Git sum.

BT’s upstairs

“Still, stealthily, under cover of the blinding noise over Lehman’s demise, the Fed has introduced a new book of tricks aimed at prolonging the model for a while longer, no matter that it’s obviously dead. And Bernanke, in order to achieve it, has resorted to illegal practices. He’s “drawn a line” all right, but not the one you think.

Banks can now get loans through the Fed’s newly enhanced “permanent emergency” credit windows, and pose as collateral equities (stocks) and even your deposits. Yes, you heard that right. That is the condition underlying Bank of America’s purchase of Merrill Lynch. BoA can -and will- use the money in your bank account to continue Merrill’s activities, the same ones that led to Lehman’s death: securitization, swaps and derivatives.

That is one frightening development. And so, for that matter, is accepting stocks for T-bills. What if those stocks plunge, as so many are doing lately? What if companies go bankrupt? In the end, through the Treasury, it’s once again the taxpayer who’s going to be presented with the bill.

You would think that the central banks and Treasuries in the world would see the light and the signs on the wall, and refrain from putting even more of the people’s money at risk. You need to think again.

Central banks today are pumping credit like mad into the markets. Like all similar actions in the past two years, it will not save anything, or make any difference other than that the system gets to roll on for a few more months. The system cannot be saved, but it can still suck more profits out of the public purse. If this is not perverse, I don’t know what is.

The exact fall-out from Lehman’s downfall won’t be known for quite a while; nobody really knows what assets they have, nor who are the counterparties to all the bets they have outstanding.

Besides the obvious big US candidates to fall within the next few days, and it looks very much like that is the new timeline we have to watch, such as AIG (down 50% today), WaMu and Wachovia, there are two other fields to keep an eye on.

Smaller US banks, many hundreds of them, are exposed to -potential- dangers that will start to take down victims at an accelerating rate. What I think may be even more susbstantial when it comes to impact, is the pressure on banks and other financial institutions outside the US. UK banks got hit badly today, and the same happened all over the European continent.

Wherever you are in the world, there are no safe banks anymore. When you hear a government spokesman or bank CEO talk about their banks and banking systems being “well capitalized”, don’t believe a word they say.

There are incredible amounts of losses yet to come, far more than we’ve seen so far, and they have all, to one extent or another, had their sticky fingers in the same cookie-jar.”