Six Impossible Things

“Alice laughed. ‘There’s no use trying’, she said. ‘One can’t believe impossible things.’ ‘I daresay you haven’t had much practice’, said the Queen. ‘When i was your age, i always did it half an hour a day. Why sometimes, i’ve believed as many as six impossible things before breakfast.'”








1. Three of the largest investment banks on Wall Street no longer exist
2. The US government is now the world’s largest insurer (via its 80% ownership of AIG).
3. The US Treasury had to bolster the balance sheet of the Federal Reserve, the anchor of the world’s financial system
4. The US government is also the country’s largest provider of mortgages (via its ownership of Freddie Mac and Fannie Mae)
5. The cost of bailing out Wall Street is likely to exceed $1 trillion.
6. The interest rate on 3-month Treasury bills dropped to 0.02%.
7. And one more for good measure.    The CDS market has begun to price in a lowering of the AAA credit rating of US government debt.

8 thoughts on “Six Impossible Things

  1. The only thing that surprises me is that gold hasn’t shot through to $2000-$3000 per ounce.

    Investors must be deluding themselves if they think there is any paper currency that is a sound medium of exchange and store of wealth.

  2. Well we all know a AAA rating from one of these rating agency is of little value on the up side, 3-month Treasury bills at 0.02% would suggest the option of the rating agency is also not respected on the downside.

    At the moment I don’t think I’d be buying shares in moody, standard and poor or finch

  3. charles

    the rating agencies deserve criticism for not understanding the risks inherent in complex structures such as CDOs and CDO squareds. despite not appreciating the risks, they went ahead anyway and assigned AAA ratings to all manner of incomprehensible crap and were paid handsomely in the process. (you cant sue them as they their ratings are only a ‘guide’).

    however, their track record in predicting sovereign and corporate defaults is very good. when they stick to what they know, they are very useful.

    jono – im also surprised that gold has not rallied further. i recommended buying it in a comment about ten days ago at $780 an ounce. it’s now about $890. i’m sure it will fly thru $1,000 shortly.

  4. Last night Paulson and Bernanke gave the first clues as to how the banks’ worthless assets will be purchased by the Treasury.

    Bernanke, putting aside prepared remarks, signaled that the government should buy devalued assets at above-market values. “If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits”

    i had (naively) assumed that they would demand a significant haircut and the dismissal of senior management.

    omfg – there is no way this will be passed.

  5. paper currency that is a sound medium of exchange and store of wealth.

    Gold is not a very good medium of exchange. It is too heavy. Paper is better.

    Gold is not a very good store of wealth. It pays no interest or dividend.

    Gold can be an excellant unit of account. That is it’s virtue. Ironically it is the one item you missed.

  6. Pom:
    See what you think. Am I wrong here?

    I can’t see another solution other than what Paulson is offering if the bailout is the way to go.

    It’s very difficult to explain to people who have never traded before what paulson is going to do to try and remove those securities off the balance sheets.

    he kinda has to trade his position in a very delicate way and suss out where the optimum price will be that won’t cause further problems and will be the best price for the government while lieaving balance sheets undamaged.

    he has to start high in terms price if he’s going to start the operation, but if he goes too high the avalanche of securities getting offered could spook the shit out of the market again and cause further tension.

    This is why he can’t explain everything to the Congress as far as I see it. it’s the traders equivalent of brain surgery.

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