Economic bulimia.Â Binging and purging.Â That’s exactly what our country’s financial markets are exÂperiencing.Â Over the course of ONE WEEK, we’ve seen the following happen:
Lehman Brothers declares bankruptcy and Merrill Lynch narrowly dodges bankruptcy by being taken over by Bank of America, leaving only 2 of the original 5 major investment banks standing.
Goldman Sachs and Morgan Stanley (the 2 remaining investment banks) saw their stocks get trashed as our investment community threw the baby out with the bathwater during the mass exodus from failÂing financials.Â As such, Morgan Stanley is now entertaining the idea of a partnership with WachoÂvia…who now may also need a lifeline form the government.
And, now it appears that Morgan Stanley and Goldman Sachs are being taken over by Uncle Sam as well.Â There goes the entire investment banking community.
In a moment of exceptional restraint and poise, the Federal Reserve opted not to change benchmark interest rates on Tuesday (because, even if they did, little to noting would have changed).
Insurance giant AIG stared failure in the face, only to be bailed out by a taxpayer-backed bridge loan to the tune of 85 billion.
The Treasury agreed to buy twice as many Mortgage-Backed Securities than previously stated (translating to artificially lowered rates in the short-term for you, the mortgage borrower).Â They also have offered a broad-base bailout plan for money market funds, guaranteed up to 50 billion (so far) and are offering a housing market bailout whose price-tag has yet to be determined.
In 48 hours time, gold prices both rose then fell by the largest amounts seen in 28 years.
Short sellers (day-traders who tend to exacerbate stock price plunges) have seen increased regulation and forced transparency.Â The SEC has gone so far as to ban short-selling on many financial stocks.
A Resolution Trust Corp.-style of entity is being formulated, providing somewhere for the government to dump all their newly acquired terrible assets.
I could go on.Â For a while.Â But the fact is, we are going through a historic period in our economic evolution.Â Absolutely unprecedented stuff.Â Banks are failing and consolidating, the government is back-stopping everyone who asks politely enough, and free-market capitalism is withering in the wake of this greed driven calamity.Â There is no methodical thinking and hard solutions provided.Â No, a go in and cut out the tumor and hope no arteries are hit “operation”.
Our day of reckoning is upon us, kids.Â Ironically, 2 months before a presidential election.Â We can look forward to incrementally lower interest rates for mortgages and a very beefy set of tax hikes in the next presidential term, regardless of who we elect.Â