The Ultimate Wall Street Nightmare
 

Please read this whole article. What he writes below is chilling. At the time he wrote this BoA deal with Merrill had not happend. The CEO of Merrill and BoA put the whole deal together over the weekend. Below Martin's comments about Lehman, I have posted a paragraph from National Mortagage News about the BoA purchase. We as the people of God can pray and change things. It could be that we are sitting in a very comfortable chair not knowing it is resting on a timebomb that will change our whole way of life.


http://www.moneyandmarkets.com/Issue...erEntryId=2234

In the wake of Lehman's demise, Fed Chairman Bernanke and Treasury Secretary Paulson will try to put out the word that it's no great trauma.

But it's a lie and they know it. If they openly admitted that the Lehman collapse will paralyze Wall Street, torpedo the stock market and sink the economy, they'd have to pony up $100 billion or more to support it. Instead, their agenda was to push big banks to put up the money. And they failed to do so.

No matter what, there's no denying that the Lehman debacle is a massive and immediate threat to U.S. and global markets. At the latest reckoning, Lehman had $691 billion in assets. That makes it bigger than Wachovia, twice as big as Washington Mutual, and over sixteen times larger than Schwab.

Lehman's debts — at $668.6 billion — are also enormous. Even if you added together all the debts of TD Ameritrade, E-Trade and Schwab, you'd still have only $108.5 billion, or less than one-sixth the total debts which Lehman reports.

In fact, among brokers, there are only two other U.S. firms that beat Lehman in the debt category: Morgan Stanley, with $1 trillion, and Merrill Lynch, with $988 billion.

Can you imagine anyone in his right mind making the argument that a Merrill Lynch downfall would be "no great trauma to investors and financial markets"? Of course not.

The reality: The collapse of America's third-largest brokerage operation is very serious business with equally serious consequences. The primary concern ...

Defaults on Derivatives

We've lost count of how many times the authorities have virtually sworn on a stack of Bibles that "our financial system is fundamentally sound."

But no one could possibly lose count of their recent desperate efforts to prevent the system's collapse — actions which directly belie their words:

One — the coordinated efforts by central banks to flood the global economy with liquidity in the summer of 2007.

Two — the hasty bailout of Bear Stearns in March of this year.

Three — the giant Fannie and Freddie rescue announced just eight days ago.

Each time they intervene, they say "we must not reward CEOs who deceive the public and walk off with multibillion dollar bonus checks." And each time they say it's the "last time we'll make an exception to that rule."

But then they go ahead and do it anyhow, not only breaking their own word ... but also trashing the long tradition of restraint established by their predecessors since the Great Depression.

Why? Because they had neither the courage nor the audacity to confront Wall Street's ultimate nightmare: A collapse in the giant mountain of derivatives.

Derivatives are essentially bets on interest rates, foreign currencies, stocks or specific events like the bankruptcy of a particular company. The interest rate-related bets are by far the biggest. But the bets on bankruptcies — called credit default swaps — are the fastest growing and the most volatile.

These derivatives were originally designed to help hedge investments reduce risk — like insurance policies. But in practice, they've been increasingly used to leverage investments, increasing the risks of participants.

Here are some essential facts that illustrate the enormity of the problem ...

* The amounts are absurdly large. The total "notional," or face value, of derivatives held by U.S. banks is $180 trillion, and it's three times that much globally. This figure is said to overstate the actual market risk. But it does not overstate the risk of defaults such as those that could be triggered by the failure of a company the size of Lehman Brothers.

* Over 90% of all derivatives are traded outside of regulated exchanges. Consequently, other than very general information, the authorities have no mechanism for keeping track — let alone efficiently cleaning up the mess in the wake of a giant failure.

* Off the balance sheets. Some companies report nothing more than the total value of their derivatives in footnotes to their financial statements. Others don't report at all. Consequently, the actual risk, amounts and even the very existence of derivatives is often poorly disclosed to investors.

