More from John Mauldin:
"The FDIC recently announced that the institutions it insures had only $1.7 billion in earnings in the third quarter, down from $28.7 billion a year earlier. And financial troubles aren't confined to banks. Many hedge funds have suffered huge losses on their highly leveraged positions this year. And their sales of securities to limit further losses and to meet investo redemptions are adding downward pressure on many markets. In some, assets are down 50% while others are folding their tents and still others are limiting redemptions, only adding to investor restiveness. Redemptions are expected to jump early next year."
Note: If the banks that the FDIC insures slide further and begin to lose money as a group, instead of the meager $1.7 billion in profits they earned in Q3, then they will be undercapitalized once again, despite the injection of $350 billion of taxpayer funds into the system. They won't be able to resume lending because their reserve requirements will still force them to raise additional capital and hold onto their cash instead of risking it by lending it out.
Hedge fund redemptions were the primary cause of the plunge in the stock market during the fall of 2008. If Mauldin is correct in forecasting additional redemptions in early 2009, this could precipitate the plunge in the stock market the he forecasts in my later post.
