DIE, Laissez-faire! DIE!

Amalgamating conversations with several people and thinking out loud :

The next time you come into JFK, you'll see a sign that reads, "Welcome to
the United Socialist States of America".

You're a wall street bank in trouble. You trade fixed income - as a dealer you are
long leverage through MBS (mortgage backed securities) and other paper,
and short treasuries. You're getting killed on both (on the MBS side, you are stuck
with falling asset prices and defaults on debt, with hedging through the Markit
indices costing you more. On your short treasury position, you are getting killed
because there is a flight to quality.

Your friendly national pawn broker of choice (ie., the FED) steps in with what they
call a TSLF (Term Securities Lending Facility) - using this 28 day window, you're
able to give the national pawn shop your bad paper and they give you back US
treasuries. This is BIG - in one swell swoop the Fed has eased your pain by trying
to prop the decline in the MBS market by buying your bad debt and also helps you
out by giving you treasuries - this helps you shore your balance sheet as well as
mitigate losses from your positions gone awry.

Now, this action is NOT, I repeat, IS NOT turning on the money spigot. Nothing
has changed - its just an exchange of bad securities for good. The Fed will
essentially keep rolling over the money lent after each 28 day period and/or even
increase capital in this facility until there is some stabilization of the mortgage
markets.

Welcome to the United Socialist America! We can never let our companies fail.
Our regulations and tax codes for home-ownership and the sold dream of
houses with white picket fences are the cause. And now with the government
meddling and bailing out banks with leverage will be the seed that causes a
bigger bubble in the future. A clean and clear-cut moral hazard in play.

These actions are band-aid moments! Nothing has changed ie., consumers
seem tapped out, defaults are growing, leverage is still on the higher side, job
markets are rough and the dollar continues to be a disappearing asset.

Now, next week we'll likely see another 75 bps cut in FED funds rate, a change in
discount rate, and probably an increase in the size of the borrowing window. A
series of Brokers report lousy numbers next week. US markets resume their sell
off. Ok, the dollar first erodes. The threat of deflation becomes foremost, commodities start to roll over. Europe plays ball and reduces rates. There is a
violent counter trend rally in the US dollar, the US markets are partially
revived...all is happy again for the optimists....for a little while.

You can get away with financial murder! Nothing bad will happen - we'll always be
bailed out. DIE, Laissez-faire! DIE!

- aLV