* Disclosure in the brokerage industry is especially bad. Many brokerages are private and do not disclose more than their rank and serial number. The SEC collects sparse data and does not publish it. So if you want to figure out how much derivates risk your broker is exposed to, good luck! Getting the information can be like pulling teeth.


* Concentrated in the hands of five major players. Nearly 97% of all U.S. bank-held derivatives are concentrated in the hands of just five major U.S. banks — JPMorgan Chase, Citibank, Bank of America, Wachovia and HSBC.

* Far larger than assets. As you can see in the chart to the left, the pile-up of derivatives greatly exceeds the total assets of the firms. At the same time, in most cases, the default risk related to these holdings greatly exceed the banks' capital.

* Big brokers are also loaded with derivatives. Merrill Lynch has $4.2 trillion. Morgan Stanley has $7.1 trillion. As best we can determine, Lehman Brothers has significantly less — $729 billion. But in proportion to its dwindling capital, its exposure seems to be among the worst.

* The capital of major firms has been further weakened by recent losses and the failure to raise enough capital to cover them. The chart below tells the story in a nutshell:

Re: The Ultimate Wall Street Nightmare
 

Continued......


Consistently, in bank after bank, the losses suffered from the mortgage and credit crisis have exceeded the amount of new capital they could raise. This was true when investors still had confidence in their ability to overcome the difficulties. It's even more true today.
Here's the great dilemma: The tangled web of bets and debts linking each of these giant players to the other is so complex and so difficult to unravel, it may be impossible for the Fed to protect the financial system from paralysis if just one major player defaults. And if Lehman is not that player, the next one will be.
To understand why, put yourself in the shoes of a senior derivatives trader at a big firm like Morgan Stanley (which has $7.1 trillion in derivatives on its books and about $10 billion in capital).

Let's say you're personally responsible for $500 billion in derivatives contracts with Bank A, essentially betting that interest rates will decline.

By itself, that would be a huge risk. But you're not worried because you have a similar bet with Bank B that interest rates will go up.
It's like playing roulette, betting on both black and red at the same time. One bet cancels the other, and you figure you can't lose.
Here's what happens next ...
Interest rates go up, reflecting a 2% decline in bond prices.
You lose your bet with Bank A.
But, simultaneously, you win your bet with Bank B.
So, in normal circumstances, you'd just take the winnings from one to pay off the losses with the other — a non-event.
But here's where the whole scheme blows up and the drama begins: Bank B suffers large mortgage-related losses. It runs out of capital. It can't raise additional capital from investors. So it can't pay off its bet. Suddenly and unexpectedly ...
You're on the hook for your losing bet.
But you can't collect on your winning bet.
You grab a calculator to estimate the damage. But you don't need one — 2% of $500 billion is $10 billion. Simple.
Bottom line: In what appeared to be an everyday, supposedly "normal" set of transactions ... in a market that has moved by a meager 2% ... you've just suffered a loss of ten billion dollars, wiping out all of your firm's capital.
Now, you can't pay off your bet with Bank A — or any other losing bet, for that matter.
Bank A, thrown into a similar predicament, defaults on its bets with Bank C, which, in turn, defaults on bets with Bank D. Bank D has bets with you as well ... it defaults on every single one ... and it throws your firm even deeper into the hole.
So now do you understand why bookies belong to the Mafia and why gamblers who welsh on their debts wind up at the bottom of the East River? It's because defaulting gamblers are a grave threat to the entire system, just like Lehman Brothers is today.

