3.16.08

O, to be blessed with an embarrassment of riches, chortles the bunny to himself.

Ordinarily, he doesn't like to think of himself as the sort that chortles, sniggers, or otherwise engages in gloating. A creature of the land, he is well versed in its gentry's mores.

But these are extraordinary times, and the getting's just too good. It's a bumper crop, a bounteous harvest of misery and woe and finger-pointing, with much of it being done exceptionally well. If pressed, he'd have to give the laurel wreath to Gretchen Morgenson in this morning's Times:

"But why save Bear Stearns? The beneficiary of this bailout, remember, has often operated in the gray areas of Wall Street...Until regulators came along in 1996, Bear Stearns was happy to provide its balance sheet and imprimatur to bucket-shop brokerages like Stratton Oakmont and A.R. Baron, clearing dubious stock trades. And as one of the biggest players in the mortgage securities business on Wall Street, Bear provided munificent lines of credit to public-spirited subprime lenders like New Century (now bankrupt.) It is also the owner of EMC Mortgage Servicing, one of the most aggressive subprime mortgage servicers out there...As of February, according to Bloomberg data, 15% of those loans in its underwritten securities were delinquent by more than 60 days or in foreclosure. That compares with an industry average of 8.4%..." (p.1)

Great going, Gretch, cheers the bunny. Give it 'em good, by jingo!

Here's another, from Liz Rappaport and Justin Lahart in today's Journal:

"The US is at the recieivng end of a massive margin call...For years, the US economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms, even for risky bets. No longer...The growing crisis of confidence now extends to the credit-worthiness of borowers across the spectrum--touching American homeowners, who are seeing the value of their bedrock asset decline, and raising questions about the capacity of the Federal Reserve and the US government to rapidly repair the problems." (p.A1)

Marvelous stuff, isn't it? Give it up for Tom Cahill and Katherine Burton at Bloomberg last week:

"'If you have leverage, you're stuffed,' said Alex Allen, chief investment officer of London-based Eddington Capital Management Ltd., which has $195 million invested in hedge funds for clients. He likens the crisis to a bank panic turned upside down with bankers, not depositors, concerned they won't get their money back."

Bully for you, Bloombergers, rants the bunny. Rah, rah, sis-boom-bah, greedy bipeds all go BROKE BROKE BROKE!

The bunny does his best to keep his nose above politics, so it's not the fetid fumes from the national mudslinging contest nor state sex scandals (as if that would really roil a rabbit's equilibrium) that have gone to his head. Nay, this is karma in its terrible eternal majesty, the great circling of the cosmic clock. In a word: payback.

The Great Unwinding, as the bunny has come to think of it, is all atwirl like a streamer of firecrackers dangling from the fire escape of a Mott Street community center on the Lunar New Year. For years, the great pyramid of banks, brokerage firms, funds of all stripe and spot, Blackberry-toting businessmen and Joe Sixpacks alike have all spun to the same tune of Intangible Investing, AKA Spend What You Don't Have (perhaps taking their cues from their elected leaders). Then after dancing as fast as they could the music stopped, the markers were called in and lo, borrowing from Peter to pay Paul just didn't work when Paul showed up with his bros, a roll of electrical tape, two tire irons and a case of beer. (In a telling aside, casino revenues in Vegas are down almost 5%.) The panjandrums of Wall Street and Points Hedged clearly thought they would be immune to credit-borne pathogens, and now that their condition has progressed from symptomatic to full-blown, they have (predictably) become dependent on the Quick Fix handed out by Uncle Sam on the quarterly corner (or even a block or two away).

The mountain of leverage, like that of garbage in Naples, has come crashing down. Government intervention teamed with deep private pockets (J.P. Morgan, wherever he may be, must be greatly amused) can only prolong the inevitable reckoning. Those with debt-to-equity ratios too swollen from too many trips to the borrowing trough will be called to account. Once again the perils of cheap money are thrown into sharp relief, and the all-but-done rate cut coming this Tuesday won't help.

The bunny is a burrower. Now's as good a time as any to dig deep and wait out the carnage happening topside. Lest we forget, it's Tax Time.

Bunny Barrage:

"Rescue Me: A Fed Bailout Crosses a Line" by Gretchen Morgenson, New York Times, 3/16/08

"Debt Reckoning: US Recieves a Margin Call" by Liz Rappaport and Justin Lahart, Wall Street Journal, 3/16/08

"Hedge Funds Reel From Margin Calls Even on Treasuries (update 1)" by Tom Cahill and Katherine Burton, Bloomberg.com, 3/10/08

"One Ill Compounds Another, Hammering the Economy" by Vikas Bajaj, New York Times, 3/14/08

"Hedge Funds Squeezed As Lenders Get Tougher" by Carrick Mollenkamp and Serena Ng, Wall Street Journal 3/7/08

"Mortgage Fallout Exposes Holes in New Bank-Risk Rules" by Damian Paletta and Alistair MacDonald, Wall Street Journal, 3/4/08

"New Spasm Jolts Credit Markets" by Liz Rappaport, Joellen Perry and Deborah Lynn Blumberg, Wall Street Journal, 3/6/08

"Chips are down as Las Vegas feels pinch", ny Matthew Garrahan, Financial Times, 3/9/08