Well, now we get to the bottom line on Phoney and Fraudie.
Justified as once again "systemic risk" if either or both of these firms were to fail. Never mind that Ginnie Mae has been writing perfectly-sound mortgages through this mess and could have easily taken over for these two frauds.
Further, nowhere is responsibility taken for allowing these two gigantic hedge funds to amass leverage of 80:1, nor the government's failure to provide prudent regulation during the previous ten years - including during Paulson's and Lockhart's term.
Now here's what, based on the released statements, I think should happen. Of course the market often doesn't trade on reality......
Logically, a serious selloff in financials is what we should get. Here's why:
The FX and Bond Markets will tell you what everyone thinks, along with commodities. Currencies open before futures, and futures before Asia. I will watch currencies in particular.
I have no idea whether the market will interpret this as "good news" or "aw crap!"; the facts say its "aw crap", but the market has a habit of paying zero attention to facts for variable amounts of time. Witness Bear Stearns.
I think there's a very good chance that the reaction will be extraordinarily violent, but which direction remains open to question - for a few more hours anyway.
In any event, this is what happens when Americans sit in front of the Boob Tube and watch American Idol instead of paying attention to what their government is doing.
We are now in the zone where mistakes can cause a government funding collapse.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
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