier to raise capital. Why didn’t they do this a month ago?
September 19th, 2008 10:19 am
There’s a run taking place on morgan stanley apparently. 20bn to 120 bn could’ve been withdrawn in the last few days.
http://dealbreaker.com/2008/09/running-down-wall-street.php
September 19th, 2008 10:26 am
Treasury Secretary Henry Paulson said Friday that the planned government entity that will buy illiquid mortgage assets from financial institutions must be “sufficiently large” in order to have “maximum impact.
WTF!!!!!!
http://www.marketwatch.com/News/Story/Story.aspx?guid={37A20A2E-6B25-4F92-9B86-7244A07E7029}&siteid=mktw
September 19th, 2008 10:45 am
Such a fitting and most unfortunate end to the current administration’s reign.
Has anything good come of this past 8 years? Oh, yeah, Sadamm Hussein is gone…Who?
September 19th, 2008 11:03 am
My take is that there is no orderly market any more.
Just where are the details for the AIG take over? What happens to stock and bond holders; are the Fed shares senior or what?
There is no trust any more – you have no clue what the Fed is going to do or when rules get pulled from under you. Glass Segal should be re-instated (bolting the door after the horses have gone but still) and the uptick rule needs to go back. But it’s all lipstick.
They’re all so freekin’ leveraged that they’re insolvent and that’s the issue. I can’t think of any orderly way to wind this down; nor can they it seems. Ideally they don’t want to wind it down – the mantra seems to be that the toilet paper will have it’s golden lettering restored if we can just ride thru the rough patch we’re in.
September 19th, 2008 11:13 am
Is it all over now? The Financial Armageddon lasted a few weeks. Govt is buying all bad assets, I think Mr Mortgage can close down this website now?
September 19th, 2008 12:48 pm
Mr. Mortgage,
We need to band together and boycott the stock market completely. Between yourself, The Big Picture, Calculated Risk, Mish’s blog and countless other financial blogs we can put enough pressure on the market to bring it to a complete halt. This thing can go viral and save our Country. We can’t just write about this BS we need to take action! I urge you to and all to act… Please You Tube this idea. Thanks for all you do.
September 19th, 2008 12:50 pm
RTC, HOLC whatever you want to call these things, is akin to a parent giving their child a timeout for the child’s 10k cell phone bill.
That should do it…
September 19th, 2008 12:51 pm
Can you hear it? Crickets, crickets, crickets…
It’s the silence before the real storm.
Hold your breath.
September 19th, 2008 1:01 pm
If this doesn’t work. We’re DEAD!
September 19th, 2008 1:24 pm
At least Wall st. is.
September 19th, 2008 2:12 pm
Forget just restricting selling short……Let’s restrict selling any stock whatsoever. Only buying will be permitted! Now there’s a plan that’s sure to work.
September 19th, 2008 2:17 pm
>>
So how can one hedge against this upcoming massive printing at the same time as massive deflation? Is it a global deflation, and all currencies will suffer the same? Will the dollar be held up because of demand by foreign debtors? Or will we have asset deflation at home while the dollar turns to toast globally?<<
Gold (GTU is the best fund, no counterparty risk), and LEAPS on the SPY (SP500) is my recipe to survive and thrive.
The SP500 is toast over coming quarters. And the govt. can’t monkey with something that broad, right?
September 19th, 2008 2:18 pm
To clarifiy: PUTS in SPY/LEAPS.
September 19th, 2008 3:33 pm
Paulson and Bernanke to the free market:
“All your bank are belong to US.”
September 19th, 2008 4:06 pm
Welcome to the USSR-a (United State Socialist Republic of Amerika).
September 19th, 2008 4:59 pm
Interest rate charged to AIG by Tresuary on a 2 year term
8.5% plus 3 mth LIBOR (+/- 11.5%)
Where will interest rates be going foward?
Has Tresuary established the mark?
September 19th, 2008 5:14 pm
Free Market? Senator Phil Gramm loves free markets. So he green lighted the unreguladed insurance contracts known as Credit Default Swaps.
This is bigger than all mortgages, all real estate, all stocks, and all bonds and holds the markets we know (NYSE, AMEX, CBOE, NASDAQ, etc.) hostage to financial mealtdown.
Thus, Hank, Ben, and Christofer had to engineer the greatest short squeeze in history.
September 19th, 2008 8:44 pm
This bailout has taught me one thing.
When the federal government gives Wall Street 1 trillion taxpayer dollars stock values surge upwards.
What would happen if we gave them 2 trillion taxpayer dollars?
The stock market would go through the roof and we’d all be rich! (facepalm)
September 19th, 2008 10:44 pm
No matter how I slice this thing all of this “bailout” money is going straight to Wall Street. Think about this…Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns paid a combined $US65.6 billion in salary and bonuses last year to their 186,000 employees. That moneys gotta come from somewhere!
September 20th, 2008 12:39 am
Mr. Mortgage,
Love your work to death but you way off here – “Without emergency action tonight, the fall out from this week is what would have caused the real devastation.”
