WaMu goes down!! Wall Street vs. Your Street.

By Reconstitution 2.0

[excerpt]

the problem is not liquidity, the problem is trust. If the problem were liquidity, all of the money the FED and Treasury have pumped into the markets over the past six months would have been sufficient to cure any problems. Let’s look at the list:

Bear Stearns takeover and fold into JP Morgan. Cost to FED = $29 billion.

28 Day Term Auction Facility. Cost to FED = $100 billion.

28 Day Term Repurchase Agreements. Cost to FED = $150 billion.

28 Day Term Securities Lending Facility. Cost to FED = $200 billion.

Overnight Primary Dealer Credit Facility. Cost to FED = $262 billion.

28 Day TSLF Option Auctions. Cost to FED = $50 billion.

84 Day Term Auction Facility. Cost to FED = $25 billion.

Federal Housing Finance Agency (Fannie/Freddie nationalization). Cost to Treasury = $500 billion.

AIG nationalization. Cost to FED = $85 billion.

MBS purchases. Cost to Treasury = $200 billion.

Swap line with European Central Bank. Cost to FED = $120 billion.

Swap line with Swiss Central Bank. Cost to FED = $30 billion.

Swap line with Bank of Japan. Cost to FED = $60 billion.

Swap line with Bank of England. Cost to FED = $40 billion.

Swap line with Bank of Canada. Cost to FED = $10 billion.

Asset Backed Commercial Paper Money Market Liquidity Facility. Cost to FED = $73 billion.

Conversion of Goldman Sachs and Morgan Stanley to banks. Cost to FED = unknown.

Swap line with Reserve Bank of Australia. Cost to FED = $10 billion.

Swap line with Sveriges Riksbank (Central Bank of Sweeden). Cost to FED = $10 billion.

Swap line with Danmarks Nationalbank (Central Bank of Denmark). Cost to FED = $5 billion.

Swap line with Norges Bank (Central Bank fo Norway). Cost to FED = $5 billion.

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That totals $1.964 TRILLION of liquidity that has already been pumped into the system, so why would anyone think another $700 billion will make any difference in making lenders lend again?? The short answer is: It won’t!!

If the real problem is that lenders refuse to lend because they can’t figure out what the true value/risk of any security issued over the last five years is, then the Paulson outline is doomed to failure because it does nothing to add transparency or clarify the true value of any “product”. What needs to happen is every MBS and CDO must be pulled apart, each individual mortgage evaluated to determine if the account is current or in default, then regrouped and re-rated properly. But that is a lot of work and Paulson’s bunch of Wall Street “consultants” will never do it.

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