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8:00 AM EST, Friday, September 26, 2008: Cash is king. But where to put it? Triple tax-free munis are now yielding 5% for 15-year paper. That's a "bargain." Muni yields have risen because people are selling their munis to feed their need for capital -- to finance their business, pay college bills, etc.

WaMu, the biggest thrift, is gone this morning, unsaved by Paulson or Congress. I gambled on my friend, the new CEO, and lost big. I sold my remaining WaMu shares this morning at 21 cents. My only consolation is that others lost far more than I did -- e.g. the hedge fund that came in some months ago with $2 billion at $8.75 a share.

The economy is suffering financial rigor mortis. Banks aren't lending. People who need money can't get it. This limits everything they do -- from employing new people, to expanding their businesses.

If you have cash -- and I pray my readers do -- there will be extraordinary opportunities shortly. Buffet found two -- Goldman Sachs and Contellation Energy. You will find real estate your bank is dumping. You will find sound businesses strapped for capital that will sell cheaply. We are at the trough of Gloom and Doom. I am excited.

Washington is futzing around with its $700 billion bailout plan. The irony is that even if it is passed, it won't free up capital. Bank managements are like deer frozen in the headlights. Confidence in lending is what's needed. And you can't legislate that. Regaining confidence will take time. I figure another two to three years for this mess.

I sent yesterday's words to my congressperson. I got a "you're a 100% right" reply. If Congress is to pass a bailout, it needs to define the new rules -- especially those on reforming the banking industry. And frankly, you can't do this in one day. Yup, you read right. Congress is due to leave today to take off October to go on campaigning for Election Day, November 4.

From the New Yorker:

Today's New York Times says it all:

Credit Enters a Lockdown
By PETER S. GOODMAN

The words coming out of Washington this week about the American financial system have been frightening. But many have raised the possibility that the Bush administration is fear-mongering to gin up support for its $700 billion bailout proposal.

In many corporate offices, in company cafeterias and around dining room tables, however, the reality of tight credit already is limiting daily economic activity.

“Loans are basically frozen due to the credit crisis,” said Vicki Sanger, who is now leaning on personal credit cards bearing double-digit interest rates to finance the building of roads and sidewalks for her residential real estate development in Fruita, Colo. “The banks just are not lending.”

With the economy already suffering the strains of plunging housing prices, growing joblessness and the new-found austerity of debt-saturated consumers, many experts fear the fraying of the financial system could pin the nation in distress for years.

Without a mechanism to shed the bad loans on their books, financial institutions may continue to hoard their dollars and starve the economy of capital. Americans would be deprived of financing to buy houses, send children to college and start businesses. That would slow economic activity further, souring more loans, and making banks tighter still. In short, a downward spiral.

Fear of this outcome has become self-fulfilling, prompting a stampede toward safer investments. Investors continued to pile into Treasury bills on Thursday despite rates of interest near zero, making less capital available for businesses and consumers. Stock markets rallied exuberantly for much of Thursday as a bailout deal appeared in hand. Then the deal stalled, leaving the markets vulnerable to a pullback.

“Without trust and confidence, business can’t go on, and we can easily fall into a deeper recession and eventually a depression,” said Andrew Lo, a finance professor at M.I.T.’s Sloan School of Management. “It would be disastrous to have no plan.”

The Bush administration has hit this message relentlessly. On Capitol Hill, Treasury Secretary Henry M. Paulson Jr. warned of a potential financial seizure without a swift bailout. Federal Reserve Chairman Ben S. Bernanke — an academic authority on the Great Depression — used words generally eschewed by people whose utterances move markets, speaking of a “grave threat.”

In a prime-time television address Wednesday night, President Bush, who has described the strains on the economy as “adjustments,” put it this way: “Our entire economy is in danger.”

The considerable pushback to the bailout reflects discomfort with the people sounding the alarm. Mr. Paulson, a creature of Wall Street, asked Congress for extraordinary powers to take bad loans off the hands of major financial institutions with a proposal that ran all of three pages. Subprime mortgages have been issued with more paperwork than Mr. Paulson filled out in asking for $700 billion.

“The situation is like that movie trailer where a guy with a deep, scary voice says, ‘In a world where credit markets are frozen, where banks refuse to lend to each other at any price, only one man, with one plan can save us,’ “ said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington.

