Subprime City Confidential: Aug. 11, 2009

Yes, that date is correct. We've got the bona fide (fictional) scoop on what things will be like on the credit crunch's second anniversary

by Will Andrews

Amid the blizzard of media commentary, analysis, and general navel-gazing accompanying the first anniversary of the credit crunch (BusinessWeek.com, 7/31/08), we here at Subprime City Confidential were dutifully prepared to present our own version of what it all means, what we have learned, etc., when a much more exciting opportunity dropped in our lap.

Let us explain. We don't get many visitors to our lonely little office at the corner of First Lien Lane and Alt-A Vista Drive. Every once in a while, we'll entertain a confused reader or two; proselytizers for Subprime City's preeminent house of worship, the First National Church & Trust ("default and be saved!"); and the occasional process server. But we were completely unprepared for the shadowy figure that appeared on our doorstep one recent rain-soaked evening. The slender apparition shook the last drops of the downpour from his faded raincoat as he entered. It was hard to get a good look at his face, as he had pulled his fedora down over his brow. The sounds of his labored breathing nearly drowned out the dull roar of the deluge outside.

"Hello," we said. "Can we help you?"

"This is for you," he said, as he produced a battered manila envelope from inside his coat.

"Sorry, we don't take unsolicited manu-…"

"Silence!" The loud clap of thunder that accompanied his booming interjection told us we should pay attention. "Now read it."

When confronted with a visit from a bona fide mysterious stranger on a dark and stormy night, what else can you do? We opened the folder and found a stained sheet of vellum with the words "SUBPRIME CITY CONFIDENTIAL: Aug. 11, 2009" in smudgy type at the top. We skimmed quickly through the rest of the document, which appeared to be a note-perfect rendition of the well-beloved SCC format, right down to the innuendo and bad jokes. (Well, our mother likes it, anyway.)

"That's impossible!" we sputtered. "That's one year from…"

"Now you know," he said. He vanished before we could tell him that we don't pay freelancers, or even our own staff, for that matter.

Anyway, here it is: An advance peek at Subprime City Confidential, one year from now. Tomorrow's news, today! (Note: If things turn out exactly the way they're depicted in the following items, consider them SCC's greatest-ever scoop. Stories that speculate on future outcomes that don't turn out remotely as the writer suggests are called—what else—analysis.)

Wall Street: The Last Roundup

As it turns out, the Federal Reserve-brokered March 2008 rescue of Bear Stearns (BusinessWeek.com, 3/16/08) by JPMorgan (JPM) was just the cocktail hour before the mass wedding of the century. After another orgy of writedowns and a Niagara of red ink among U.S. financial firms (in which Lehman Brothers (LEH) accidentally wrote down the same assets twice), Fed chairman Ben Bernanke executed one final bold plan to shore up the U.S. banking system. The Fed chief arranged for the consolidation of the remaining big U.S. financial firms into two new entities: GoldmanBofAMerrillCiti and JPMorganStanleyBrothers.

Under terms of the deals, which were consummated at a weekend swap meet in Pavonia, N.J., Goldman (GS) and JPMorgan were the nominal acquirers of the other firms, but it was the Fed that provided the financial muscle. The central bank opened its (that is to say, your) pocketbook to the tune of $200 billion in YYMAPTB (Yes, You Must Absolutely Pay This Back) and STTWBOTH (Seriously, the Taxpayer Won't Be on the Hook) term facilities.

In a statement announcing the deals, Bernanke said "these historic moves give new meaning to the term 'ownership economy.' That's because the government does indeed now own the U.S. economy."