Signup for our free newsletter:

U.S. Financial Crisis

Written By Brian Hicks

Posted September 29, 2008

There’s no justice.

Many people made bad decisions, borrowed hundreds of billions of dollars, and invested them in high-risk financial devices that led to financial chaos.

And now our [American taxpayers] well-being and future is being held for ransom by Hank Paulson, who has threatened U.S. economic—and quite possibly global economic—collapse… unless we pay him what he wants.

But we’re damned if we do… and damned if we don’t. Pay, or don’t pay the man what he wants, and we’ll eventually face economic fallout. Either way, you and I are still on the hook for bailing out the many people who made many bad decisions.

For some reason, my head hurts.

What started as a simple three-page proposal that’d give the Treasury Secretary power to bail out the country’s financial ruins became a thick, complex rescue proposal that carries a slap on the wrist for overpaid executives who turned the U.S. financial system into a global laughing stock.

But the ultimate goal remains the same. Taxpayers will be on the hook for bad mortgage bets in order for our financial system to raise fresh capital and resume "normal" lending operations.

Under the Emergency Economic Stabilization Act of 2008, the Treasury Department gets $250 billion to buy up toxic debt. If needed another $100 billion is available at the behest the President. Oh, and if that’s not enough, Congress can add another $350 billion of taxpayer dollars.

But hey, at least the CEOs and organizations we entrusted with our financials didn’t lie…

Oh, wait…

  • Richard Fuld once told us the worst of the crisis is "behind us"
  • Merrill Lynch CEO John Thain said the subprime crisis was "reasonably well contained"
  • FDIC Chairman Sheila Barr said we’re in the 7th inning.
  • Even Morgan Stanley CEO John Mack said the 8th inning… maybe even top of the 9th.

But not one of them knew what they were talking about.

Today, in the latest chapter of American’s financial tragedy – a foul tale of extreme greed that’s led to the widespread suffering of millions…

  • Lehman Bros. and Bear Stearns are gone.
  • Freddie and Fannie… now government-owned.
  • Morgan Stanley and Goldman Sachs… their legs cut out from under them.
  • Washington Mutual… dead in the water.
  • And Wachovia was just bought by Citigroup.

Now we have a new moratorium on short selling… as well as a brand-new scapegoat.

And banks are no longer doing what they need to do… lend money. Instead, they’re filing for chapter 11, or waiting out the storm and hoping to come out alive.

How about that $85 billion the government drew from thin air to ‘save’ AIG?

The U.S. government is literally scrambling to keep some financial order, or risk what Warren Buffett is referring to as an "economic Pearl Harbor."

But we have to be close to that bottom, says Brian Hicks. Think about this…

  • Congress is holding hearings on the credit crisis
  • President Bush spoke to the nation on the bailout
  • Warren Buffett made a $5 billion investment in Goldman Sachs
  • There’s blood in the streets… Fannie, Freddie, AIG, Bear Stearns and Merrill Lynch would all be dead if it weren’t for government intervention
  • And the Wall Street crisis is all the media is talking about

Moreover, last week we witnessed a panic run on banks as consumers and companies alike put in an estimated $500 billion worth of sell orders from money market accounts.

The week before… $7.1 billion was withdrawn from money market accounts.

But regardless of when the bottom occurs, that shouldn’t stop you from making money… because it hasn’t stopped us.

In fact, we’re taking full advantage of the current crisis… and buying unfairly beaten-down opportunities, including these two in SC Trading Pit:

The first:

There has been a lot of talk in the news of banks and mortgage companies that have suffered losses due to their involvement in the subprime mortgage lending area. [This bank] has never been involved in subprime lending. We have always believed that mortgage loans are the most important asset and growth is never an excuse to sacrifice credit quality.

Simply put, they knew better than to lend money to people that couldn’t pay it back.

We’re talking about a $900 million cash-rich ($750 million) company that pays a 44-cent dividend with zero exposure to subprime. And insiders, including the CEO, have been buying up more than 205,000 shares since February of this year.

The other opportunity…

While you’d expect this bank to be suffering, right alongside the others, this company is more than just holding its own… it’s actually expanding.

You see, as the big banks continue to fall (and they most definitely will), this bank will have plenty of room to thrive in a consolidated environment. They’ve already expanded their UK presence, for example, to 350 people – more than double what the bank had two years ago – with further presence in Europe, Japan, the Middle East and the U.S.

And, if insider action is any indication—and it almost always is—more than 20 million shares have been traded by insiders… since April 2008.

In short, these are two contrarian plays I’m extraorinarily bullish on…

So much so that I’ve just added them to my Small Cap Trading Pit portfolio.

Learn more here.

Good Investing,

Ian L. Cooper

P.S.  If you’re looking for quicker profit opportunities, Options Trading Pit is currently 16 for 19, and just issued an emerging markets buy opportunity that must be picked up today.  Read here for more.