January updates...

It is barely a month into the new year, and we are witnessing again another freefall in financial stocks that has threatened the very survival of Citigroup and Bank of America. Citigroup again?! And to think the government has to hand out TARP money again for Citi's further losses. How outrageous! Merrill Lynch has revealed further losses, and BAC had nearly pulled out of the merger deal in mid-December if Uncle Sam had not provided backstop to the deal. If the deal unraveled, it would bring "post-Lehman" Part 2 scenario once more. That is why the hush hush.

Personally, I was intrigued as why no one in the financial regulatory agency has brought forward the Swedish model for rescuing its banks?? It worked, and it could work in the US; rather than we are faced with meltdown uncertainty every 2 months...

The Swedish model works because all banks write down their bad debts to 0, and governments could re-capitalize the banks afterwards. With this, only the private sector will start to invest in the banks again. Voila, we can go back to square again, which is to take deposits and lend out money again. Consumers would not be strapped, bcos presently, most banks are hoarding their money to offset further writedowns.

Presently, we are faced with the second negative loop in the deleveraging process, which is the economy and unemployment. Big companies are laying off their employees in a massive scale, and freezing/cutting pay for remaining workers. If the stimulus bill is not approved soon, it could lead back to the first negative loop in the next few months; in this case further writedowns to account for all kinds of loans/defaults, and potentially bankrupt a few more banks.

What we are seeing today is the possible bankruptcy of the UK government, and Russia floating the rouble to save its reserves. Both Pound and Rouble are dropping like stones. I don't have a good feeling on these developments...