Stock markets and dollar plunge again on fears over bank crisis(facing a financial black hole)

Stockhouse ^ | 03/14/08

[TigerLikesRooster]

Stock markets and dollar plunge again on fears over bank crisis

3/14/2008 10:07:00 PM ET Related symbols: BAC BSC The Independent

The rescue of Bear Stearns rocked markets that had barely recovered from the shock of Thursday's news about the state of the American economy, particularly high home repossession rates, which virtually confirmed that the US is entering a recession. As with the problems at one of Carlyle Group's funds, and the rescue of Countrywide by Bank of America, the problems at Bear Stearns further eroded confidence in the US financial system.

Neil MacKinnon, chief economist at the ECU hedge fund, said: 'We are facing a potential black hole for all financial markets. This is being labelled as perhaps the worst financial and banking crisis since the Great Depression. While that sounds fairly apocalyptic, I think it is a realistic assessment of what is happening at the moment.'

The result was to send shares sharply lower, and for the dollar to hit new depths against other currencies. The euro traded at an all-time high of $1.5657 against the US currency, the yen hit a 12-year high, while sterling rose above $2.03 before closing at $2.02. Fears that the dollar's precipitate decline could turn into a rout led to speculation that the G7 may intervene to support the dollar. Bear Stearns lost half of its value within 30 minutes of the market opening, and closed down 47 per cent. The Dow Jones ended down almost 2 per cent at 11,951.1; the FTSE 100 closed down 60.7 points at 5,631.7.

Oil and gold hit new highs. Investors also fled to the comparative safety of US Treasury bonds, pushing shorter-term yields to their lowest since 2003.

All eyes are on the Federal Reserve's interest rate decision on Tuesday. Yesterday, the Fed's chairman Ben Bernanke pledged to help homeowners, suggesting that lower rates would help those 1.5 million Americans due to reset the rates on their mortgages this year. He added that he was 'strongly committed to fully employing our authority, expertise and resources to help alleviate their distress'.

There is a near unanimous expectation that the Fed will cut a further 0.75 percentage points, on top of the 1.25 percentage points of cuts made in January. Rates stand at 3 per cent. Encouraging news on US inflation will give the Fed wider room for manoeuvre. The US Department of Labour reported that the consumer price index was unchanged in February, having risen 0.4 per cent in January, a surprisingly good result. There was even talk of a full 1 percentage point cut, which would be a truly dramatic move.

Even if the Fed does cut rates by 1 percentage point, it looks to be too late to prevent the US economy's slide into shrinkage. In the last quarter of 2007, it grew by only 0.6 per cent on an annualised basis, against 4.9 per cent in the third quarter. With rates at or close to 2 per cent, the Fed will soon have very few shots left in its locker, though it will be helped by the Federal Government's planned $156bn boost to the economy.

[TigerLikesRooster]

Ping!

[CaspersGh0sts]

“There is a near unanimous expectation that the Fed will cut a further 0.75 percentage points, on top of the 1.25 percentage points of cuts made in January.”

Leading to further devaluation of the dollar...

At this rate, we can just destroy our currency and pay off all our debts on our now worthless money. Brilliant!!

[trumandogz]

The Fed Chairman is an Idiot.

[Flavius]

it is a great thing that everyone is broke and on credit, so since no one has any savings

there will be no rush to get money out of the banks

how lucky

[ovrtaxt]

lol sell all your collection agency stocks- there’s nothing to collect!

[AmericaUnited]

Neil MacKinnon, chief economist at the ECU hedge fund, said: 'We are facing a potential black hole for all financial markets. This is being labelled as perhaps the worst financial and banking crisis since the Great Depression. While that sounds fairly apocalyptic, I think it is a realistic assessment of what is happening at the moment.'

And some idiots want to help elect one of the two RAT empty suits to lead this great country during this time of financial peril and critical time in the War on Terror and events shaping up in Iran. It shows an extreme dysfunctional thinking. Freaking kook-koo!

