Arkady's Thoughts

As I wrote a few days ago , the market found itself at a very critical level and had to hold in terms of supply and demand. Down 7,000 is both a psychological and technical level that if breached would usher in a new wave of selling and it did so with 4-5% across the board drops. The MSM will certainly try to explain this as a response to AIG's 60+ billion loss, but of course that is not true and has little to do with today's action. In fact AIG's cash losses are a mere 2 billion, but the assets that they insure dropped 60B in value. Oops? If anything, our mindless torpid government pledging ANOTHER 30 Billion to this company would be a catalyst for a sell-off. So right now, one would wonder what the correct course of action is for those who have been holding on desperately to their 401Ks and watching their accounts wither away. At about these levels, we are looking for capitulation, a mental white flag where the pain becomes too great and people sell in droves. We shoul...

Despite what many individuals (most of whom have no idea what they are talking about) and some pockets of the mainstream media, capitalism and free market did NOT cause the financial and housing crisis. In short, there is a great deal of government involvement in our financial sector and the constant meddling caused the bulk of this crisis. Without Fannie and Freddie buying up large swaths of CDOs (a collection of risky, non-risky loans), banks would not be so willing to sell these loans off in such a hurry. Of course Fannie & Freddie would not have operated on massive 60 to 1 leverage margins , had it not received an implicit guarantee from the government to be bailed out. When organizations that hold half the mortgages are called GSEs (Government Sponsored Enterprises) do we really have a free market system? No, we have institutions operating in ways they were never intended to operate, causing other banks to over leverage (like Bear Sterns) and subject themselves to m...