Iceland banks offered high interest rates attracting lots of deposits from Britain and Europe. Those banks then made loans on high risk projects. Now the loans are not paying and depositor money is at risk. This is a microcosm of what is happening around the world. Now Russia is considering bailing out Iceland. Why?

It is a smart strategic move on Putin's part.  He needs to look like a caring capitalist, here is the chance to try that in a small country. And a strategic one if you have read many Tom Clancy novels.  Russia would dearly love to become a world financial center, how better to do that than by buying a country?  As Putin watches the US scrambling to stay afloat, he is seeing lots of opportunities, after all Russia has or should have banked a lot of money as oil prices increased, and will probably increase again.

Does 2 + 2 = 3? GM is trying to make a deal out of this. The article suggests that giving Cerberus the remaining GMAC stake in exchange for  Chrysler and its cash might be acceptable, probably so. Oddly the article only examines laying off workers. It does not mention what to me is more obvious, a combination of the two companies would consolidate UAW workers in Ford and GM, and that would have a lot of bargaining power with Congress. Michigan is a swing state and this is the chance to put it in the Dem column permanently. And that makes political if not auto sense.

Jerry Flint sees no advantage to such a deal. ANd from the auto standpoint, he is right.

BUt Jerry also allows there are reasons to keep GM going.  AS he says, if we are going to spend billions to keep an insurance company like AIG going, why not GM that helped win WW II?

Bertrand Russell observed that the big change in his life, from the late 1800s till after WW II, was the decline of his country, England, in influence and power in the world.  I suspect we are at that point for the US. Pat Buchanan  lays out what has to go in this column.

Is this so far from the study of accounting, not at all. During the Depression, the US was actually a net creditor nation, they owed us. That is hardly the case now, we owe the world.  As students living paycheck to paycheck realize, when you owe them, you have little say in who controls your life.

I am not sure how much wealth has already vanished in the market meltdow, Pat says $9 B but that numvber improved yesterday. At any rate, a substantial sum. I think this big meltdown is the vote of no confidence in the existing monetary system, and the US Dollar is surely the heart of that system as the world reserve currency. We are witnessing a move away from that system established at Bretton Woods.  Click to read about that agreement if you do not remember, your life wil undergo considerable change as that agreement  falls apart the next few years. New players will take center stage, and already have. Their imprint is already all over Africa. I posted the link to the extensive Fast Company story on China in Africa If you have not read it I suggest you do so, this is not the story of the Rotary club stamping out polio in the Phillipines through volunteer efforts. It is the story of an amoral government making deals with dictators to the disadvantage of Africans.

IN class I see students casually chatting as though none of this really affects their lives, trust me, Bob Dylan was not kidding, these times are changing and there will be little the next President can do about it.

I always love to hear newbies to trading tell me they are long term investors. I mentioned in class that BRKA was liable to hit $100,000 per share, it did hit $105K, with a $35K drop in one week, take a look. ENjoying long term investing are we?  Each bar represents one day  of trading. Note its fast run up and subsequent run down.

Victor Davis Hanson on what constitues a worthy bonus, great piece.

All this money hustling has resulted in just that. It is easy in retrospect to see why Buffet owns furniture and brick companies passed on MSFT, what was it that they made?  Hanson's analogy with the bridge built in Minneapolis is a good one, those folks constructed something worthwhile, what do we have from Franklin Raines?

Robert Novak has a short article on CDS. He refers to the 60 Minutes article on Crfedit Default Swaps.

So here it CBS on CDS.

And here is the ISDA Internation Swaps and Derivatives Association.

So what is all this about?  Please read the four page CBS story, yes it will be on your next exam if you are in one of my classes.  Basically a CDS is an insurance agreement that Party XYZ will not default on a loan. The problem is that this is not actually insurance. If it were it would be regulated.  Apparently no one issuing these things actually had a position in the underlying mortgages, a necessary compnent of real insurance. Rather like bettors at the race track, everyone was betting, no one owned a horse!  At the racetrack, there are posted odds and the track matches the bets off against one another. In the CDS world there is no such matching, these are open ended promises.

Now that I think about it, the same thing happened in the then unregulated world of commodity options back in the 1970s. A couple of upstarts named Goldstein Samuelson and Puts and Calls Inc offerfed commodity options, they of course did not bother to own any commodity contracts to be able to actually deliver what they promised. Just promises. The whole thing blew up as  a ponzi scheme when folks wanted the contracts to pay off. As best I can tell the same thing is happening now, the number of CDS is much greater than the number of loans. So when the loans default, it is impossible to pay off all the bets that they would default. And like Goldstein there is not regualtion.  Goldstein went to jail Will Richard Fuld Jr of Lehman Brothers who made hundreds of millions doing this go to jail or a fancy home ?

Asian countries cut rates after the coordinated rate cut of Europe and the US yesterday. Markets stopped falling, for the day at least.

Question, one US interest rate stands at 1/5% and it just got cut a half a point. So that means three cartridges so to speak remain in the FED gun. What happens if they run out of ammunition?  Bank of Japan did not cut rates as they are already at .5%

let's hope  everyone decides to stop selling at some point.

I expect Dow 7,000 before this is over this year. That would be a 50% collapse in the averages.

The loss in total US wealth is staggering and believe me this will affect your lives. This is not time to take on any additional debt. If you can work for a company like Home Depot that will pay half your tuition, do so, immediately.  If you have a job, do not quit.  Loans are going to become more traditional which is to say that you will have to put up an equity stake yourself.

Charles Schumer Dem Senator NY wants the US to purchase equity stakes in various banks s= L + OE. imilar to a plan adopted or proposed by Britain and like the one in the previous post on Iceland.

What is worrying me about all this?

1. We have lost trillions of dollars of wealth in a short period of time in the stock market world wide, but the debts of the world remain. The basic equation of A = L + OE. is way down on A and therefore OE but not on L, and that is the problem.

2. the US government now controls law enforcement through Homeland Security with virtual control over local law enforcement.

3. The collapse, actually engineered by government as it let FNM FRE Salle Mae and then the banks make these loans, now is taking over those very institutions, only Goldman and perhaps Morgan Stanley are left among brokerages. Paulson yesterday said not all banks will make it, well no wonder they are reluctant to loan money for fear that if not paid back, they fail.

George Orwell wrote the novel 1984 decades before that.  It seems to me that this grab for power will be difficult if not impossible to reverse. Point being, if you do not like your bank you can switch, if the govt controls all of them, who will you complain to?

Iceland Banks claimed to have assets nine times the size of the gross domestic product of Iceland. This is a remarkable accomplishment particualry on an island of 320,000 people.  Seems the three banks were lending to any and everyone across Europe.  The government has taken control of the banks remarking it will take years to recover.

A botleg copy of the SNL skit has re appeared. As reported earlier, NBC has been criticized by many such as Bill O Reiley for promoting the Dem cause. In the skit the actress playing Pelosi admits to the Dem culpability in resisting more oversight of FNM and FRE.