Now do you see why the $180 trillion in U.S. derivatives, supposedly overstating the true risk, is actually a lot riskier than almost everyone cares to admit? It's because defaulting banks or brokerage firms are also a grave threat to the entire system.
And now do you understand why Mr. Bernanke and Mr. Paulson are probably bluffing?
Don't let them fool you. The Lehman Brothers debacle is a far greater threat than anyone has dared tell you. And if you haven't done so already, you must take the urgent defensive action we've been recommending day after day, week after week.
All the instructions are in my recent Money and Markets issues.
In a nutshell: Sell all your vulnerable stocks and bonds before it's too late, stashing the proceeds in cash with short-term Treasuries or a Treasury-only money market fund. And to the degree that you're unable to sell, buy inverse ETFs to protect yourself from devastating losses.
Don't wait for the market's reaction to the Lehman collapse. Act now.
Good luck and God bless!
Martin


Merrill deal......


With Merrill Deal, BoA in Charge of More B&C
Thanks to its historic weekend deal to buy ailing Wall Street giant Merrill Lynch, Bank of America soon will find itself the not-so-proud owner of nearly $154 billion in subprime residential servicing rights, or about 15% of the A-minus to D market. Meanwhile, the future of Aurora Loan Services of Colorado is in doubt with the just-announced bankruptcy of its parent, Lehman Brothers [see item below.]. According to figures compiled by National Mortgage News and the Quarterly Data Report, Aurora is the nation's largest servicer of alternative-A loans, with receivables of $83.9 billion at midyear. Merrill's subprime servicing division, Home Loan Services of Pittsburgh, has $39.8 billion in A-minus to D receivables. Countrywide Home Loans, which Merrill took control of July 1, serviced $100.7 billion in subprime at June 30. BoA's chief executive Ken Lewis has made it clear that he does not like the subprime business at all, which means the bank in time will likely move to sell its exposure in this crumbling sector or let the portfolios run off. Merrill also owns Wilshire Credit Corp., Beaverton, Ore., which has an estimated $14 billion in subprime receivables. Merrill, since buying the company about four years ago, has declined to provide any financial information about Wilshire.

Re: The Ultimate Wall Street Nightmare
 

Re: The Ultimate Wall Street Nightmare
 

Re: The Ultimate Wall Street Nightmare
 

Maybe PP is right ... now bank failures.

This is now eerily looking like the beginning of the Great Depression ...

Re: The Ultimate Wall Street Nightmare
 

My clear choice. However, whoever gets in will have a huge mess on their hands.

Here is the question you have to ask....economically speaking...who would you rather have making deals and passing regs trying to get us out of the mess....Osama who has never written a law (basically just showed up for roll call every day and hit a yes/no switch), or McCain a seasoned senator who has actually worked in government since the Regan.

VP, Palin---a person who has been baptized in the name. And is understanding to our viewpoint. And she actually governed a state.
Biden, OMG---could he actually be just heartbeat away from Prez....?

Re: The Ultimate Wall Street Nightmare
 

Obama has authored legislation, U3. Myth. Unfactual.

Some:

That's what we need a seasoned gov't sychophant like McCain in the pocket of these corporate thieves.

Re: The Ultimate Wall Street Nightmare
 

OK, someone go find PP and take a defibraltor....

even I am on the verge of panic..... not quite but almost.


we have had bank failures before..... over a thousand in 1989.

things are certainly not real good right now that is for sure.

Re: The Ultimate Wall Street Nightmare
 

It's only going to get worse. But don't tell that to CC1. :whistle

Re: The Ultimate Wall Street Nightmare
 

least anyone should think I might now agree with DanA, on politics, let me state as clearly as possible.

the LAST thing we need during this time is a committed socialist at the helm. voting for Obama is a vote to drive a stake thru the heart of the US Economy.

Re: The Ultimate Wall Street Nightmare
 

And No DanA, Obama hasnt done anything of serious note as a US Senator.

Re: The Ultimate Wall Street Nightmare
 

I'm not worried about my bank account as it's not too much to lose, however, I'm sure this will affect my 401(k) and I can't get to it anyway.

Re: The Ultimate Wall Street Nightmare
 

Sounds like he will be FDR of this generation ... Ferd.

Be it as it may.

