Economics Update

Normally, I don't comment on normal swings in the stock market, but there is nothing normal about the Iceland Stock Market, which dropped 77% after trading resumed following a 3 day suspension.

Iceland is in for some very hard times. It's because the past few years of their prosperity were due to the pseudo-economy of the carry trade, which makes nothing, and so now they will bear the costs of the resultant excesses.

Speaking of excesses, it looks like the Royal Bank of Scotland will be first in line to sell itself to the British government, which is unsurprising as they were at the forefront of complex financial deals and mergers.

It should be noted that U.S. banks are lining up for partial nationalization too.

Additionally, we are having confusing moves by the FDIC on Regulation. It appears taht the FDIC will guarantee, "Senior unsecured debt, such as commercial paper and transfers between banks, issued through June 30, 2009, to help banks fund operations and let the institutions convert maturing senior debt into new issues fully backed by the FDIC."

There has to be some sort of major blow-up at the center of this, but I am not sure exactly what it is.

In the mean time, oil is down, on expectations of a deep recession and reduction in demand, and so is the dollar, on....I'm not sure, but my hunch is on the realization that Treasury Secretary Paulson is a moron.

That being said, the newly nationalized GSEs are not getting much love with the debt spreads widening on Fannie and Freddie, probably because the Treasury is directing them to buy some really awful financial instruments.