Great Depression Online Archive Issue:

Ancient Yankee Secrets

Great Depression Online
Long Beach, CA
September 09, 2008

Inside This Issue You Will Discover…

*** Another Bank Goes Belly Up
*** Heads We Win, Tails You Lose
*** Ancient Yankee Secrets
*** And More

Another Bank Goes Belly Up

We got word last Friday that Silver State Bank will no longer be with us.

“Regulators on Friday shut down Silver State Bank,” reported AP, “saying the Nevada bank failed because of losses on soured loans, mainly in commercial real estate and land development.

“It was the 11th failure this year of a federally insured bank.”

In all of 2007, only three banks failed.  We’re already up to 11 and we still have about four months to go…

“Of the 8,500 or so FDIC-insured banks in the country, 117 were considered to be in trouble in the second quarter -- the highest level in about five years and up from 90 in the first quarter.”

And while FDIC doesn’t disclose the names of troubled banks – as it would ensure their demise – our friends over at Elliot Wave International have released a free report that details the “Top 100 Safest U.S. Banks.”  Many of our readers have already picked up a copy and have given it excellent reviews.  Check it out here: "Top 100 Safest U.S. Banks".

Heads We Win, Tails You Lose

But the real news of the weekend broke Sunday.  After rumors starting early Saturday, the official announcement came Sunday morning…

“The U.S. government announced on Sunday that it was taking control of troubled mortgage finance giants Fannie Mae and Freddie Mac, in its latest effort to shore up the slumping housing market,” reported Reuters.

What this all means, we don’t know.  But as part of the deal Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron are now the former CEO’s…not to worry, however, because Mudd will take his place in the unemployment line with a $9.3 million severance while Syron will pocket at least $14.1 million.  Not a bad way to be fired, if you can provoke it.

Trying to make sense of what has come to pass, Robert Brusca of Fact and Opinions Economics, speculates…

“It’s still hard to know the cost for the government.  Fannie and Freddie are always the accidents that are waiting to happen.  Basically from the very start, these were operations that had an end game that wasn’t viable. There was never a graceful way to get out.

“It is a stabilizing action, in their formal incarnation, they were unstable.  Fannie and Freddie are corporate finance nightmares.

“This is a blunder by the government; they were set up to offer cheap mortgages for people which is a policy decisions.”

And while this move could stabilize the credit market, it’s the taxpayer that’s ultimately now responsible for ensuring their solvency.

In a candid moment on CNN’s “Late Edition,” Senator Jon Kyl acknowledged the burden.  “We’ve got to reform the situation so taxpayers are no longer on the hook.  With Fannie and Freddie investors it’s basically heads we win and tails you lose and you are the taxpayers.”

Ancient Yankee Secrets

Of course with government bailouts the taxpayer is always on the hook.  To truly reform the situation would mean no more government bailouts.

But who – say a dirty old curmudgeon – would propose such an absurd idea?  For everyone loves a good old fashioned bailout…especially Wall Street, where the DOW closed up 290.43 points for the day.

Yet we believe the harm that’s been done to the economy won’t just go away because of the massive bailout.  In fact, the combination of an over indebted financial system with dwindling asset values typically makes for a queasy economic slog…

For example, in 1992, following Japan’s protracted credit induced asset bubble, President George H.W. Bush, while visiting in Japan, leaned over to Prime Minister Kiichi Miyazawa, perhaps to whisper some ancient Yankee secrets for orchestrating a financial bailout.  Then, in an ominous and profound symbol of things to come, Bush Sr. barfed on his lap.

Japan’s economy has yet to recover.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Our friends at Elliot Wave International have been several steps ahead of the credit crisis from day one.  And just yesterday we got an email notifying us that they’ve just published a free report they’re calling “The Most Important Investment Report You’ll Read in 2008.”  Find out all about it here: "The Most Important Investment Report You'll Read in 2008".

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