Thursday, September 18, 2008

No atheists in foxholes? 
With the proviso that I'm no expert in financial markets (is anyone, really?), I have to say that one of my worries, more than the AIG fallout, is Lehman's bankruptcy.

Because a court will need to determine what their assets are worth, the credit derivatives they hold will have to be assigned actual monetary values, and those values will almost certainly be far lower than the value ascribed to them in Lehman's books.

Problem is that many financial services firms are carrying those same securities on their books at similarly inflated valuations. Hence, once the values are set by the court, all those other firms may suddenly find their assets have shrunk by many billions of dollars. Whoosh ... watch money evaporate! Whoosh - watch firms fall like dominoes as their creditors see just how undercapitalized they actually are.

Another worry - in taking over Fannie and Freddie, the US Treasury overnight added $5 TRILLION dollars to the national debt, effectively doubling the US debt load. That's $5 trillion in what was once private debt that is now public debt. The Treasury can't just print that much money - it will have to be raised by taxation, or by additional borrowing, and the credit markets are not a bottomless well. We're in some seriously deep shit here.

There's an old saying that there are no atheists in foxholes. Well, apparently there are no conservatives in financial meltdowns, either. Inside every free-trade conservative is a socialist waiting to be set free. This week, a lot of them made it into the open.

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