Sunday, September 14, 2008

Did the fat lady sing and I missed it?

You all know the expression.

It's not over 'til the fat lady sings.

Still the Sunday PM musings on Lehman Bros sound like it's over and without an acquiror, let alone an aria. Over with a whimper rather than bang! The government appears to be sticking by its guns not to pony up 'money' (that means Fed resources, too), guarantees, ginzu knives, etc.

So who's at risk here? Not I said the dog. Not I said the car. and then not I said little red hen and we were at a stand still. That's not the way the story is supposed to go. No one is responsible. I guess "stuff' happens and does not get fixed.

The Fed is not at risk and if the market players want to pretend it's not their problem they can live that fantasy. Still, they are the ones that are in soup and denying it will not keep them dry. They can claim as long as they like that the broth does not taste like them but that does not change the taste. More salt please.

The Citi is simmering. WaMu is nearly boiled dry. Merrill Lynch has had the fat trimmed all the way to the bone and into it in some cases. AIG is just some garnishment for all this but it too is looking limp and overcooked. If these firms were items on a menu no five-star - nay, three-star- chef would have a thing to do with them. So it is odd what when they are given a chance to turn back the clock on some of the market's deterioration they all stand mute.


Understand that lacking Federal money and lacking the continuing staunch support of Lehman's current counter-parties and lacking a deal, Lehman goes South. If that happen Pandora's box is open for other financial firms.

One suspects the Fed's role has been to say, 'you guys created this mess, now you guys clean it up.' And the Fed does not want to hold the dust pan or the broom or provide the receptacle. But it has been playing the role of janitorial supervisor. The market players do not want to contribute to clearing up another guy's mess even if in some sense it's part of their doing. Capital is scarce.

But the Fed does not want to bailout out a firm where it's not essential and other firms are in worse shape than Lehman. And once Lehman is down there will be another and another. The knocking at the door could be near endless. Land shark! The Fed can't set a precedent here that it can't afford.

The market needs to fess up to and solve its own problems. It needs transactional analysis but not what that used to mean. it needs real healing with real money not new-age psycho-babble. I'm OK; You're OK goes only so far in the land of reality and skepticism. Is anybody really OK these days? Does anybody really know what time it is? I do. It's late!

The Fed is, surprisingly to some, playing hardball.

And that's dangerous, but it's a good thing. It means the buck will stop, but we don't know where.

It's a bit like playing hot-potato with live grenades. In a small enough space, everybody loses. And in their own way the financial markets are a very small space.

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