Wednesday, March 04, 2009

Not Just Wall Street

Economic news from USA is getting worse by the day.  AIG needs more funds to keep it afloat.  Uncle Sam will need to hand out more.  Total, or should I say, sub-total, is to hit $200 billion.  No one seriously believes this is the end of that bailout.  

Chicago Transit Authority just announced its pension fund is short of $1.3 trillion.  Would that be all?  

The ultimate icon of icons in the US: Harvard University, is knee deep in trouble with its largest endowment largely illiquid with too much exposure in private equity investments. Read today's New York Times story inspired by a previous Bloomberg News expose.  By the way, Bloomberg News in my eyes has replaced Wall Street Journal as the best source of financial and economic news these days running neck to neck against the FT.

The Harvard and other private equity assets are illiquid because there is no market for them right now. 

Is there any wonder stock market, the barometer of fear and greed is now totally on the fear side?  Too many unknowns out there.  Not enough transparency from Wall Street, from the Fed, even from Harvard.

HSBC, only recently thought to be the safest bank in the English speaking world, is doing a jumbo rights issue.  Spokesman said after this exercise, there would not be a need for another rights issue "in the foreseeable future", I read in the Hong Kong Ming Pao newspaper today.

USA, both the nation and its corporate world, is knee deep in debt.  Technically both are bankrupt.  Luckily for the country the US$ is still the reserve currency of the world. Hence, the Fed can print more money and the Treasury can issue more IOU's to finance whatever the country now must finance and the world is stuck with buying its debt.  

A senior Chinese official said recently, "We hate you..." because China has no alternative other than buying more US debt.  In any event, China cannot just dump what it owns in its Treasury without depressing the prices of US bonds it owns.  It is either the largest or the second largest holder of US Treasuries in the entire universe.

Is this a stable situation for the US and the US corporations?  We know already it is not for the latter.

Citigroup, AIG, Bank of America, GM, a growing number of US state and municipal governments and public bodies such as the Chicago Transit Authority are running out of funds.  A second wave bigger crash is no longer a remote possibility.

It gives me no pleasure to warn you of this.  It continues to be frustrating that Uncle Sam continues to fail to win back the confidence the public has in the president himself.  

What he needs to do is to tell his unimpressive economic team to fire a few of those on Wall Street in charge for too long to send a clear message that a new order will be installed.  After that he should fire Tim Geithner and Larry Summers to show he really means business. The agonizing "stop go" rescue packages announced so far are just too slow, too small, to vague to instill confidence.  

Until we get clarity I am certain we will continue to go from one crisis to another.  More dominoes are going to fall in the months to come.   

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