Sunday, September 14, 2008

Chronicles Of Depression 2.0: #194



Three dominoes are about to fall:

Lehman Brothers set to collapse after Barclays and Bank of America pull out of bidding
Barclays tonight pulled out of a deal to save U. S. investment bank Lehman Brothers, which is on the verge of collapse.

In a further blow, the Bank of America also ruled itself out of a rescue deal.

Both were scared off after the U.S. authorities refused to provide guarantees protecting them against potential losses from the stricken Wall Street giant – the world’s fourth biggest investment bank.

Emphasis added by me.

Everyone who's been scoffing at my Chronicles of Depression 2.0 posts, note this:
Alan Greenspan also described the banking crisis as the worst of his career and possibly the worst in a century including the 1929 Wall Street crash.

‘There's no question that this is in the process of outstripping anything I've seen, and it still is not resolved and it still has a way to go,’ he said.

Emphasis added by me. All of you are familiar with Greenspan. He does not routinely make such scary declarations! He usually understates everything.

Now do you begin to see? Next up:

Bank of America in Talks to Buy Merrill Lynch
Bank of America is in advanced talks to buy Merrill Lynch for at least $38.25 billion in stock, people briefed on the negotiations said on Sunday, as a means to preserve that investment bank while Lehman Brothers looks likely to collapse.

The move suggests a desperate effort at triage on Wall Street, as Bank of America works to shore up the likely next victim of the credit crunch. A deal, valued at between $25 a share to $30 a share, could be announced as soon as Sunday night, these people said. Merrill shares closed at $17.05 on Friday.

Bank of America, the nation’s second largest bank by asset size, had been mulling buying Lehman, perhaps in a consortium with other financial players. But with financial aid from the government looking unlikely, Bank of America has moved on to Merrill, these people said.

And one probably none of you suspected:

Rush Is On to Prevent Big Insurer From Failing
State insurance regulators and executives of the American International Group, the insurance company, rushed on Sunday to arrange a capital infusion to stabilize the company in the face of possible credit downgrades.

It was unclear whether A.I.G. would succeed in its capital search, but a person briefed on the discussions said it was seeking more than $15 billion even as it tried to sell assets to shore up its financial footing.

Investors, afraid that A.I.G. would have to absorb further write-downs in its already damaged mortgage securities and collateralized debt obligations, have driven down the company’s shares in recent days. The stock closed Friday at $12.14 a share, a decline of 46 percent for the week.

A.I.G.’s problems are not new. The company lost $13.2 billion in the first six months of 2008, largely owing to declining values in mortgage-related securities held in its investment portfolio and collateralized debt obligations it owns.

But the company’s outlook grew grimmer last week when Standard & Poor’s warned that it was considering downgrading the company’s debt as a result of further write-downs it might have to take.

Emphasis added by me.

How many banks have to collapse? How many large companies have to be bailed out? How many layoffs must there be?

Until all of you are finally on the same page as me?

I stated it back in January. It was my fifth post in this new blog. Already -- over nine months ago -- I saw the shape of things coming up.

While all the rest of you debate the current configuration of the upcoming election as if it was a cheap sporting event, I'm trying to impress upon your brain the absolute and critical urgency of the mess we are in.

This is goddam serious!

We are going to be facing something unprecedented in American history -- perhaps even in human history.

Keep ignoring the facts. There will come a day -- perhaps before Election Day -- when you will gasp.

And if there is a God, may he have mercy on us all!

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