And yet, the more he looked at the data, the more Mr. Bernstein became convinced the financial system really does require some sort of bailout. “Things are scary,” he said.

For nonfinancial firms during the first three months of the year, the outstanding balance of so-called commercial paper — short-term IOUs that businesses rely upon to finance their daily operations — was growing by more than 10 percent from a year earlier, according to an analysis of Federal Reserve data by Moody’s Economy.com. From April to June, the balance plunged by more than 9 percent compared with the previous year.

This week, the rate charged by banks for short-term loans to other banks swelled to three percentage points above the most conservative of investments, Treasury bills, with the gap nearly tripling since the beginning of this month. In other words, banks are charging more for even minimal risk, making credit tight.

Suddenly, people who have spent their careers arguing that government is in the way of progress — that its role must be pared to allow market forces to flourish — are calling for the biggest government bailout in American history.

“We are in a very serious place,” said William W. Beach, an economist at the conservative Heritage Foundation in Washington. “There is risk of contagion to the entire economy.”

Even before the stunning events of recent weeks — as the government took over the mortgage giants Fannie Mae and Freddie Mac, Lehman Brothers disintegrated into bankruptcy, and American International Group was saved by an $85 billion government bailout — credit was tight, sowing fears that the economy would suffer.

The demise of those prominent institutions and anxiety over what could happen next has amplified worries considerably.

“The problem is so big that if somebody doesn’t step in, it will cause a panic,” said Michael Moebs, an economist and chief executive of Moebs Services, an independent research company in Lake Bluff, Ill. “Things could worsen to the point that we could see double-digit unemployment.”

This week, Mr. Moebs said he heard from two clients, one a bank and the other a credit union in a small city in the Midwest, now in serious trouble: Both are heavily invested in Lehman, Fannie Mae and Freddie Mac.

“One is going to lose about 80 percent of their capital if they can’t cash those in, and the other is going to lose about half,” Mr. Moebs said.

The credit union is located in a city in which the auto industry is a major employer — an industry now laying off workers. Yet as people try to refinance mortgages to hang on to homes and extend credit cards to pay for gas for their job searches, the local credit union is saying no.

“They have become very restrictive on who they are lending to,” Mr. Moebs said. “They can’t afford a loss. Their risk quotient is next to zero. You have a financial institution that really can’t help out the local people who are having financial difficulties.”

Along the Gulf of Mexico, in Cape Coral, Fla., Michael Pfaff, a mortgage broker, has become accustomed to constant telephone calls from local real estate agents begging for help to save deals in danger of collapsing for lack of finance.

“The underwriters are terrified and they’re dragging their feet, and making more excuses not to close loans,” Mr. Pfaff said. “Basically, they just don’t want the deals.”

Three years ago, when Cape Coral was among the fastest-appreciating real estate markets in the nation, Mr. Pfaff specialized in financing luxury homes with seven-figure price tags. “Now I’m doing a $32,000 loan on a mobile home,” he said.

Finance is still there for people with unblemished credit, he said. Mr. Pfaff recently closed a deal for a couple in Indiana that bought a second house in Cape Coral, a waterfront duplex for $300,000. Their credit score was nearly impeccable, and they had a 20 percent down payment, plus income of nearly $8,000 a month.

For people like that, conditions have actually improved since the government took over the mortgage giants. A month ago, Mr. Pfaff could secure 30-year fixed rate mortgages for about 7 percent. On Thursday, he was quoting 6 percent.

But those with less-than-ideal credit are increasingly shut out of the market, Mr. Pfaff said, and there are an awful lot of those people. So-called hard money loans, for those with problematic credit but large down payments, were easy to arrange as recently as last month.

“That money has just dried up,” Mr. Pfaff said. “I’m afraid. I’m 54 years old, and I’ve seen a lot of hyperventilating in my life, but I absolutely believe that this is a very serious issue.”

Several days ago, Tom Brokaw said it even better in the Wall Street Journal

Lots of People Could Use a Cash Infusion

Barney "Big Un" Baumgartner of Windblown, Wyo., invited the Federal Reserve and the U.S. Treasury Department to take over his business, The Big Un 24 Hour Tow Service and Trophy Taxidermy.