Best thing they could have done is nothing and let the market clear itself. The pain is unavoidable. Only question is when and how big. What they propose instead is to transfer wealth from taxpayers and holders of USD and treasuries to the stock and bondholders in these failed institutions. It’s a huge bluff. They are playing chicken with USD and treasury holders everywhere, daring them to dump. They will and we are going to have a currency crisis – not just here but worldwide. $1USD trading at 0.3Euro, 50yen, 3yuan will not be allowed. This is the von Mises crack-up boom and race to the bottom.
September 20th, 2008 4:29 pm
Mr. Mortgage,
Thank you for all you’ve done to expose the insanity. This blog has been an invaluable touchstone for the truth about what’s really going on. Told from the point of the fuse’s ignition.
Best to you and yours, and keep up the great work.
jstanley01
September 20th, 2008 4:30 pm
Jane: Thank you for very succinctly illustrating the current situation!
There is no escape from this Day of Reckoning – further government interference in the operation of natural market forces will only serve to make the final cost even higher than it otherwise would have been.
September 20th, 2008 5:23 pm
I just saw some reporter on TV claim that the Tax Payers can and may actually make money. They used the example of the Chrysler “Bail Out” as an example. Are you kidding me? That was so different and only 1 company, plus only a loan and the economy was doing ok compared to now.
“Tax Payers” didn’t take over ownership of Chrysler at the “Tax Payers” expense of $100’s of Billions of dollars and we certainly didn’t put at risk $5.2 Trillion more. Prices on probably 40% or more of the portfolio will never be redeemed in my lifetime.
“Tax Payers” also didn’t become one of the biggest private insurance companies in the world. with $1 Trillion more at risk to the “Tax Payers” AIG wasn’t even regulated by Washington whch is amazing.
NOTE: I have heard but not yet verified that $100’s of Millions is actually invested by our Senate and Congress in these companies we “Bailed Out” which means in essence the “Tax Payers” actually “Bailed Out” our own Government at the same time. How ironic that is, “IF” true!!!
NOW the Government wants to borrow $700 Billion more, at the cost of the “Tax Payer” off course, to “Bail Out” the banking industry as a whole. WTF is going on here? How the hell can they get away with this?
I am telling you all right now that the only reason they are even willing and able to get away with this is because they know how stupid most Americans truly are. They have all been in office for so long together and have so many little under handed deals and pacs made with lobbyist and the likes. Yet we will still decide to elect these same people back into office to do more and more damage over and over again. PLEASE people I beg you to stop this and take back control over the Government that works for us, gets paid by us and should make policies that are in the best interest of us. WE must:
VOTE EVERY INCUMBANT OUT OF OFFICE IN 2008!!!
I don’t care for any of them. Forget Ron PAul and Jim Bunning. I know they blurt out opposition once and again every while, but where the F%#$ are they right now? They should be on every show on television over and over again bringing this issue to the people like they claim they want to do. Obviuosly they don’t!!! EVERONE of them must go. If you are not vocal right now then you will never be and are of no use to our country. You are simply going along to get along and that doesn’t get it done.
Thanks for your time…
September 20th, 2008 10:19 pm
Paulson says the government would in essence set up reverse auctions— and financial institutions would compete for how little they would accept for their distressed assets.
1. How do we stop them from colluding to drive up the price they get for their assets?
2. Does everyone get to participate?
3. Who will oversee this? Halliburton?
September 21st, 2008 11:08 am
This bailout tells us how the government will react when the USA goes insolvent over the next 2 to 3 decades. We’ll experience massive transfer payments from efficient and profitable areas of the economy towards those areas that are unproductive and/or corrupt. The current bailout is nothing compared to what’s coming our way. Wealthy people will be cleaned out in a futile effort to shore up the Fed’s crumbling financials.
Is the United States really headed for a near-term bankruptcy? No doubt about it.
David Walker, Comptroller General of the United States and head of the GAO says the U.S. is doomed by 2040. He said this last year before any talk of trillion dollar bailouts. No doubt today’s problems will accelerate the timetable by several years.
The following short videos from February 2007 are official releases from the GAO. Mr. Walker explains in simple terms the enormity of the countries rapidly growing financial problems.
Part 1 (5:44)
Part 2 (5:55)
David Walker on 60 Minutes
David Walker on Glenn Beck (great vid)‘
In related news
Mayor of Vallejo discusses his cities bankruptcy on CNBC
September 21st, 2008 11:29 am
So, now it appears Paulson & Co want to bail out foreign banks’ bad loans (and other toxic debt) on homes here in the U.S. (see quote from ABC interview (http://www.cnbc.com//id/26819306). Is it just me, or is this “bailout plan” getting uglier by the minute?
Paulson’s argument for bailing out foreign banks is “… if a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution,” as he stated on ABC TV.
If the “impact” he is referring to is the people who work for these foreign banks losing their jobs because their foreign-based employer shuts down or downsizes because of their toxic debt load, then I’d say “bad idea” Hank. If these folks lose their jobs, they can file for unemployment like anyone else who’s lost a job due to the economic meltdown. Even better – if they lose their jobs, then as part of this bailout give them 1 year of income with no strings attached. Even with this ridiculous offer (which I’m only half serious about) I’d venture to say that cost would be substantially lower than the cost of buying the billions of dollars of toxic waste from foreign banks. So, with all due respect, Hank, your argument to save foreign banks doesn’t sway me.
