The housing bubble was one for the ages. We’ve all heard stories of one kind or another… There was the glass cutter who earned $5,000 per month, pretax. WaMu gave him a $615,000 home loan with payments of $3,600 per month.
This is what it looks like when the shit hits the proverbial fan. In this case, the shit being one subprime meltdown, eight years of a monkey in the White House and and $1 trillion in chaotic government hand outs. The fan being everything just about everything else. Yesterday, the talismanic Dow plunged 514.
“The boom years are over,” says Bill Bonner. Of course, this is what Bill has been saying all along in The Daily Reckoning. Now that’s the day of financial reckoning has come to pass, however, Bill is feeling a sense of dread. That’s because, as bad as things are right now, they look like they’re about to get worse…
The ugly truth can sometimes yield beautiful profits, says Irwin Greenstein, writing for Contrarian Profits. But the truth exposed by the US government’s recent round of Wall Street bailouts is that the US actually lost the Cold War in terms of its free-market philosophy. Investors should adjust their portfolios accordingly…
We know bad things happen to common shareholders of companies blighted by greedy management. Companies like Enron, Tyco and Worldcom. Eric Fry at Rude Awakening says you can add the names Lehman Brothers (NYSE:LEH) and Merrill Lynch (NYSE:MER) to this list.”Greed and capital preservation don’t seem to mix very well,” says Eric. And the bonus system on Wall Street ensures that greed is the numero uno driving force driving the system…
The carnage on Wall Street can be put down to two toxins: leverage and greed. This was the view of Bank of America (NYSE:BAC) chief Ken Lewis, speaking on CNBC yesterday.
In other words, says Eric Fry at Rude Awakening, Wall Street could have avoided the whole mess by applying some restraint and foresight. It didn’t.
The lesson to be learned from Wall Street’s hubris, says Eric, is that although stocks can be ruined by over zealous management, commodities cannot. Stupidity is not a risk factor in the commodities sector. And this makes them attractive despite their recent selloff.
– Yesterday’s drop in stocks erased more than $600 billion in value after the S&P 500 benchmark saw its worst day since 9/11. Financial stocks were worst hit. Financials in the S&P 500 declined the most since 1989. The biggest losses were in insurance giant AIG (NYSE:AIG), which plunged 61% and America’s biggest savings and loan bank Washington Mutual (NYSE:WM), which dropped 27%.
– The crisis on Wall Street could be felt all around the world this morning as global stock markets tumbled. Japan and South Korea, whose markets were closed for a holiday yesterday, saw the worst of the selling.
– Lehman Brothers is doomed opines Bloomberg’s Michael Lewis this morning. Ironically, Lewis says Lehman’s (NYSE:LEH) fate is sealed because, following the government’s bailout of rival Bear Stearns, those who do business with Lehman don’t care too much if it stands or falls. The belief is the government will step in to pick up the pieces should Lehman fall apart.
The Bear Stearns bailout was supposed to prevent the crisis from rippling through Wall Street. Obviously it hasn’t done that. It’s merely thrown the crisis into slow motion and prolonged the agony.
“The mortgage markets of America are on the verge of nationalization,” says Chris Mayer in the Rude Awakening.
The bailout of Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) means two out of three of the nation’s GSEs are backed by the taxpayer. However, they remain publicly traded outfits beholden to their shareholders.
The question, then, is: What happens if Fannie and Freddie, enjoying the backing of the government, venture into riskier areas of consumer finance to boost earnings. Are we looking at the spread of nationalization beyond the mortgage market?
– If the stars of yesterday’s going were toxic mortgage twins Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), Lehman Brothers (NYSE:LEH) put in a damned good supporting role. Traders pummeled the bank’s stock after a proposed investment deal with a Korean bank fell through. Lehman’s shares dropped 45%. Lehman wasn’t the only Wall Street bank to fare badly. Financial stocks overall tumbled more than 6%.
– This morning, the bad news continued for Lehman. It told Wall Street it will post a second straight quarterly loss but promised to slim down in the future, putting an end to a brief pre-market rally in its shares.
