Why Wall Street rescues are failing

[rpannier]

Since the wheels started coming off the stock market last summer, investors have looked to at least seven white knights to end the distress with a bold stroke.

Yet each, including Federal Reserve Chairman Ben Bernanke and U.S. superinvestor Warren Buffett, has failed to lift investors' spirits for more than a couple of weeks, ultimately leaving stocks to tumble ever lower. Why?

The fundamental problem in the world economy is that it grew over the past two decades to be incredibly reliant on optimistic risk takers' willingness to accept increasingly complex IOUs from companies, banks and government institutions as investments instead of real assets. Now we are seeing the same movie play back in reverse, as massive investor losses in debts once believed to be safe have led to falling confidence, rising pessimism and extreme risk avoidance.

In a gentler era, debt was important but not as vital to world finance. In recent years, debt became the oxygen of the world financial system, along with a fanciful means of transferring its risks from borrowers and issuers to investors. To the extent that neither debt nor its conveyances are now trusted, even from organizations once considered rock-solid, the entire global banking system is asphyxiating before our eyes.

link:
http://articles.moneycentral.msn.com/Investing/SuperModels/WhyWallStreetRescuesAreFailing.aspx

[jojo54]

1. Hub and I just went to a financial advisor for retirement woes

and he said the stock market is going to get worse over the next year. He recommended other alternatives for the time being and given the state of the market, we're taking his advise.

[Warpy]

3. You found an honest financial advisor

He is worth his weight in gold. Hang onto him.

[Warpy]

2. According to the European financial report this morning

Societé Generale is ripe for takeover after writing off the huge loss last quarter and looking for another one this quarter, but nobody is doing more than nibble around the edges, saying it requires more study.

Two years ago, another big European bank would have gobbled them up before the loss was announced.

This crisis will be worldwide and it will be a stinker. Every corporation up to its eyeballs in debt from acquisitions and mergers is vulnerable all of a sudden. Banks holding bad paper laundered through hedge funds are vulnerable. Pension plans are pretty much pooched. Some brokerages will go under. Others will survive, but only if they don't try to buy out the real dogs.

After it all shakes out, we'll have another too brief period of sanity where people realize all wealth is built from the bottom up but all crashes flow from the top down.