Ruh Roh . . .

Over at Bonddad there’s a good summary of the loan package granted to insurance gigantus AIG by the federal government, We now collectively own nearly 80% of AIG! Perhaps we can turn it into a facility for delivering national health insurance . . . ?

In another vein, a Bonddad commenter, double d, wrote, “Ruh roh…Reserve Primary Fund, the oldest U.S. money-market fund, became the first in 14 years to expose investors to losses after writing off $785 million of debt issued by bankrupt Lehman Brothers Holdings Inc… Losses on the securities firm’s (Lehman Bothers Holdings) debt forced the fund to break the buck, meaning its net asset value fell below the $1 a share price paid by investors, New York-based Reserve Management Corp., its closely held owner, said yesterday in a statement. Redemptions were suspended for as long as seven days.”

“Ruh Roh” indeed . . . Maybe FDIC insured bank deposits are looking better? For awhile at least. Yet, as the Reserve Primary Fund story illustrates, the credit impairment that exists now as a result of those nutty Wall Street quants and statisticians and JPCs (just plain crooks) is expanding to cubbyholes where regular folk stash their dwindling bucks. Runs on money market funds? In main street terms that’s a Steven King novel . . .

And there’s an even bigger question looming, one I asked in the “AIG Deal in Detail” comment section today at Bonddad:

“On another point: It’s becoming clear that the world economy is entering recession, with particular strain in the U.S. Now, my question is, where will the credit necessary for the economy to pull out of this recession come from? Who will be willing to issue it? Can it seriously be monetized — i.e. will the U.S./Fed. take on literally ALL of the losses from bad loans, CDSs, Lehman-Lemon debt, etc.? If so, where do you predict the price of the $$ will be in a year or two in relation to the Euro and other currencies at the end of what would have to be an orgy of monetization?? Does this create a hyperinflation scenario for the eventual economic rebound?”

Any thoughts? All I can summon up is another “Ruh Roh“

UPDATE 1 (9-18-08, 12:35 p.m.): A CNBC analyst just opined that the MMF Reserve Primary Fund that “broke the buck” (i.e. its value fell below the $1 a share price paid by investors) was an anomaly caused by some technical considerations that do not exist in the vast majority of MMFs. Of course, this kind of opining reminds me of the opening days of the housing crisis that so understated the problem. I’m still in “ruh roh” mode . . .

UPDATE 2 (9-18-08, 9:25 p.m.): Readers note, I’m not sitting on my hands, During after hours trading, I’m personally negotiating with the Canadian Central Bank for a bridge loan for tomorrow’s lunch. Ive offered to cover the tip with 10,000 shares of AIG which I cleverly acquired this very day! With any luck I hope to purchase a “frigidaire” for my efficiency apartment’s kitchen within fiscal year 2010. Oh yes, this is MY gilded age!!!!

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