Notes in the Economic Crisis: what else aren't they telling us?

[endarkenment]

I just got back from a lunchtime walk with some co-workers and one of my friends told us her tale from the trenches.

All of her cash goes into a brokerage money market account which she uses as her checking account, atm, billpay etc. The company that owns the fund cannot meet reserve requirements because of the meltdown (they held corporate bonds including lehmans) and as a consequence all withdrawals have been suspended by the SEC and the fund is currently valued at 0.93 on the dollar. Technically she has no cash. The brokerage is covering checks written against the account for normal bill paying activities but she cannot get out of the fund itself, even at the 0.93 value. The brokerage considers its coverage as overdrafts, but is suspending interest on that for 30 days - and this is now on day 21.

The shit is in fact hitting the fans. We are not being told the scope of this disaster. As usual the insiders are all well aware of what is actually going on and are busy maneuvering to high ground in advance of the flood. Be afraid. Be very afraid.

[Skink]

1. Which Brokerage?

[endarkenment]

2. Ameritrade

[kurt_cagle]

3. The Next Waves to Hit

1. Credit card terminations are going to start hitting within the next month - if you've so much as been a day late with a payment, you'll find your credit line reduced or the card terminated automatically. As this is now one of the few ways for people to pay their bills (even with insane interest rates), this is going to hit hard.

2. Commercial Real Estate will hit in about three months - lots of small and midsized companies are going to be consolidating space or going out of business entirely, and there's a fairly major overhang from several years of buildup. Moreover, retail spending is going to crater, leaving lots of new shopping malls and box superstores sitting empty. This should be the dominant pain point by March or April of next year, especially as Christmas sales will be non-existent.

3. Municipal Services are already being impacted, and this will become a major problem in every state by the end of the year. Lots of transportation projects will be cancelled or postponed, idling road workers, schools will be forced to start laying off teachers and even more of them will close, pushing class size way up and educational quality way down, and health and human services departments will furlough most of their people and be operating only one or two days a week. I expect that by this time next year, worker strikes will be common.

4. Keep in mind that the culprit of all of this is the massive unwinding of $14 trillion worth of hedge funds. Frankly this process has only just begun. I'm not optimistic at this point.

[kurt_cagle]

4. Dup

[gopbuster]

5. I also heard that brokerages across the board have raised their margin

requirements from 30% to 45%. I can't verify but this will force margin calls to go out if true, adding to declines in the stock market.