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Full Victory... Or Nothing


Feels like financial equivalent of the Normandy Invasion.


I guess what's happening now is the financial equivalent of the Normandy Invasion that was the beginning of the end of Nazi aggression in World War II. Today's villain is a complex situation that gets worse as it gets worse. The more people that lose their homes the worse the economy becomes and the worse the economy becomes… the more people lose their homes.

According to the International Monetary Fund the eventual tally to banks from the housing/CDO collapse will eclipse $1.4 trillion. The good news is half has already been written off and accounted for; the bad news is the actual total could be more. (It's funny, at the beginning of the year I though IMF projections were excessive, now they seem conservative.) Although, there is a chance the tally could be lower, depending on the success of global intervention.

"Full victory… nothing else"
--General Eisenhower to the troops on the eve of D-Day

Everyone is making speeches including Jean-Claude Trichet, Gordon Brown, Ben Bernanke, Hank Paulson and George Bush. Although the Dow staged a strong rally after the President spoke Friday (a coincidence I'm sure), the fact is this still feels like a leaderless fight. Hank Paulson is poised to be the commander-in-chief of this global effort -- a role that will take academic, diplomatic and street smarts. Judging from the President's comments on Saturday morning there is obviously friction within the ranks as I'm sure there are as many ideas on how to solve problems as there are participants. But he said something about some countries benefiting at the expense of others and I have to wonder where that came from.

  • The G-7 is swinging into action.
  • The G-20 is swinging into action.
  • The Eurozone nations are going to work after they decide who's in charge.
  • Just in case, Germany is working on a separate bailout solution that calls for $135 billion to help banks.
  • The ECB will be amending lending standards in order to get capital to businesses.
  • Eurozone bank deposits are guaranteed now until the end of 2009.
  • UK banks will step up to the plate on Monday and take majority stakes in HBOS and Royal Bank of Scotland (RBS) and large stakes in two others… the total UK bank rescue bill is now estimated will cost $852.0 billion.
  • IMF says 180 nations must work on unified effort.
  • Fannie (FNM) and Freddy (FRE) are going to start purchasing $40 billion ($20 each) of under performing mortgages.
  • All eyes will continue to be on Morgan Stanley (MS) and whether it can still get that investment from Mitsubishi UFC at the same terms.

Big Government

I think it goes without saying Main Street and Wall Street both are worried about a few things with respect to the government:

  • Is it doing too much?
  • Is it doing too little?
  • The moves seem uncoordinated and off the cuff.
  • The moves will prop bad banks and make the problem worse.
  • The moves aren't focused on helping regular people (some do the math and see all the roads in the country being fixed).

I think there has to be some pain and these moves are already having unintended consequences. For instance lifting FDIC coverage to $250,000 has helped many people rationalize selling stocks at 5-year lows to sock the money into banks. These massive waves of mutual fund selling are a key component in those giant last-hour selloffs (I think the net for the Dow over the last ten sessions is a loss of 1300 points in the last hour of trading). We can't save every bank.

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No positions in stocks mentioned.
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