In response to Minyan Mailbag: Morgan Stanley Questions where I responded:

“Arguably Bank of America is hoping Countrywide (CFC) goes bankrupt. If that happens, Bank of America (BAC) will have first crack picking up pieces of Countrywide, notably their servicing operation, for an extremely cheap price.”

I received this reply from Tom who writes:

So, this is what Wall Street vultures look like when they circle. They make deals to “help” a company, all the while hoping that they get to pick the carcass clean. Cool.

Yes Tom, you have it correct. But here is the trick: Please consider what Minyan Peter, former treasurer for a major US bank has to say about Credit Cycle Bottoms.

…should the economy continue to deteriorate as I expect, the banking system will once again require further capital and the “denial” that once joined bank issuers and investors together will be transformed to fear. And with that capital will be raised not through equity issuance, but through sales of non-credit assets at fire sale prices. Those able to throw good assets overboard will survive. Many will not be so lucky and will end up in the arms of the regulators.

As much as we may be critical of the terms struck by Citigroup (C), the deal got done. Remember, credit cycle bottoms are defined more by what couldn’t get done than what could.

Please note the above timely advice was written by Peter on November 28.Look at what has transpired since then with E*Trade (ETFC), MBIA (MBI), and most recently Morgan Stanley (MS).

The key point here is that deals are still getting done. The bottom will not occur until it is nearly impossible to get a deal done at all. In the meantime, expect more and more US assets to get sold to China and the oil producing states. This is the payback for reckless US consumption that still continues today.

Those who see the balance of trade deficit as being a positive are obviously delusional. However, denial runs deep.

Mike “Mish” Shedlock
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