Buying America on the Cheap

I was going to title this post "wealth destruction", but the consequences of sub-prime will extend deeper than our collective pocket books.

The financial markets had a tough day (dow down 277) with reported quarterly losses of Merrill Lynch and Citigroup topping $32 Billion (yes, billion) dollars. More bad action expected tomorrow, Intel down 16% (yes, 16%) in after hours trading, on a bad earnings report.

We might be in the beginning of the "capitulation" phase of sub-prime. The hope, is that the financial institutions exposed to sub-prime will come clean, so that the true extent of the problem becomes known. If this is capitulation, it could get ugly over a short period of time. If financial institutions don't come clean, it could turn into a prolonged battle with action to the downside predominant. Hedge funds, with requirements that are not as strict, don't report nearly as often as a publicly held company.

Anyway, buying America on the cheap. As I commented in an earlier post, Bank of America purchased Country Wide Financial for about 4 billion dollars. Not sure what CWF stock is right now ($6 or $7), but in the spring of 07, is was about $45. So BofA, if it can make it work, got a great deal.

It's not so great that in order for Merrill Lynch to ensure it's survival, Kuwait Investment Authority, was able buy a 6.6 Billion stake in the company on the cheap. Citigroup cut it's dividend 41%, is eliminating in excess of 21,000 jobs and still had to sell a $10 billion stake to the Government Investment corp. of Singapore, Kuwait Investment Authority and Saudi Prince Alwaleed bin Talal, combined.

Over the span of a generation we have exported our industrial base to foreign countries. The capital raised by these foreign enterprises, is in part, funding the acquisition of our financial base. It this trend was to continue, we might become "spectators" to the wealth of our nation.

Not a good turn of events IMO.