March 14, 2003 Prognostication Comes True?

Yesterday was a shock. Lehman Brothers bankrupt, Merrill bought out by Bank of America. The market plunge figuratively wiped out retirement accounts of many who had not moved to cash. According to Wall Street, AIG is such a big player in insuring risk for institutions around the world that its failure could undermine the global financial system. Not surprising, the world’s central banks rushed to inject cash into the American banking system to keep money markets world wide from seizing up as fears grow. Today they injected more with AIGs downgrade and liquidity problems. Today Goldman, viewed as the strongest of the Wall Street independents, is reporting weakness with revenues and profits plunging 70%. This morning the Fed ignored calls for a rate cut, driving markets lower. Stock market volatility is reported to be at a 5 year high.

The Office of Federal Housing Enterprise Oversight (OFHEO), which oversees Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, published a report on March 14, 2003 titled Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO. When you read through this and subsequent regular OFHEO Reports to Congress at www.OFHEO.gov, it doesn't take long to understand that our elected representatives have turned a deaf ear to the consistent OFHEO warnings about the risk of ongoing GSE activities to financial markets.

Are we facing a systemic worldwide financial system failure? Looks that way to me.

In God We Trust