They Comment on the Tsunami

The New York Pravda's singing the line that the little people have no need to worry about Wall Street, because, you know, it's all good.

Unwisely, they allowed comments to the positive thinking on their website. Not surprising, there is something of a chorus of agreement at first. But there's also quips like this from Scott Baker:

...Yes, ordinary investors should be worried - not because the global growth story isn’t intact, or because real companies have real earnings, but because the $%^&@@#$ hedge funds leveraged themselves 8-10 times over their assets and now have to dump everything in sight - especially the good stuff - to meet massive redemptions. Oh, rich investors are not immune from panic selling either, nor are lending institutions like banks etc. The hedge fund industry is ruining the market for the rest of the world, which rightly looks at fundamentals and the economy, and they need to be regulated. No one should be allowed to take on more than 1.5 times margin. I don’t give a damn how many hedge funds blow up - let their managers live on the street in cardboard boxes. Their returns after huge fees were never worth the risks anyway - as is now apparent - but they are destroying the markets and even economies for the rest of the world and need to be stopped or put out of business, hopefully without the current carnage...

As much as I'd like to blame it all on hedge funds and my ex-girlfiend's husband, it's not just that. Look at how the "bluest of the blue chip" mortgage lender constructs its loans:

...Traditionally, banks made mortgages by lending the money that they took in as deposits, and they held the loans until they were repaid. Countrywide and most rivals largely do not operate that way. They borrow money from banks and investors on Wall Street, and when they close a mortgage they quickly sell, repeating the cycle over and over. Until recently, the relationship has been extremely profitable for both sides.

But as defaults on mortgages made in recent years have surged, the system has started to break down.

On Wednesday, Countrywide sought to raise money by issuing short-term debt known as commercial paper, something it does regularly. But there was no demand on Wall Street, according to two people briefed on the situation. Less than two weeks ago, the company said it had access to $50 billion in commercial paper, which has a term of nine months or less. In the last few days, the market for short-term debt has seized up, particularly for loans that are tied to mortgages, because investors say they can no longer value them...

Ponzi schemes tend to work that way.

My comment to Pravda?

Once upon a time before the invasion of the pod people markets were, you know, regulated.

Somewhere along the line some nitwit suggested government needed to be shrunk to the size where you could drown it in a bathtub. Strangely enough, that did not apply to the military industrial complex, but that's a rant for another day. When you remove all the safeguards against predators from the economy, the wolves move right in with the sheep, usually with promises of high yield at minimal risk.

Throw the crooks out of Washington, and strangely enough, things will stabilize on Wall Street as well. If FDR were alive, he'd tell you that today; and even though he's not, his record and his words and his spirit still do.