Effor.com

Just yesterday I mentioned the CNBC report about Ambac that caused a major market revesal a couple of weeks ago, and now it happens again today.  How many times are these people going to cry wolf?  And (perhaps a better question) when do people stop believing what CNBC says?

Perhaps the strangest part of today’s story is who they are counting on for the bailout….  Citigroup!  But the market was way down this morning partly because of a report that Citigroup needs a lot more money to stay afloat.  The report said:

Sameer Al Ansari, Chief Executive of Dubai International Capital told delegates at a private equity conference thatit will take more than the combined efforts of the Abu Dhabi Investment Authority, the Kuwait Investment Authority and Saudi investor Prince Alwaleed bin Talal to save the bank.

“It’s going to take more than that to rescue Citi,” Ansari said. He added that more write downs are expected and that Gulf investors would be required to bolster Citi.

Pardon my ignorance, but just how exactly is a financially troubled bank supposed to bail out anyone?  The answer of course is by borrowing money via the Fed’s Term Auction Facility (TAF) which doesn’t need to be disclosed. 

My take is that the longer we prop up this house of cards, the longer it will take to put it behind us - and the harder the crash when they do eventually fail.  We should let these businesses (and investors and borrowers) go under now.  It’ll be a terrible quarter or two, but it’ll be done with.  The way this is going, these financial problems are going to drag on for years,

gk

Paul Krugman has a decent opinion piece in the NY Times today.  If you’ve read any of his stuff before, you know that he thinks government has all the answers - and that government can fix whatever is wrong with (pick your topic!).

Todays’ article basically blames everything economic on “A Crisis of Faith”.  He says that investors have lost faith in the security of the underlying investments, and their lack of faith is causing the Port Authority’s borrowing cost to go up.  Technically that’s true, but he doesn’t go deep enough into “why” investors don’t have faith.

It’s not that they distrust the Port Authority ability to raise taxes to pay them back - it’s that the insurers are technically bankrupt - IF the Port Authority doesn’t pay the money back, there’s no second layer of protection.  It’s the same as if you were thinking about putting your money into a bank that has a great reputation but isn’t FDIC insured.  If you can get the same return on your investment from an FDIC insured bank - why would you bother with the non-insured bank?

When Ambac and MBIA are technically bankrupt, why bother with anything they insure?  There are safer places to put your money.  Not necessarily big FDIC insured banks - sure you’ll get your money back if the bank fails, but it may take quite a while.  Local banks that didn’t resell the mortgages they wrote should be fine - they were conservative in writing the loans, so they won’t be hit as hard when a lot of people default over the next couple of years - but I think gold and/or silver will have better returns than most other common investment over the next 1 to 2 years.  This financial crisis is just getting started.

gk