[Vet_6780]

Nobody wants to buy Bear Stearns because of its $229 billion of counterparty risk for which the Fed is now liable.

So in 28 days Bear Stearns can tell the Fed "Sold to you" !!

Bear Stearns is only the 12th biggest of the MBS holders. Who's next ? The system is unraveling the Fed must inflate or die.

I would suggest that you get out of any long equity positions or money market funds, put it in short term Treasuries because this is it.

[Flavius]

well there really isn’t anything to collect

most junk people own is from china

and whats shelf life on that (?) 2-3 yrs before it disintegrates before your eyes

[ovrtaxt]

Sure, except for the lead paint and razor blades.

[djf]

Bought another 30 bucks worth of beans, bean soup, macaroni, and various canned stuff tonight.

Remember one thing - ALWAYS - that Bill Gates himself could have swam around the streets of NO after Katrina with a pocketfull of Krugerands od ten million dollars of Microsoft stock or options up the Kazoo and He still would not have been able to buy a single drink of water.

(Well, maybe a brew if he ran into looterman!)

[truemiester]

I still think that if you were stupid enough to invest in home loans to people who had absolutely no way to pay for it, you should lose you money. Financial Darwinism?

My first home we had to have 10% in the back for a 100% VA loan. We had to have total debts, including the new mortgage, of 82% of our NET income.

Sub prime loans had people who made $9.50/hour getting $400K loans!

[djf]

Can you blame the Arabs for wanting more and more of something day after day when that something is worth less and less day after day?

[Travis McGee]

Full speed ahead!

“Derivatives have permitted financial risks to be unbundled in ways that have facilitated both their measurement and their management…. As a result, not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.”~~Alan Greenspan, May 2003

"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage."~~Alan Greenspan, February 22, 2004

“The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions.”~~Alan Greenspan, May 2005

"We're not about to go into a situation where (real estate) prices will go down. There is no evidence home prices are going to collapse."~~Alan Greenspan, May 21, 2006

“The damage from the subprime market has been largely contained. Fortunately, the financial system and the economy are strong enough to weather this storm.”~~Richard Fisher, Federal Reserve Bank of Dallas President, Apr 4, 2007

"All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."~~Fed Chairman Ben Bernanke, May 17, 2007

I don't think we're headed into a recession. But there's no question we're in a slow down and that's why we acted with over $150 billion worth of pro-growth economic incentives, mainly money going into the hands of our consumers... The purpose is to encourage our consumers - to give 'em money - to help deal with the adverse effect of the decline in housing values.~~President George W. Bush, Feb 28, 2008

[Travis McGee]

I agree with you 100% on principal. Moral hazard rewarded, etc. However, we are now all standing on the ledge, tied together with ropes and chains. If one of the “too big to fails” goes over, he won’t go over alone. He will pull the entire system down, by triggering an epic crisis of cascading cross defaults.

[Travis McGee]

That should be principle.

[freeangel]

This is nuts. Ninety six percent of mortgages are being paid on time, yet the press and the subprime mortgage lenders would have one believe that 96% are about to have their homes forclosed. This whole thing is about big business pushing the envelope of having it’s cake while having taxpayers pay for it. Even though the US government has wildly overspent, natural corrections should be allowed to occur and let the chips(of the imprudent) fall where they may.

[sergeantdave]

“confirmed that the US is entering a recession.”

No, parts of the US are entering a recession. For example, Michigan has been in a recession for years, since the commie Granholm was voted into the governorship by a majority of liberal idiots in that state.

I would bet that most areas entering a recession are run by liberal democrats.

On the other hand, in South Carolina, BMW is spending $750 million to expand its plant, employing another 500 people. That state (mostly) is not run by simpleton liberals.

[bigjackattack]

that will fix the housing market, that $1,000,000 house will look cheap when a new civic is $100,000 and a gallon of gas costs $50

[Dutchguy]

This reminds me of a song, the sub-prime mortgage blues.