In a handwritten press release, Mr. Baumgartner explained that with winter and hunting season coming on, the good citizens of Windblown would be without his vital services unless he found a way to deal with his escalating debts, fast.

"This is not just about me or my neighbors in Windblown. Heck, we get three or four tourists and out-of-state hunters here every 10 days or so. What if they need a tow or a trophy mount? The consequences are too great to contemplate," Mr. Baumgartner explained.

He'd be willing to let the government have 80% of his business for a quick cash infusion. He thought something in the neighborhood of $1.8 million should do the trick. That would be enough to gas up his two tow trucks, get some new taxidermy stuffing and clean up that overdue account at the Number 10 Saloon and Casino over in Deadwood, S.D.

Treasury Department officials had no comment on Mr. Baumgartner's request, but a source familiar with the response to the bailout of American International Group said Treasury has been inundated with similar requests.

+ A pawn shop in Reno, Nev., has an excess supply of eight-track cassette players, flower print shirts, broad white belts and Wayne Newton tapes, having gambled that the '70s would come roaring back. The owner pleaded for a Treasury take-over, arguing, "How can the government stand by and let such a rich part of our American culture simply fade away?"

+ The owner of an NFL poster shop in Green Bay, Wis., reports that he has given up on divine intervention and is now asking for Treasury to take over his business in a last-ditch effort to preserve the notion that whatever our differences, we're all Americans.

Asked how his business got into trouble, Karl Andursen of Muledeer, Minn., said he met a man who specialized in printing Minnesota Viking and Chicago Bears posters. Mr. Andursen said the man was willing to bundle his posters and sell them at a discounted rate to anyone who would take over the Green Bay territory.

Mr. Andurson said in the back of his mind he knew that could be risky since Green Bay is sacred ground for Packer fans who wouldn't cheer for the Vikes or the Bears if they were promised a fleet of new snowmobiles and lifetime hunting rights on Brett Favre's farm.

But, as he said, everyone was in the NFL merchandise game and he figured he'd take the territory and after 30 days flip the franchise for a big profit. A year later and he's not made a sale, not one, but who knew?

He's offered his complete inventory of Go Bears! and Vikings Rock! posters for 20 cents on the dollar or $500,000 in 30-year Treasury bonds.

+ Darlene Dalrymple owner of the Shear Joy Hairstyling and Tattoo Salon in Rockhard, Vt., wrote Treasury Secretary Henry Paulson, inviting him and Federal Reserve Chairman Ben Bernanke to her shop for a free trim and tat if they'd also help with her balance sheet.

Ms. Dalrymple said she's very busy, but her expenses somehow always exceed her income. She suspects her boyfriend, who likes to use a lot of Wall Street lingo he picks up watching business channels on TV, is shorting her cash register.

Ms. Dalrymple said her boyfriend also called her a moral hazard, and she'd like Secretary Paulson and Chairman Bernanke to explain exactly what that means.

Mr. Brokaw is the former anchor and managing editor of "NBC Nightly News." His most recent book is "Boom! Voices of the Sixties" (Random House, 2007).

How long will this mess last? Here's a relevant piece from Bloomberg.

U.S. May Find Painful Parallels in Nordic Bailout (Update2)

By Simon Kennedy

Sept. 23 (Bloomberg) -- If Henry Paulson and Ben S. Bernanke want to know what happens when central banks and governments bail out financial institutions, they should be "learning Swedish.''

That's the suggestion of Charles Dumas, a director at Lombard Street Research in London. He says the effort by Finland, Sweden and Norway to save troubled banks in the early 1990s is the closest parallel to the market-rescue plan being engineered by the U.S. Treasury secretary and Federal Reserve chairman.

The Nordic effort -- similar in speed and scope to what the U.S. is planning now, though smaller in size -- did manage to end the financial crisis. At the same time, it didn't prevent a deeper recession and surging unemployment in all three countries.

"In the long term, there were benefits, but it took half a decade before they began to show in the economy,'' said Esko Ollila, a member of the Bank of Finland board from 1983 to 2000.

