The banks pumped so much money into the housing market (with not so much as a whimper from the government) that it blew up in their faces. The depressed housing market exposed questionable lending practices at every level of the industry, from the solo mortgage broker to the largest of investment banks and their partners in crime, the rating agencies.
Thousands of mortgage brokers are now looking for work, as are the Chief Executive Officers of Citigroup Inc. (NYSE: C)'s Chuck Prince, and Merrill Lynch & Co,, Inc. (NYSE: MER)'s Stanley O'neal. The difference between the two groups, however, is the multi-million dollar severance packages. The ex-CEO's may have seen their reputations damaged but not their bank accounts. I wonder where they bank - offshore perhaps?
The sad housing market is old news by now, although it keeps getting sadder. The real issue now is, how do we put trust back into a banking system that has proven itself so flawed? We have been seeing almost all of the banks write down the value of their holdings on a daily basis. Now what? The banks essentially were crushed by a Frankenstein monster of their own creation. Any stock portfolio that includes financial stocks has been poisoned for the next year at least.
But the banks are a much bigger domino that has been teetering back and forth for a month. If that domino falls, everything could fall. As much as the Federal Reserve Board is prone to guard against inflation, they are even more watchful of the overall banking system (perhaps too late) and will not let that domino fall. However, the energy required to keep it propped up is likely to exhaust whatever short term strength the dollar has left in it.
Recession or not this will take several years to unwind and the next group of finger pointers to inherit the White House will have a mighty big target to point at.
To find potential opportunities and verify my track record, read Chasing Value or Serious Money.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.
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Reader Comments (Page 1 of 1)
11-19-2007 @ 8:58PM
william lindblad said...
Sheldon:
Makes two of us.
I don't know either. To be considered is the overall state - it appears that the money pot is anything but domestic in origin. Considering that that this was a gold rush type of scenario and we have the Swiss, Germans,and English involved where does it end? The average train of thought seems to be the "Fed will come to the rescue" - straight out of a hollywood movie when the calvary arrives at the last minute. Unforturnately, this is the real world. Mad money Jim seems to think that Bernanke has a magic wand and waving it will make this all go away. It won't. This has all of the earmarks of a real mess with ramifications that I don't wish to think about.
It is a world economy. It is NOT a stable world.
11-20-2007 @ 6:39PM
Athelstan said...
What is particularly scary and pathetic is the fact that the Fed appears not to be controlling events, but responding to economic conditions already imposed upon America throughout the world. Where was the Fed while our banking system endangered the world's econmies? Where were the controls? Were there any controls?
Public cynicism is mounting and there are signs of panic, revenge, and "let's punish anyone".
Perhaps, to restore some level of public esteem, it is necessary to abolish the Fed system and go back to what we had before 1913. Bankers and banks were made to cooperate and were held responsible for their actions by the Treasury or the President. Teddy Roosevelt and the panic of 1907 come to mind.
Now, we have a tragi-comic scene where bankers, economists, and the Fed itself throw up their hands and say "what does this stuff cost?" or "where are the hidden surprises (aka the shoes about to drop) in subprime-related instruments"? This is pathetic.
It demonstrates the total irrelevancy of the Fed and how out of touch the Bush administration is with the world around it. We are more isolated today than we ever were in the 1920s.
Bush needs to get the world's leading bankers together to restore confidence by creating the liquidity directly to a central fund.
Close the Federal Reserve and nationalize the banks. The time has come to prosecute the pack of them for gross negligence, incompetence, and participating in a massive fraud upon American taxpayers.