Leading the banks' earnings reports, one becomes insolvent and vanishes

Financial instruments have become liabilities such that the fifth largest US bank was sold for $250 million. I’m not sure the sale was even legal (especially as China owned 10% of the stock, and the FED set the price at 2% of its already depressed market capital the last day of trading, March 14^th, 2008). JP Morgan claims to have not wanted to buy the bank. That Bear Stearns could carry such liabilities to sell for a quarter the cost of its New York headquarters alone shows the degree to which nobody no one would lend it money. I mentioned before that no corporations would buy others debt obligations for the last few months. Now people are asking if other big banks are also bankrupt? One of the most connected private finance groups, Carlyle, has just had its hedge fund foreclosed on by investors. So the mortgage crisis spread to a credit crisis and now has become a financial instrument crisis as people take their money out of all investments, willing only to invest in treasuries returning below inflation. All financial instruments, derivatives, papers, and stocks are declining in value as the fundamentals of the complex financial sector are being questioned, as they should be: from housing alone, Standard & Poor's has now admitted to $285 billion in losses among financial institutions, but the total collateral damages may be more than the iraq war (AEI, Nouriel Roubini). How big is america's economy, 9 trillion? The losses could be over $ 6 trillion. This will spread everywhere. $100's of billions of the initially and now worthless sub-prime mortgage related investments may still be unaccounted for, and everyone wants cash.

So as the FED puts billions of extra dollars into the system, but people only buy commodities, the over-leveraged dollar continues to dilute and sinks to record lows. Food and energy inflation has picked up, while salaries go down for US consumers who have been spending 130% of income, while also property prices continue to sink and new credit is not available, and China’s costs rise, pushing world product prices higher. These trends indicate consumer spending is approaching a cliff. Foreign governments and developing nations still have spending power, but they are already seeing international trade drop off, and the degree of the American plummet may be unprecidented.

One international indicator, the semi-conductor industry which should be beginning an upcycle, is now seen slowing. Many companies are putting off investment spending, as they did in 2001, but this time consumer spending is also drying up and with it government funds. This three way pinch is beginning to show in the greater economy as Gold is over $1000 and Oil over $100. Whether or not global growth slows, all time high commodity prices could also retreat, and oil with it – the next bubble to deflate? Medical stocks still hold their own, but healthcare debate could destabilize them if Hillary wins the nomination. Elsewhere, wherever, get ready for a downhill ride. There is bad news to come. The secrecy surrounding first the insolvency of Citigroup in August 2007 and now the inside sale of Bear Stern only increases investor fears as it shows any company could vanish over the weekend, its stock along with it. How America's recession will affect China and South America and India remains to be seen, but it cannot be good to lose your best customer.