Banks Gone Wild!

by Larry Levin

The movie "Enron, The Smartest Guys in the Room" was released in 2005 showing behind the scene illusions whipped up by Ken Lay and Jeff Skilling. If this has started a tradition, we'll soon see a movie titled "Banks Gone Wild!: In the latter film we'll get behind the scene glimpses of how to destroy a country's real estate and banking systems.

Have you ever seen the "Girls Gone Wild" commercials and thought, "How drunk are those floozies anyhow?" You have wonder how they feel about the exhibition the following day. US mega-banks can be thought of in the same light; "what were they thinking?" If we could go back in time we'd hear them say to each other, "You know our policy, if he can fog a mirror - he gets a loan!"

Were they "drunk" with clout, or was it simply hubris to the tenth power? And now that it is the "following day," how do they feel about the current exhibition in the debasement of the entire US financial system?

Bear Stearns (BSC), one of the "in-crowd" on the Street, was the first major institution to fall victim to its own financial alchemy. This morning came word that BSC customers and counterparties were fleeing en masse - like rats off a sinking ship. They didn't want to be left without a place to sit in the latest round of musical chairs; it was a "bank run" of sorts.

"The financial system supervisors are attempting to prevent this company's problems and the perception of problems from rippling through the system to other financial players," David Hendler, an analyst at CreditSights, wrote in a note to investors. "Given Bear Stearns' huge impact in the mortgage, derivatives and funding markets, we sense that a salvation acquisition is the most likely possibility." Translation: Sir Galahad (The Fed's Bernanke) saved the damsel in distress before the market had a chance to fix her, ah - recue her. It will probably be sold to another firm over the weekend.

Bear Stearns' problem is the latest sign that the U.S. financial system is cracking under the weight of its own financial alchemy - sparked by last year's subprime mortgage meltdown. The Fed has slashed interest rates and central banks have injected roughly $1 trillion into the banking system since then, but the crunch continues.

And the Fed stepped in again this morning by arranging financing for Bear through JP Morgan. Of course, the Fed guarantees all risk on the part of JPM. Or more specifically, you, the taxpayer, have guaranteed the debt of BSC to JP Morgan.

Standard & Poor's and Fitch Ratings slashed their ratings on Bear to BBB, one level above junk status, and warned that more downgrades could follow. Moody's Investors Service cut to Baa1, which is also close to junk levels, and warned of another possible downgrade. Put a fork in Bear Stearns, it's cooked. Who's next? UBS?

In a speech today Helicopter-Ben said he has been very busy lately, implying this morning's latest bailout of Bear Stearns. I can imagine he's quite busy indeed. I'll go a step further; I bet this morning he felt just like Lt. Col. George Custer did at the exact moment he saw the Sioux Indians when he rode over the hills of the Little Bighorn River...all 10,000 of them: "Oh crap."

"Inflation is always and everywhere a monetary phenomenon." - Milton Friedman

Real Time Trading Signals*for

Trade Date: 3/14/08

E-Mini S&P Trades*
(before fees and commissions):

1) PP buy @ 8:45am at 1307.50 = -1.75 & -1.75

2) VA sell @ 9:50am at 1300.75 = +3.00 & b/e

3) OTF sell @ 10:40am at 1301.50 = +3.25 & +5.25

4) FT sell @ 1:45pm at 1285.50 = -2.25 & -2.25 = GGRRrrrrrr...+3.50 points

E-Mini Russell Trades*
(before fees and commissions):

1) Sell @ 10:36am at 665.5 = -1.0 (1 lot)

2) Sell @ 11:02am at 666.5 = +.7 (1 lot)

3) Sell @ 11:49am at 662.5 = -1.3 & -1.3

4) Buy @ 12:59pm at 661.8 = -1.0 (1 lot)...-$390


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