We shall leave this world as foolish and as wicked as we found it when we arrived.

- Voltaire

Collapse Averted?

In the face what is tantamount to a bailout of the largest money center bank in the United States by a foreign entity, the stock market responded with a significant run-up. Apparently investors are being assured that the crumbling dollar and a financial system that has weakened itself with huge losses on poor lending practices will not be allowed to fully correct, due to government, foreign and domestic, intervention.

Citi sold itself cheap because things are that bad. The financial institutions have placed themselves on the brink of insolvency and must be bailed out on the cheap. Countrywide is being bailed out by the Federal Home Loan Bank--the Federal Home Loan Bank now accounts for more than 25% of Countrywide's funding. And...it is ugly.

We here at ClearPolitics have known things are bad for some time, but we did not understand how bad. It may sound absurd, but a major lender could file bankruptcy in the not too distant future which will cause a major loss of confidence not only domestically but internationally. If this were to occur we would no longer be discussing recession but have to mention the ugly "d" word--depression.

How bad is it? We have not seen the worst but let the market clean itself up and everything will work out. All the governments are doing is postponing the reckoning, which must happen.

posted at 15:38:14 on 11/27/07 by clearpolitics - Category: Economics - [Permalink]

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