We continue to see the wreckage caused by Greenspan’s no-regulations, cheap money, extreme right-wing Ayn Rand philosophy. I remember being at a client, a precious metals dealer, during the peak of his regime, and being baffled at why the traders treated his deliberately indecipherable pronouncements with such awe. He was then, and remains, an extremist charlatan who believes greed is good and the common good should be ignored, if not spat upon. (He was an early disciple of Rand, part of her inner circle, and that was her philosophy.)
The credit markets are still dangerously frozen. One reason: Credit default swaps from Lehman and WaMu settle this month. Institutions who sold these financial instruments of mass destruction, which pretended to be insurance on what is now toxic waste, may face losses of 80-85 cents on the dollar. $400 bn of Lehman swaps unwind on Friday, so losses for some could be catastrophic (assuming they even have the money to pay, if not, then the other side on the transaction gets hurt.)
Banks are believed to be hanging on to cash both to pay for their own settlement and out of fear that their counterparties may take irreparable damage in the Lehman settlement process. There may be some relief if the financial community passes this test, but with another big settlement, WaMu, later this month, banks are still likely to remain on high alert.
TED Spread at record. Translation: The big banks don’t even trust each other for short-term loans.
Take a bow, Mr. Greenspan. Your policies led inexorably to this day.