Monday, July 14, 2008

What if Cramer is Right?

Fannie Mae and Freddie Mac bailout is old news. Not that those financial institutes will not burn again, but there is more urgent fire now. The question is after Indy Mac which is the next bank. Washington Mutual? National City? Who else? FDIC’s own report says around 150 out of 7000 or plus American banks are at risk. It may not be lot compared to Savings & Loan crisis of 1989 when Congress bailed out few hundred thrift banks at the cost of around $190 Billion at inflation adjusted today’s price. But if for Indy Mac only FDIC has to put minimum $4 Billion at works out of it’s corpus of $53 Billion; one wonders how long FDIC money can last. This is because Congress is already on hook to spend around hundreds of billions for these two GSEs.

If one reads or hears James Cramer (JJC) of TheStreet.com; it is clear that FDIC will not have sufficient money to bail out, leave alone 150, but even 50 banks at this rate. Now, try figuring out consequences and experience your own shiver down the spine.

No doubt, mouths of JJC like commentators are loud, shrill. But unfortunately for so long these are the precise ‘doomsday’ scenarios which are coming to fruition in today’s America.

American Media, Congress and political punditry; all are behind curves. Just imagine who will care even for Iraq; when banks are falling like rats in plague while Messers Bernanke, Paulson, Bush and Congress have no idea what has struck American Financial System. In any case, Americans are ‘done’ with Iraq. It hardly matters whether ‘surge’ has worked or not or Bush has proved to be right when we have monumental failure on hand with American Financial System.

It is laughable to read all these passionate debates about Iraq or still incomplete Housing Bill (for which WSJ ran an excellent article explaining how it may not really solve the problem of housing delinquencies) or standard political topics; when these experts have no idea whatsoever about what devastation in American Economy is unfolding.

So what happens if JJC is right? Will we have a day after?

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