Re: The Ultimate Wall Street Nightmare
 

God help us. we are still paying for FDRs malfeasance.


A little perspective might be in order.

1989 1000 banks failed
1987 the stock market fell 508 points (23% of its total value)


Today’s stock market move was 504 points but only 2% of the total value.

Re: The Ultimate Wall Street Nightmare
 

In isolation comparing things like that would seem like no biggie ...

Taking in the other economic factors ... might paint a grimmer picture.

It's the sum of it all that will make or break this economy.

Re: The Ultimate Wall Street Nightmare
 

That is true, but look at the possible exposure to the FDIC and there is no way they can stand behind all the deposits--if the domino effect takes place.

That is why I posted this...I read this kind of stuff everyday. I hope that a few people can bind together in prayer for our country and for this coming election. We are need of a miracle. Wilkerson wrote a few years ago that we could see housing crash up to 70% of its value. Some areas of the country are at 30% and continuing to fall.

There has been negative HPA before---but never on a national level. Since records have been kept the nation has enjoyed home price appreciation. Remember the addage--as goes housing so goes the economy. Economists I have read write that there has never been a recovery without housing. The housing market must turn around--many people think that the economy is in a minor bump, judging by GDP and the meager groweth, but we could be on the opening wave of a major downturn and many quarters of negative groweth. The worst housing market in modern histroy=the worst economy in history, fed and Paulson cannot keep it propped up indefinately.

We need to watch the FOMB action this week and the target funds rate. If they lower to 1.75% the real rate is already at a -negative. Another .25 in the negative will definately mean higher fuel, groceries, clothes etc. Another squeeze on the pocketbooks.

Re: The Ultimate Wall Street Nightmare
 

clearly there is issues. big issues. but disaster that some are suggesting this is.... Obama likening it to the great depression is at the very least outrageous.

unemployment
then:50%
now 6%

Home foreclosures:
then 50%
now 2.75%

Business profets:
then: for 4 years no one made money
now: more than 50% of businesses posted profets in the last quarter.


There are serious issues that need addressing (like why Fannie May and Freddie Mac are getting a free pass)... but relitive stability in this economy remains at least visable.

Re: The Ultimate Wall Street Nightmare
 

Hey boys, you're gonna think I am looney, but my opinion about all of this was based on a "feeling." I know that sounds corny, but I really have felt in my spirit man that something economically catastrophic was about to occur.

Plus, before my 92 year old grandma died last year, she warned all of us that this was coming. She said the overall spiritual atmosphere was the same as that of the Great Depression.

And now back to your regularly scheduled mocking.:snapout

Re: The Ultimate Wall Street Nightmare
 

Thanks for clearing that up Daniel. It's one of the favortie party lines making the rounds right now, depsite the fact it's a proven falsehood.

People are entitled to their own opinions, just not their own facts.

Re: The Ultimate Wall Street Nightmare
 

i aint mocking you.... now....


im not with you.... yet... and I am still looking to balance the bad news with context.

Lets all take a deep breath and watch Kudlow and Company in 4 minutes to get the skinny, shall we?

PS, I certainly aint gonna challenge your dear grandmother on the spiritual status of the country, then and now. there very well might be a connection.

Re: The Ultimate Wall Street Nightmare
 

I think the shorthand is "Obama hasnt done anything as a senator" really means he has not accomplised anything of real substance.

He has 1 bill that he makes a serious claim about, that bill was little more than Senate business. it was supported overwhelmingly by both sides.

Obama has not been tested as a senator in any real meaningful way.

Re: The Ultimate Wall Street Nightmare
 

Bro, it's all good.

Grandma was speaking about the overall atmosphere. The "feel" of the time period. It really, really bothered her, and she was in her right mind until the very day she died. She had never talked like that before last year.

She begged us to "hord." To lay up some things. To prepare for it.

Now, I am no survivalist guy, but I'm not stupid either.

It's bad right now. Really bad.

