Q: On the financial sector, part of the reason why we saw the sell-down in the US overnight was because of a downgrade for some of the brokers there. There are still lingering concerns about the impact on the financials, not just in the US but Europe as well. You expect about 150 bank failures in the next 12 months. Can you explain this?

A: A lot of banks are already bankrupt. A lot of monoline insurance companies are bankrupt and financial institutions hide their rotten assets in level three asset categories where you don’t really need to value them. But, if you have stock prices like the monoline insurance Ambac and MBIA dropped 95% and then some rating agencies until last week were still carrying a AAA rating. It is a total joke.

These companies are basically out of business. So, the financial sector by and large has much larger problems than is perceived by the investment community. The stock market to some extent is telling you that. It is giving you the price, market signals. It is quite funny that one financial firm downgrades another financial firm and another financial firm begins to downgrade a financial firm that was downgrading themselves. It is kind of a domino effect. It is actually quite amusing to watch it all.

Q: To your point, there definitely seems to be some tit-for-tat fighting between the banks in terms of those downgrades. But having said that, the balance sheets might be as bad as you say, but the Fed basically has said that with the major brokerages after Bear Stearns were not going to let you fail. So, the failures that you are talking about are going to be on the smaller, regional level?

A: There is a good chance that the Fed itself will fail one day when they say we are not going to let you fail and that the government will eventually have to bailout the entire system.

There would not be anything wrong if Bear Stearns or another investment bank would fail because you could transfer the assets of clients to another investment bank or to another broker or another bank. I was working at Drexel Burnham and we went bankrupt. Nothing happened to the clients, their assets were transferred somewhere else.