Who pays for the blowups?

As you can see the market eventually has come to terms with reality. I had been bearish about the market since September of 2006. Well, lot of people knew this was coming. And the bank executives also would have probably known about it. But who wants to pull the trigger on oneself? Who wants to kill the goose laying golden eggs? Even if you know this goose is going to die soon, isn't it worth to get as much possible till she is alive! That's what I guess everybody thought and kept playing on.

But somebody is going to pay for this for all this? Who else other than the American tax payer! The poor middle class guy who has no time to know nor cares, the guy who except owning IRAs and 401ks knows nothing about what is going on with the big money. I have to admit I am one of them. And if not we then it would have to be taken from our children. To make things look better the emergency tax relief (few hundred dollars) is soon going to be in the mail. And the people who created this mess, soon are going to walk free with millions for them and their heirs. Don't you see all the bank executives who have stepped down, their banks written down billions of dollars, will be enjoying millions in severence packages, early retirements and the like. Will they be prosecuted? Absolutely not. What can those poor guys do? They were just playing by the rules and the nasty market turned on them right?

So what do you think looking at the financial crisis of banks today? Well what the heck those guys were doing all these years? Printing loans rather than money! The Fed was more than happy to lend to them. And they were more than happy to entice poor buyers into terms they felt were sent by God to them. In those days everybody was happy. Home prices were bid up backing up the costly terms banks were underwriting the loans for. But then the banks forgot their own rules - that things don't go for ever. The executives thought that with tiered risk instruments, they can make only a few people burn keeping the rest safe. But that probably only made it last a bit longer and that's about it. The basic rule is even if you create a flawless truss structure to spread stress (risk in financial terms) if the weight of the whole structure grows too much the foundation itself gives way. And then it does not matter what kind of truss you built and how good it it. The whole thing has to come down. That's what you see happening now.

The Fed and the US Treasury are trying to solve the problem in a short term way. I strongly feel that this is creating a longer term problem that is going to make things worse in the future. At every turn the Fed is taking bold steps thinking that it knows and can control everything. But what was Bernanke doing some months ago? Telling everybody that he did not see the subprime mess hitting other parts of the economy. That all their indicators told them that there will only be a mild slowdown. And as you can see things have got sour on a dialy basis. So can the Fed be believed in what it is doing right now? I have my serious doubts.

Look what happened to Bear Sterns. An 85 year our investment mega house came down in days. The company that traded at 60+ bucks gets sold at a paltry couple of bucks a share!! Is this a joke or what?

For me this is like a hollywood movie. No less spicy. It is spectacular. Read "Black Swan" by Nassim Taleb and you will know. He rightly says that all bankers are suckers. And they really are.

I am not calling for dooms day here. We will eventually come out of this. Please forgive me for my harsh language. I am not frustrated. For me this is a vindication. I had expected this long time back. Finally we are facing it. I really had a very hard time understanding and justifying of what was going on. And now that we are back on earth it feels a bit at home.

Lets hope that good times are ahead and not so far!