It's one thing to talk about fuel prices, another thing entirely to talk about massive bank failures. It's not so much the number of banks as it is the SIZE of the banks.

And btw, have we even considered what a revived Soviet empire is going to do to the global economy?

Re: The Ultimate Wall Street Nightmare
 

Republican Senator Dick Lugar of Indiana would disagree with you, but your welcome to your definition of "meaningful" Ferd. I like ya anyway. :snapout

Re: The Ultimate Wall Street Nightmare
 

Come on...Obama doesn't even have a plan much less a better one than Bush!

Re: The Ultimate Wall Street Nightmare
 

Has he been to "battle" in the senate? has he gotten something done when half his own party wasnt very happy about what he was doing?

Not by a long shot.

Has he written "a bill" yes. has anything he has done (Including that non-proliferation bill) had a real impact on American lives?

Not by a long shot.

Hey, here you go, the guy is a reformer right? He also came up in Chicago politics. Did he stand up to the corruption in Chi-town? even a teeny tiny little bit?

LOL! yea right.


Obama is as untested at every level that a guy can be when it comes to making real, hard, decisions.

hows that for a definition?


Back to the economy. Im in a panic, Larry Kudlow has been preimpted. ouch.

Re: The Ultimate Wall Street Nightmare
 

Your numbers are skewed ... we'd have to look at the numbers prior to the Great Depression ... to compare apples with apples.

Re: The Ultimate Wall Street Nightmare
 

I understand also unemployment was 25% during the Depression.

Re: The Ultimate Wall Street Nightmare
 

none of the above!

Re: The Ultimate Wall Street Nightmare
 

These are some very serious times.

We could pull out of them in pretty short order.

Sadly, I fear that government intervention to "fix" the problem will prolong the agony, just as in the Great Depression.

This was brought to you by the unwise lending mandates of President Carter, and the unwise de-regulation of the exchanges by President Bush, and the unwise delay of the inevitable by the Federal Reserve, which kept interest rates low to keep inflating the bubble.

Stupid policies. Stupid lending. Stupid borrowing. Unbridled executive greed. Corporate insider appointees. Relaxed regulation. Apathetic public.

Perfect Economic Storm.


What needs to happen now is to find out who benefited from this. A team of investigators needs to flood Wall Street and find the people responsible. They need to be frog-marched out of their ivory towers and secluded mountain estates in leg-irons. This was a planned and controlled event. If it wasn't, our currency would have taken a parallel nosedive.

The answer is to cut government back to a skeleton crew, and cease direct government intervention in the economy and the currency. Instead we're probably going to see proposals to nationalize or socialize the economy. Subsistence farming never looked so good.

Re: The Ultimate Wall Street Nightmare
 

I'm not sure where you stand on deregulation, but I've personally had enough of it. The problem was the goverment deregulated to the point that we got the sub-prime mortgage lending and adjustable rate mortgages.

I'm ready for government to regulate for a change and clean some of this mess up. That's not popular with conservatives but their deregulation has failed miserably.

Re: The Ultimate Wall Street Nightmare
 

I may be a conservative but I'm not an anarchist! Free markets require regulation, anti-trust, and monopoly laws.

The de-regulation of the banks and commodities firms by the Bush Administration are directly responsible for this mess. Putting Henry Paulson, former CEO of Goldman-Sachs (one of the two remaining large investment banks, what a coincidence! ) in as Treasury Secretary was like handing an axe to the fox guarding the chickens.

Re: The Ultimate Wall Street Nightmare
 

You and I agree completely. The deregulation of the Bush'ies allowed corporate greed to run rampant and now the piper is being paid and will be paid for the foreseeable future.

Re: The Ultimate Wall Street Nightmare
 

That is true, but look at the possible exposure to the FDIC and there is no way they can stand behind all the deposits--if the domino effect takes place.

