Monday, August 25, 2008

The party that wrecked America

That's according to Spot's favorite Malthusian, James Kunstler:

As the political conventions descend like the soggy forces of nature they have become -- the tropical depressions of politics -- the Republican party will be seen, with growing clarity, as the party that wrecked America. So many shoes are about to drop, and so many dominoes lined up to fall 'out there' on the financial landscape that the thump and clatter of crashing institutions will sound like the percussion section of the renowned USC marching band as the nation tramps toward the general election.

He continues:

At the moment, two of the biggest elephants in the room, so to speak, are going tits-up with X's where their eyes used to be. These would be the "affordable housing" enablers Fannie and Freddie, who managed during the past decade to make housing virtually unaffordable for any normal, responsible person unwilling to game the system -- with the additional consequence that not only the housing market but the general credit-and-lending apparatus of the US has entered a state of morbid failure. These two corporations are now dead, incurring a legacy of obligation that will add five trillion dollars to the national debt at one stroke. Nobody knows what the exact results of this debacle may be -- and the current silence about it is deafening -- but odds are the effect will range somewhere between destroying the currency and bankrupting the United States altogether.

Meanwhile, the list of giant banks on life support runs to at least ten, with an unknown number of less giant banks that will be squashed when the big ones go down. The sound you hear in the background -- even beyond the sound of John McCain's carping, snotty campaign commercials -- is the whoosh of capital leaving the system. By capital I mean assumed accumulated wealth ready to be put-to-work by this society. We won't have any. The president-elect will wake up November 5th as leader of a poor nation, and all the grand plans laid out during the campaign will have to take a back seat to a severe revision of hopes and expectations.

That Jimmy is such a Pollyanna, isn't he?

Meanwhile, we learn that the Office of Thrift Supervision had a good talking to BankUnited Financial Corporation.

But back to Kunstler's point about giant banks taking down smaller ones too. One of the ways that may happen is though the syndication of loans that will end up bad. In other words, the biggest banks sell "participations" in loans to raise the money to fund the loan and to *cough* spread the risk. The investment portfolios of many smaller banks includes participation in syndicated loans.

That is all. Return to what you were doing.

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