Yesterday Lehmann and Lynch, Today AIG, Tomorrow The World

I was at a friend’s party on Sunday evening, hanging out on the back porch while the 65 mph gusts from the remnants of Ike whooshed by, eventually knocking out the power and leaving thousands without electricity throughout the Midwest.

At the party, I warned people that Lehmann Brothers would go belly-up this week. Within hours my prediction had come true, along with news of Bank of America buying out Merrill Lynch. There will be a bailout of Fannie Mae and Freddie Mac. JP Morgan Chase may try to buy Washington Mutual. And great news to those with money in the bank – the FDIC fund is dwindling. It is currently at just $45 billion. This may seem like a hefty chunk of change, but consider that insuring the deposits at IndyMac, just one of the eleven banks to fail this year, cost the FDIC $8.9 billion. We will likely see the FDIC ask for a loan from the Treasury to cover future bank failures.

Today we learned that the Fed will lend $85 billion to AIG, lest they also declare bankruptcy and “roil world markets”. AIG stock fell over 30% today.

I don’t think you get this. The Fed is borrowing money in your name and lending it to AIG at interest (which will not be returned to you, but will be pocketed by the Fed). A stipulation to the deal is that the Fed will receive a 79.9% stake in the company.

The Fed created the conditions which are responsible for the “credit crunch” and now they are using your money (at no benefit to you – an “unconscionable contract”) to buy up failing institutions at pennies on the dollar. This is a pattern we have seen before. History repeats itself, folks. Wake up and stop the robber-barons.

Oh, but don’t worry. John McCain has some calming words for us: “the fundamentals of our economy are strong“. I guess it makes sense considering he also says: “I know a lot less about economics than I do about military and foreign policy issues. I still need to be educated.”

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~ by skepsis on September 17, 2008.

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