Concerning housing, David Wilkerson wrote a few years ago that we could see housing crash up to 70% of its value. Some areas of the country are at a +30% and continuing to fall, averages -HPA is 25%. What is odd most people do not think their home has decreased in value. IT HAS. There are about 120 MSAs and all of them have declined. Whoever is reading this...your home has declined in value, only question is how much $$?

There has been regional negative HPA before---but never on a national level. Since records have been kept the nation has enjoyed home price appreciation. Remember the addage--as goes detroit so goes the economy, well now it is as goes housing so goes the economy. Economists I have read write that there has never been a recovery without a strong housing market. The housing market must turn around for recovery--many people think that the economy is in a minor bump, judging by GDP and the meager groweth, but we could be on the opening wave of a major downturn and many quarters of negative groweth. The worst housing market in modern histroy=the worst economy in history, Fed and Paulson cannot keep it propped up indefinately.

We need to watch the FOMB action this week and the target funds rate. If they lower to 1.75% the real rate is already at a -negative. Another -.25 will definately mean higher fuel, groceries, clothes etc. Another squeeze on the pocketbooks.


It is not about Obama and McCain. I personally think McCain is more suited to be an economic Pres. But he will still have a major recession or depression to deal with.

Re: The Ultimate Wall Street Nightmare
 

Actually the dereg trend started way back in the Carter admin. and picked up a lot of steam with Regan.

But that does not matter....the Pres Demo or Rep. is not "directly responsible" for this. You have to lay the blame on the Fed. they are the regulators!!! Go all the way back to Greenspan and the .com bubble that he did not allow us to go into recession over, the almost free easy money and loose credit markets. Home ownership of 70+%, when the actual taget rate, per JP Morgan Chase/and Freddie Mac economists should be no more than 65% and maybe less.

Re: The Ultimate Wall Street Nightmare
 

A new morning brings us the news that insurance giant AIG intends to declare bankruptcy. AIG is over 75 billion in debt.

Friends, this is grim.

Re: The Ultimate Wall Street Nightmare
 

And then WaMu and Wachoiva...........

Re: The Ultimate Wall Street Nightmare
 

Ruimor has it that there are some JP Morgan suits in WaMu offices. They alraeady purchaseed their warehouse line a few months ago and are funding loans on it out of the old WaMu TX office. But the balance sheet is not attractive--it will be a cheap purchase if they closes the deal.

Re: The Ultimate Wall Street Nightmare
 

Hmmm...my mother was born into the depression, and she has quite a different point of view. She says, (and I quote), "FDR saved the day by opening up jobs for poor people." Now, she's a good Republican (moreso than I am), but in her 75-year-old opinion, FDR was a good president for that reason alone.

I'm just pointing out that it may seem different to those who actually experienced an economy downfall, and know what it's like to have food rations and dirt floors.

If I thought Obama could actually solve the economy's ills, I might vote for him. But he really doesn't have any good plans, other than "alleviating" extra work during tax season by streamlining paperwork. (Oh, and his proposal discussed under "I want what's best for you" would also do the following: Allow the government to pull your financial information for your taxes directly from your bank accounts, AND it would put may tax preparers out of a job. Sure. Great for the economy, and great for my privacy.)

That's just one little section of his "plans" to help the economy. (But almost all his points are equally trivial and stupid.) Thanks, but no thanks. That would be like a president addressing the war by suggesting we send the soldiers more comfortable shoes. :crazy Obama is NO FDR.

Re: The Ultimate Wall Street Nightmare
 

I would likely vote for Obama if I believed he was sincere. I'm just not convinced.

Re: The Ultimate Wall Street Nightmare
 

The main problem I have with Obama's outlined "plan" for the economy is that he addresses smaller issues that make voters feel good in the short term, but in reality (even if he does intend to carry out everything he has listed), these proposals will NOT fix a broken economy. Sweeping changes are needed, and almost everything he proposes reeks of more governmental control, rather than arms-length assistance and solutions.