Oh What a Tangled Web We Weave

I read an interesting article in the NY Times this morning regarding President Bush and the Mortgage Crisis this morning. I am calling it the Mortgage Crisis because it is not just the Sub-Prime Crisis anymore. The problems we have now merely began in sub prime land as I mentioned some time ago – here and here. The article dovetails nicely into what I’ve been seeing at work.

The article, the press in general really, has not properly conveyed the one thing that sits at the core of all these problems. What is this one thing? That our government has absolutely no idea how to properly control and contain this. If you look at the decisions that have been made. If you see the various reactions to the crisis you do not see any cohesive strategy. All you see is a series of after the fact reactions to a building storm. Let’s start with the various investment bank failures.

It started with Bear Stearns. We all knew Bear was in trouble. We expected it to have problems. We did not expect it to go under or Chase to be forced to buy them by the Federal Government in what was essentially the first bailout. I recall conversations regarding Lehman Bros. and Merrill Lynch and how they were most likely to be the next ones up on the block. As an aside both corporate sites now show how they are in bankruptcy/bought out.

The Lehman failure though was spectacular in a way none of us at work foresaw. Getting phone calls on a Saturday morning and being told we may need to open the markets early was very, very sobering. Being told we were opening them before Monday to help avert a potential disaster makes you pause in a big way. Being told it was the Fed directing this is even scarier. We opened them early to allow anyone with a position relating to Lehman a way to mitigate it. I later found out that any trades involving Lehman had to be directly approved by the desk heads. This also applied many to the Credit Derivative markets. A week or so later we shutdown their access. Merrill Lynch was also acquired around this time. It became a mere footnote though compared to the sheer insanity that was Lehman Brothers. AIG, which also was bailed out around this time was nothing compared to this.

The next big event was the general bailout of Citi. It is here that I saw the near panic and reactionary nature of our current administration the most. This was another thing that was mostly unexpected in the sheer scale of things. I plan on discussing what this bailout really is and means in a later post it really is that complex. At work we are dealing with how the government has decided to actually enact the $700 billion that it is bankrolling this with. It’s been rapidly changing nearly daily.

In all this one can sense a largely reaction stance to everything. We all knew it was coming. We could all see it brewing. In the end though, the ones we trusted to manage this, to control it, failed spectacularly. Why and how did it fail? We see all sorts of articles trying to explain it. In the end though it seems to come down to five things really.

They did not care. If you see their reactions they really didn’t have a depth of understanding that they acknowledged. They trusted that the markets, that the economy, would auto-magically fix itself. And when it did not? They threw a bunch of shit on the wall to see what would stick. And in the end they’ve stuck to a failed ideology in dealing with the economy for far too long. They still are trying to do so.

Some More Information On the Situation

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