Washington Mutual

"The intensifying economic and solvency crises, and the responses to both by the U.S. government and the Federal Reserve in the last two years, have exacerbated the government's solvency issues and moved forward my timing estimation for the hyperinflation to the next five years, from the 2010 to 2018 timing range estimated in the prior report. The U.S. government and Federal Reserve already have committed the system to this course through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, gross mismanagement, and a deliberate and ongoing effort to debase the U.S. currency. Accordingly, risks are particularly high of the hyperinflation crisis breaking within the next year." - John Williams, ShadowStats

On September 30, 2008, the Treasury issued an edict innocuously titled "Notice 2008-83," published in the equally innocuously titled "Internal Revenue Bulletin 2008-42." Perhaps it is just our paranoid side, but we suspect you could return the country to the gold standard in "Internal Revenue Bulletin 2009-63" and no one would catch on for 6 months. Add to this the fact that Congress, and the rest of the planet, was already quite literally possessed by the upcoming vote on Emergency Economic Stabilization Act of 2008 (the underpinnings of what would later become the Troubled Assets Relief Program or "TARP") and it isn't hard to see why the "notice" went, ironically, somewhat unnoticed.

It shouldn't have.

I have found evidence that this bank has $32 billion of naked (as in apparently unhedged) swaps on its books - just like AIG. The difference is this bank is bigger, probably has more exposure, and has already been bailed out - several times. Oh, did I mention the insured collateral is nearly half BBB rated or lower??? How about extreme management issues at the top, and I mean all the way to the top. A trunk full of junk, surrounded by drama! It should be an interesting conference call tomorrow when they report, that is if anybody decides to ask the right questions...

"If you reduce the increasingly difficult situation facing the largest banks down to its essence, the problem is politicians picking winners and losers. If we don't have losers in our economic life, then there are no winners either. If we don't resolve troubled banks, then all of our banks will be bad, as the century-old Whithers quote above suggests. And the fact that Washington will not let large, mediocre institutions such as BAC fail means that our entire financial system is getting sicker, not recovering as the politicians ask you to believe. The different financial and operational situations facing BAC and other members of the large bank peer group illustrate the point." - Chris Whalen

"I think we’ll get more of a “square root” shaped recovery, a “V” followed by sideways to a gradually upward sloping grind. We’ve already had the “V”. Markets are overpriced. I don’t see how we can have huge economic growth with capital-constrained banks, catatonic consumers, and commercial real estate troubles up the wazoo. One of the only positives is the weak dollar, which makes everything we sell to the rest of the world cheaper. This is good for our multi-national companies, good for our exporters. So far, the dollar is on a grinding, controlled move down, which is good. But if the dollar’s fall accelerates, it would not be good. A real dollar panic would lead to the widespread dumping of dollar assets, and commodity prices would explode. Then we’ll get to $2,000 for gold and $40 for silver very quickly." - Mad Hedge Fund Trader

We are repeating Jim Cramer's buy recommendation on CIT from yesterday... because it bears repeating.

How many times can one of the world's worst-managed and toxic-laden companies be on the verge of bankruptcy? As long as Obama is president, one could answer "in perpetuity" although CIT may finally be on its last breath. According to the WSJ: "The fate of CIT Group Inc. was hanging in the balance Tuesday as the large commercial lender readied a plan that would likely hand control of the company to its bondholders" and "Under either the scenario of a bond exchange or a bankruptcy, the shares in CIT would lose all or most of their value." In other news, Jim Cramer does not understand how debt-for-equity works

A big picture objective perspective on the economy, compliments of Egan-Jones.

If you had to create a mortgage that was more toxic and more destructive than a subprime loan, you would have a very hard time creating that product. Yet leave it to creative finance to spawn a devilish product with the unique name of option ARMs.

• Must read: Algorithmic programs that will be eliminated (SMB)
• Must read: The Bush doctrine, economic warfare and your investment portfolio (FSU, hat tip Wickern)
  

• Must read: Algorithmic programs that will be eliminated (SMB)
• Must read: The Bush doctrine, economic warfare and your investment portfolio (FSU, hat tip Wickern)
  

• Must read: Algorithmic programs that will be eliminated (SMB)
• Must read: The Bush doctrine, economic warfare and your investment portfolio (FSU, hat tip Wickern)
  

When even Moody's chimes in and notes that the Fed's "Adverse Case" assumptions are in line with their "Base Case" assumptions, one can't help but wonder in what parallel universe the Federal Reserve is expecting to see its optimistic outcome realized, especially since many of its macro worst case parameters have already been trampled by real economic data.

When even Moody's chimes in and notes that the Fed's "Adverse Case" assumptions are in line with their "Base Case" assumptions, one can't help but wonder in what parallel universe the Federal Reserve is expecting to see its optimistic outcome realized, especially since many of its macro worst case parameters have already been trampled by real economic data.