As always, a picture’s worth a thousand words and here is one that deserves to be seen more than once.

Unfortunately, the point that is driven home quite effectively is we have coasted through the eye of the storm and are too busy patting ourselves on the back to get ready for the hurricane ahead.

The only difference is that for this wave of resets, the Federal Reserve has already played its hand. Back in 2007, the Fed had pumped a few hundred billion Dollars into the financial system, but had yet to resort to the unbelievable array of lending windows/ bailouts/ outright acquisition of toxic waste assets.

Since then the Fed has done the following:

  • Cuts interest rates from 5.25-0.25% (Sept ’07-today)
  • The Bear Stearns deal/Fed buys $30 billion in junk mortgages (March ’08)
  • Opened various lending windows to investment banks (March ’08)
  • Taken over AIG for $85 billion (Sept ’08)
  • Implemented the $700 billion Troubled Assets Relief Program (Oct ’08)
  • Bought commercial paper (non-bank debt) from non-financials (Oct ’08)
  • Offered $540 billion to backstop money market funds (Oct ’08)
  • Backstopped up to $280 billion of Citigroup’s liabilities (Oct ’08).
  • Given another $40 billion to AIG (Nov ’08)
  • Backstopped up $140 billion of Bank of America’s liabilities (Jan ’09)
  • Bought $300 billion worth of Treasuries (Mar ’09)
  • Bought $1.25 trillion in agency mortgage backed securities (Mar ’09-’10)

In closing, here’s how the stock markets fared in 2007-2008

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