Sep 22, 2008

Wall Street’s Financial Meltdown

By Todd Strandberg

Last Monday morning I called Terry, and as soon as he picked up the phone, he said, ”I know what you want to talk about.” He knew that I closely follow the financial world, so the events of the preceding weekend were on my mind. Little did we know there would be more disastrous days to come. The bottom of this economic freefall was not reached until Thursday.

We literally came within a hair’s breadth of seeing the whole financial system in America come crashing down. For the first time ever, the whole banking system simply froze. It took an infusion of a trillion dollars by the Fed to get Wall Street’s financial heart beating again.

September 2008 will easily go down as the darkest month in U.S. financial history. We have never seen so many large financial institutions falter in such a short period of time:

1. Mortgage finance companies Fannie Mae and Freddie Mac were taken over by the U.S. government.

2. Lehman Brothers holdings succumbed to the subprime mortgage crisis. It is the biggest bankruptcy filing in history.

3. Merrill Lynch was saved from bankruptcy by a shotgun merger with Bank of America.

4. The world’s largest insurer, American International Group, was saved from certain collapse by an $85 billion federal loan.

The most troubling part of the financial crisis is the federal government being forced to become the lender of last resort. In March, the Federal Reserve pledged $30 billion to help JP Morgan buy Bear Sterns. This month, it used $200 billion to take over Fannie and Freddie, and it agreed to loan AIG $85 billion. On Friday came the news of a much larger bailout that could cost $700 billion. The government will create a new entity that will buy up bad loans. Just for giggles, the Treasury also decided to guarantee the $3 trillion that sits in money market accounts.

Most people don’t understand what the Federal Reserve and Treasury folks are doing. Because the taxpayers are the ones who are funding the federal government, any risk taken by the Fed ultimately falls on us. When Fannie Mae and Freddie Mac were taken over, we assumed responsibility for $5 trillion in mortgage bond obligations. The debt load is equal to each of us co-signing for a $50,000 loan. When AIG was given $85 billion, it was like us writing this company a check for $850.00. The proposed $700 billion trust fund would obligate each taxpayer to a loan amounting to $7,000. Money market funds are regarded as very secure, but to fulfill that new guarantee, you and I are saddled with a $30,000 commitment.

At some point, the rest of the world may wake up and realize that America is funding its standard of living through an endless issuance of debt securities. The indication of this would be a crash in the value of the dollar. The events of this past week have done enormous damage to our nation’s credit with the rest of the world. The German magazine Spiegel reflected this growing view when it said, “It really does look as if the foundations of US capitalism have shattered.”

Several foreign banks and investment trusts have lost billions from buying our sub-prime debt securities. The days of easy money are over. Wall Street is now left to beg nations rich in cash for loans to fund their operations.

This financial bloodbath plays into Bible in many ways. The most important factor would be the shifting of financial power away from America . A few months ago, I read a news report that said London was poised to become the financial capital of the world. Now that so many financial firms have either been totally wiped out or lost huge percentages of their capital base, Wall Street should consider itself lucky if it only slips into second place.

Seeing how easily financial firms can collapse, one right after another, has made me all the more certain of how much more devastating the rapture will be to the American economy. The removal of millions of people from the most Christianized nation on earth will create a huge economic black hole.

Right now, banks are losing around three cents for every dollar invested in mortgage securities. In the aftermath of the rapture, losses will be at least 25 percent. When one out of every ten houses suddenly becomes vacant, the value of homes across the nation will simply implode. Because every bank leverages its holdings by an average of 14 times, it would only take a drop of 8 percent to wipe them out.

Terry and I believe the financial system will likely hold together until the rapture occurs. Jesus said He would come at a time when the Church is not expecting Him. If America fell into a deep economic depression, interest in prophecy would soar, which in turn would create a conflict with the prediction of apathy at the time of the rapture.

I see this record level of economic chaos as a warning sign from God. Money is the greatest idol that people worship. By bringing Wall Street to its knees, the Lord is clearly trying to get the world’s attention. If man ignores this latest warning, as he has done with all the other ones, we are certain to proceed towards judgment.