Now, if the “impact” to which he is referring is Americans losing their homes because we don’t bail out the foreign-based banks that own their loans, I don’t buy that argument either, unless Hank’s bill stops all foreclosures for everyone going forward, and I don’t think it does.
So, what this amounts to is a bailout of banks, both U.S. and foreign. Could it be that that part of the driving factor in the decision to bail out foreign banks is the foreign holders of our debt putting the “wood” to Hank & Co, essentially telling him “look, you either bail out our banks and govts. or we will stop buying your Treasury and other Debt,” which is essentially the only thing keeping our govt. and economy going?
Hey, but this is all my opinion. How say the rest of you?
September 21st, 2008 12:51 pm
So, let me get this straight. The banks have loads of toxic debt, such as defaulted loans and REOs that they won’t sell to investors like me at market rates (25 cents on the dollar) because they don’t want to take the big hit. Instead, they want 75 cents on the dollar.
So, now the government will come in buy this stuff for 75 cents on the dollar, to minimize the hit to the banks, and then resell it to the market at at market rates – 25 cents on the dollar. Guess who picks up the tab on the difference?
September 21st, 2008 7:48 pm
Bail out ,bail out bail out. Great. This has temporarily stopped a crash. Everyone is saying the tax payer will be footing this.
I’d like to see them raise taxes to pay for this fiasco. This country would have a revolution on it’s hands with in days.
September 22nd, 2008 7:45 pm
@od. Taxes likely won’t be raised one cent. A dollar will just be worth a lot less. This has been going on a long time but it is set to accelerate and climax. But you are right – we need a revolution. Secession might work too.
September 22nd, 2008 8:30 pm
od, you are unfortunately wrong on the revolution idea. We need one, so you are right about that, but people are too busy, self consumed and stupid for any action. I used to beleive the same and have championed a movement for year (civil) and have never had any luck. Nope.. we are done.
Now don’t get me wrong that we will see rampant crime as a result of this “Bail Out” and poverty will escalate to levels most Americans will not be comfortable with. Kids begging on a street is what you see in poor countries. Well we will be seing that here in every major city once inflation blows the dollar right out of the water.
It is funny that these morons think that by taking from the poor and giving to the rich it will make everything OK again. Without the poor we have nobody to make the rich wealthy. Stupid egotistical shills that they are will wind up being roomies of those they loath when this is over.
Even if it worked, which it won’t which should be obvious, what good is having banks that can lend when nobody can afford to borrow? HELLO? Are they that stupid. We are saving the eggs, but killing the goose. What good is a nice warm nest if no eggs are laid to hatch in it. This makes absolutely zero sense…
At any rate it is obvious that the public will not partake in any attempt to save their own country and there are not enough of us bloggers and blogger paticipants to make a dent. They win once again, but this time we may all lose as a result of their final compentence, and that means them included… idiots!
VOTE EACH AND EVERY SINGLE INCUMBANT OUT OF OFFICE IN 2008!!!
September 22nd, 2008 8:35 pm
I don’t think it means all of them. Most are moving to Dubai probably.
September 22nd, 2008 9:01 pm
od, Dubai is for the ultra wealthy and anyone holding the American dollar 1 year from now if this “Bail Out” passes will not be able to afford a month stay there, let along to live. They will be middle eastern, Asian, and some European folks, but no too many American members amonget them. That’s OK because they all hate us anyway and who can blame them. PAulson will be ablt to because of his 500 Million parachute tax free at Goldman, but seriously not too many will…
September 22nd, 2008 10:45 pm
From Mish… GB him!!!
Write them and write them often… ALL of them ALL of the time!!!
It won’t do one damn bit of good more than likely which is why after we go through this exercise of futility you will agree with me to”
VOTE EACH AND EVERY INCUMBANT OUT OF OFFICE IN 2008!!!
senator@shelby.senate.gov;senator@sessions.senate.gov;senator@biden.senate.gov; senator@akaka.senate.gov;senator_lugar@lugar.senate.gov; olympia@snowe.senate.gov;senator@kennedy.senate.gov; senator@stabenow.senate.gov;senator@levin.senate.gov; senator@klobuchar.senate.gov;kit_bond@bond.senate.gov; mccaskilltransition@mccaskill.senate.gov;senator@bennelson.senate.gov; senator@ensign.senate.gov;mailbox@sununu.senate.gov; senator_bingaman@bingaman.senate.gov;senator@dorgan.senate.gov; arlen_specter@specter.senate.gov;tim@johnson.senate.gov;senator@hutchison.senate.gov; senator_leahy@leahy.senate.gov;senator@warner.senate.gov; senator_murray@murray.senate.gov;senator_byrd@byrd.senate.gov; senator@rockefeller.senate.gov;senator_kohl@kohl.senate.gov;