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Sic Semper Tyrannis

Wednesday, November 07, 2007

Pulling Back the Curtain

What happened to the market today will maybe be only the beginning correction of the markets due to the Fed's intervention into the money supply. This is no surprise to those of us OnTheBorderLine.

Over the past few days, the financial dislocations caused by the inflated money credit policies of the Federal Reserve have began to surface. First, there were the revelations that Merrill Lynch would have to write down nearly $10 billion of various papers in which there were no markets. Then we had Citigroup disclose write downs of $8-$13billion for the same reason. It is speculated in the case of Merrill Lynch that the firm will have to write down another $10-$15 billion in the coming months. It is important to note that when companies take a write down on their paper, they are not costing out to zero, but merely taking an incremental haircut on the cost basis of the assets. Furthermore as Citigroup noted, valuations are based on a hypothetical model. Realistically, unless there is a transaction for this paper or for that matter any asset, then the value of said asset is zero. This point has been repeated often by those who adhere to Austrian Economic Principles. In addition to the announced write downs, Citigroup revealed that they held an additional $132 billion of paper assets for which markets may not exist.
See Pulling Back the Curtain.

Mark P. @ OTBL