First of all, you must realize that the Bush stock market is a giant crap shoot and much of it is unregulated ~ especially the unseen market of Derivatives. As I predicted last year, the sub prime mortgage market collapsed, which is now being followed by a giant credit crisis but the final nail in the coffin of the American financial system will be the collapse of the Derivative market ~ the mother of all unregulated debt structures.
Politically, Obama must now clearly identify the Bush/McCain Republicans as the party that economically wrecked America and led us into this deepening recession.
George W Bush has failed at every Business he has been associated with but he's always had his father to bail him out to avoid failure ~ but this time his dad and even Henry Paulson can't keep Bush from facing the failure of his economic policies at the helm of the American economy. Policies which John McCain has heartily endorsed.
Martin Weiss, Money and Markets has been right all along on this rapidly developing financial crisis and especially on the possible collapse of Derivatives ~ which he calls "The Ultimate Wall Street Nightmare"
Allen L Roland http://blogs.salon.com/0002255/2008/09/16.html
Defaults on Derivatives
Martin Weiss
http://www.moneyandmarkets.com/issues.aspx?The-Ultimate-Wall-Street-Nightmare-2234
Excerpt:
" 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. "
Here's the hard reality according to Weiss whose been dead on for the past two years ~ and I completely agree with his analysis.
The Dow is still not far from its all-time peaks, with a lot further to fall. Our forecast is unchanged: 7,200 on the Dow.
The recession is still in its early stages. Expect outright contractions in GDP in the coming quarters, and despite a lot of talk and some action, don't count on the government to turn it around any time soon.
America's oversized debt pyramid has just begun to wind down. It could take several years to clean up the mess.
If you havn't downsized yet ~ it's too late.
