How did we come to this Financial Crisis?

If you have been following the news, you know there is a pending Financial Crisis. While you might not be feeling a crisis personally, there is a crisis in the financial industry. Below is a link to a really good article that describes how we got here. The reasons are fairly technical, but the author does a good job in writing it in simple terms to understand.

If you still don't get it, then give me a call and I will explain..

http://www.globalresearch.ca/index.php?context=va&aid=8634

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http://www.forbes.com/home/2008/09/29/mark-to-market-oped-cx_ng_0929gingrich.html

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In simples terms here are the reasons for this crisis:

1. Government creation of GSE, Fannie Mae and Freddie Mac to buy Mortgage Loans
2. Desire to increase home ownership: Bush pushed GSEs and Fed to lower rates and lending standards to allow more people the ability to own homes
3. Sarbanes Oxley Act comes along after Enron scandal, requiring Mark to Market accounting for all public companies, including banks
4. Interest rates start to increase and people with ARM start foreclosing
5. Wall Street stops buying Mortgage Back Securities
6. Banks requiring to "mark to market" there unrealized loan losses do so, causing rating agencies to downgrade there credit
7. Banks sell and buy Credit Default Swaps to protect against loan losses
8. Investment Bankers that sell CDS, go out of business when they are required to pay out and cant.
9. Banks go into bankruptcy after there capital requirements are not meet and the CDS protection they purchase goes into default.

Thinking about buying this dip?

By Helene Meisler
RealMoney.com Contributor

I'm not writing the following to scare anyone and I'm not writing it to be dramatic. I am writing it because I kept hearing folks who in the interest of being calm were telling us what great opportunities there were to buy stocks Monday. I kept hearing "for the long term" and how if you'd bought the low in 1987 you'd have made a fortune. So let me share with you what I saw in that photo from nearly 21 years ago. Keep in mind that these were the stocks to watch back then.

General Motors (GM - commentary - Cramer's Take)closed the day down $16 to $50. GM is currently trading around $9. Ford Motor (F - commentary - Cramer's Take) closed that day at $69, down $15 on the day. Ford is trading with a four handle last time I checked.

OK, so you want to scoff because they are auto stocks? Note how I didn't bother to mention that Chrysler isn't a public company anymore. So let's look at some of the tech stocks that were deemed important back then.

Prime Computer. Who? That's right. I can't even remember what happened to that company. Unisys (UIS - commentary - Cramer's Take) is still around although it now trades with a two handle. At the low of the crash of 1987 it was $30, down $7 on the day. Digital Equipment was IBM's (IBM - commentary - Cramer's Take) biggest competitor then. DEC, as it was called, actually traded about 25 cents shy of $200 during the final week of September 1987. On the day of the crash it closed at $130, down $42 on the day.

DEC was eventually bought out in the late 1990s. I can't recall the exact price but something in the $60s rings a bell. And no, that price isn't split adjusted. It was bought by Compaq. Oh yes. I'm sure you remember Compaq which got bought by Hewlett-Packard (HPQ - commentary - Cramer's Take) for peanuts I recall!

The list of brokers and banks will bring back memories too. E.F. Hutton, Salomon Brothers, Chemical Bank, Chase Manhattan Bank. Manny Hanny as we called Manufacturers Hanover Trust. Bankers Trust was there too. It took me a few minutes to realize that GS on the screen back then was not Goldman Sachs (GS - commentary - Cramer's Take) but Gillette, the razor company.

But the one that really shocked me was Kodak (EK - commentary - Cramer's Take). I had forgotten what an important stock it was. It was in the Dow Jones Industrial Average back then. It closed the day down $26, at $63. It is currently a teenager.

There will be great bargains when this decline is done. There will be great stocks to buy. But whoever tells you what a great opportunity XYZ stock is today clearly doesn't know that the market rotates its favorite names, its favorite groups. I have often said that last year's winners are rarely this year's winners. Well, we can expand that to say something a bit more general: The winners of today are rarely the winners of tomorrow and I believe this trip down memory lane from 1987 proves that point.

