Tuesday, August 14, 2007

Financial Train Wreck


The fed has pumped liquidity into financial markets in an attempt to loosen the tight fists of scared stiff bankers who have become (overnight it seems) reluctant to loan cash to each other. I’m sure they are worried about being paid back. I know I would be.

The Fed didn’t print fresh dollar bills and drop them from helicopters ala Bernacke, but did a piece of financial alchemy instead, offering ‘repos’ (what those consist of I’m not quite sure but I think they function something like an I.O.U.). Now they can say no cash is involved but if the deals backed by repos go south, real money is going to evaporate. These repos represent a certain cash value that will be demanded to settle any of the bad loans they back that dry up. If the Fed offered them instead of cash, the Fed will eventually have to come up with cash the best way they know how, print more…

This brings me to the next part of my rant. If the Fed prints its’ way through this mess it’s a bailout for the banks who made freakin’ wild-ass bets involving CDOs, derivatives and the like, and the inevitable printing party that will follow will devalue each and every dollar we have stuffed under our mattresses. That adds up to a tax on the lower classes plain and simple. Bank execs and hedge fund managers get to keep their billion dollar bonuses while the Fed debases our savings, engaging in unauthorized rear entry of the population in the process, and I’m sure they won’t be offering us dinner and a drink first.

The sad part is, it probably won’t work anyway. Derivatives gearing involves tens or even hundreds of $ trillions.
We’re freakin’ doomed.

Sometimes I feel like we are all in a great train wreck; the front cars have derailed but the passengers in the rear don’t know it yet. All the gyrations to calm the markets are only buying time, time for what, I don’t know, but I’m sure it will become clearer as the back of the train joins the front in the crushing misery that is to come.

That’s my rant. If anyone of my readers can fill me in on repos or straighten me out on my logic, please post. Criticism is welcome.
Vern

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