With the U.S. financial markets in tumult, Paulson is seeking to implement a $700 billion plan that will allow the U.S. to purchase illiquid assets such as mortgage-related securities from banks. Last week, the government and Fed pledged to insure money-market funds, seized control of New York-based insurer American International Group Inc. and intervened in the markets for commercial paper and short-term debt for Fannie Mae, Freddie Mac and other agencies.

At the end of the 1980s, the economies of Sweden, Finland and Norway had surged after deregulation and low interest rates encouraged banks to lend more. Finnish house prices jumped 80 percent in real terms, and its stock market soared 164 percent in five years, according to JPMorgan Chase & Co.

The byproduct was a mounting debt burden. As policy makers sought to slow inflation and protect their fixed exchange rates, banks found their balance sheets decimated by nonperforming loans amounting to 10 percent of the region's gross domestic product.

The response to the subsequent financial crisis was one of "rapidity and vigor,'' said then-Fed Chairman Alan Greenspan in a 1999 speech. Sweden guaranteed bank obligations against losses and established a $14 billion restructuring fund to provide failing banks with capital in return for equity. In addition to taking over Nordbanken AB, the government created a ``bad bank'' that bought troubled assets at a discount, while leaving financial institutions to manage their more-liquid holdings.

Norway's government took similar steps by insuring savings and seizing control of the country's three biggest banks. Finland merged more than 40 banks, including Skopbank Ltd., into a government-run entity and moved nonperforming assets to management companies run by its central bank.

While the interventions "were sweeping and ultimately a success,'' they didn't bring immediate relief to the three countries' economies, as banks cut back on lending and companies and consumers spent less, said Lauri Uotila, chief economist at Sampo Bank, a unit of Danske Bank A/S in Helsinki.

The Finnish and Swedish economies contracted in 1991, 1992 and 1993. Norges Bank calculates that during the early 1990s, output fell 12.3 percent in Finland, 5.8 percent in Sweden and 4.1 percent in Norway. Unemployment didn't peak in Finland until May 1994, when the rate reached 19.9 percent, having fallen as low as 2.1 percent in 1990. Sweden's jobless rate averaged 9.9 percent in 1997, up from 1.6 percent in 1990.

"The aggressive measures implemented by the Scandinavian governments were not enough to prevent deep recessions,'' said Nicola Mai, an economist at JPMorgan in London. The Fed Bank of Philadelphia today announced it will host a conference next week on the lessons of the Nordic experience for the U.S.

Mai says the U.S. government and the Fed were quicker to ease fiscal policy and cut interest rates as the crisis took hold, something Norway, Finland and Sweden weren't able to do because they had to maintain currency pegs.

By acting quickly, the U.S. may still avoid repeating Japan's "lost decade'' of deflation after policy makers in the world's second-largest economy dithered in addressing a banking crisis. The U.S. may even mimic Sweden whose government made money when it was able to sell the assets at a later date, said Jim O'Neill, chief economist at Goldman Sachs Group Inc.

When Japan's stock- and property-market bubbles burst in the early 1990s, lenders were left with trillions of yen in bad loans on their books. It wasn't until 1999 -- two years after the collapse of Yamaichi Securities Co. -- that policy makers found the political will to use taxpayers' money to begin bailing out the banking system.

It took two more years for then-Prime Minister Junichiro Koizumi to demand that banks accelerate the disclosure of bad debts and their disposal of illiquid loans.

"In Japan, procrastination unnecessarily increased overall costs in terms of asset-price declines, damage to the fiscal position and lost economic growth,'' said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. ``The U.S. seems to be responding with unusual speed and aggression.''

Still, David Rosenberg, North American economist at Merrill Lynch & Co. in New York, predicts that the U.S., like Scandinavia, probably won't see an immediate economic rebound.

"Even with effective government solution, the process of extinguishing the bad debts via government intervention was painful,'' Rosenberg said. "We're into a new chapter indeed, but it's very tough to say at this point that the book is finished.''

Everybody is watching Katie and Sarah.
You can find videos on YouTube and YouTube. Here's bits of the Sarah interview with Charlie Gibson. Use Internet Explorer.

The conclusion (update 23)
Cash is king. Tennis is sanity. The family is wonderful. I see some of them this weekend. Sorry about the length of today's column. But this stuff is important.

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.