Saturday, October 18, 2008

The classic problem that no one wants to recognize

Everyone seems to be looking for bottoms. Why bother? Look at the bottom in 2002. We hit our low, spiked up and rallied, only to revisit the low three months later.

But the economic situation today is much worse, and the pain is as entrenched, as the wealth which has evaporated. Also in 2002, we had a Fed Chairman that cut rates low enough to allow the economy to expand, and any problems at bank's and brokerage firms could be papered over by derivatives. And then the rich were still immune from the economies travails. Now even Carl Ichan is selling his yacht!

Next we are soon going to have Fuld in a perp walk, who kept assets marked up while the Federal Reserve Chairman's right hand man, Timothy "know nothing" Geithner, was looking over Lehman's books. Why doesn't anyone subpoena him to ask him what he saw? It would be nice to hear an "I don't know" or "I don't recall" or "I was unaware" from a Fed official, even if it was under a magistrates direction, instead of the pollyanna press who has anointed him the market's next "savior."

Geithner only recognized the problem at Lehman the night before it imploded. His suggestion then, was to have 30 banks put up $35 billion for $85 billion of Lehman's assets in a fund called the "bad company" so somebody else could buy the "good company." Yes, the good company, that bought the bad company's assets! How about his advisors that were pouring over Lehman's books in April? Didn't they see anything amiss? Didn't they take a lead from any of the vocal shortsellers who already did?

In his testimony before the Senate about Bear Sterns, Geithner said "we only lend to sound institutions." Does that mean Lehman then, was sound? How about in June, when he was speaking before the San Fransico Fed and he said, "A classic problem in financial crises is to distinguish between problems of illiquidity and insolvency." Since the Fed was lending to Lehman, and since the Fed lends only to solvent institutions, didn't that mean then that Lehman was just having a liquidity crisis? Isn't that why these alphabet soup lending programs were set up? But it was never about liquidity. It was always about solvency! And Lehman was insolvent!

And if "no one" recognizes the difference between illiquidity and insolvency what does this make Geithner? No wonder no one uses logic!

So how is Geithner applauded, when he picked the wrong road,on the financial crisis? Geither was one of Lahde's low hanging fruit!

"The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America."

In fact, the TimesOnline has already appointed him as the new Treasury Secretary in an Obama administration. That same fluff piece also had this to say:

Tipped in Washington as the next US Treasury Secretary in the event of a win by Barack Obama, he has been shown at his best in a crisis in recent months. He has spent the past year getting his head round credit derivatives, with fortuitous timing.

What timing! He and Bernanke both decided to take a crash course in derivatives, after the derivative market, and the market's that is is derived off has crashed, and yet he deserves plaudits for knowing now what he didn't know then, even though he oversees the nation's banks?

Of course, before the Fed's alphabet soup programs, it was the SEC that had the authority to pour over the investment banks books, so maybe they should also ask Christoper Cox! But does Chris Cox get any good press?

He spends all his time investigating those that spread "rumours" about Lehman.

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