Monday was ugly, and it felt a bit panicky too. The VIX jumped. The Index ratio zoomed over 200%. Volume was relatively high as well. So we ought to get an oversold bounce shortly but I can tell you that I would rather be late to the party than early in this case. I've given the market the benefit of the doubt lately by ignoring the intermediate-term indicators and their continued down-trending ways. They were clearly sending us a message and I will now wait until they tell us it's safe to go back in the water.

For more explanation of these indicators, check out The Chartist's primer.

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Why do they ask, "Do you have a set?"...

What a grind..! 12 hours straight... it's amazing how time flies by playing poker.. Where does the time go? I started playing at 8:00pm Friday night to 8:30am Saturday morning. Slept all day Saturday and now just getting up to relax and watch the financial news about the rescue plan. I made $155 or about $12.90/hr.. I was up quickly in the first 30 minutes with a profit of $150. I actually wanted to quit and relax, but it was to soon, so I kept on playing and loss $200 and had to keep playing to make it back. I eventually did, but it wasn't easy. Most of the players were new and we got shorthanded and decided to play Round by Round. Omaha and Hold'em.. It was a nice change of pace. I actually hit quad fours in Omaha and then flopped a boat with pocket fours in Hold'em. Another girl hit quad fours with pocket fours the same night. So the hand of the night was pocket fours. .

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I actually loss with my flopped full house. Here is they story. A fairly tight girl raised $10 preflop. I called with my pocket fours and two other guys called. The flop is 884. The girl goes all-in with $45. She was short stacked. I decided to go all-in with over $200. The other two guys fold. I show my boat.. She keeps her card faced down, looking depressed. The turn is a Queen and the river is a King. I see her face lite up and realize that she must have hit her 2 outter... She rolls over pocket kings and takes down the pot... I was due of a set over set, at least once every 3 months it happens to me.. At least it was with someone short stacked and only cost me $55.

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At the end of the night I eventually got my money back from her after bluffing her with pocket 10s. She said she had pocket Jacks. Then the hand that put me back into the black. I have AQ and raise $17. I have not played a hand in a long time. Everyone is now scared of me since they saw me lose with a flopped full house, hit a set of nines and Aces and hit quad fours. I have the total fear and respect of everyone and they call me the tightest Asian player they have ever played with. Two guys kept asking, "Do you have a set?" Most holdem players are working about top pair, but with me everyone is worried about hitting a set. I guess most Asian play pretty loose in Austin. I want to make money and playing tight is right.
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Anyways, back to the hand. Everyone folds except the girl that hit the two outer on me. I feel that she is still steaming over folding pocket Jacks and me hitting a two outer on her early with a set of nines of the river. The flop is AQ3. She bets out $25. I re-raise her to $50. She calls. The turn is a 10. She checks and says to me don't bet.. I say I have too.. I bet $100. She thinks really hard. She looks shocked that I bet that much. She takes forever to decided, but eventually calls. The river is a blank and she rolls over A5. I show my two pair and take the pot... Now I am back up to $360 in front of me.. Basically where I was 11 hours ago with a $160 profit. I sit for a few more rounds and leave. I was glad to leave with a little profit and keep my winning streak alive at Sheldon's place.
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Current Stats

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Covered my WB and GS...

I sold my WB puts yesterday and covered my GS puts this morning. Made about $750. The trading environment is tricky and I think all these financials have a long way down before they go back up.

The news on GS seems puzzling, the media is hyping that it is all good, but the stock offering scares me? Why do they need $5B more, if they are so well capitalized? Why are they issuing preferred stock? It sounds like they are in a cash crunch just like all the other firms that have collapsed. Every other financial firm did the same thing. Raised money by offering preferred shares or issued more stock. Something doesn't seem right with this story.If I were Jim Cramer at his hedge fund, I would be long the preferred shares and shorting the common? Oh wait, we cant short now.. Wow, amazing how that has worked out.. I guess Paulson is helping out his old firm after all..

Short Wachovia!

Short WB!!! That's my hot tip.. Since you cant short financials now.. then buy some puts... It is the next big bank to go bankrupt.. I have a good tip by someone that knew about Bear, Lehman and Merrill Lynch going under months before it happen.. I should have stayed with all those shorts.. Would have made out like a bandit..