Posted on 10/08/2008 9:10:58 PM PDT by TigerLikesRooster
Money market stress intensifies
By Michael Mackenzie in New York
Published: October 8 2008 19:44 | Last updated: October 8 2008 19:44
Stress across money markets intensified on Wednesday despite the unprecedented round of co-ordinated interest rate cuts by central banks aimed at helping banks gain access to funds.
In recent days, central banks have pumped vast amounts of liquidity into the short-term lending markets, only for banks to hoard the cash and not lend to other banks. As well as the rate cuts, the US Treasury tried to alleviate lending problems in government bond markets by making more of its bonds available for collateral.
(Excerpt) Read more at ft.com ...
Ping!
Trust has broken down.
This is like a snowball rolling downhill and getting bigger and bigger as it goes.
the democrats helped create the mess
and now they’re posing as rescuers.
Don't be a nice guy(lend others my cash) and get killed(going under.) My survival over others(hoarding cash.) That must be the prevailing sentiment.
To be followed by hyperinflation as all they money seeks a home as trust is restored?
Or to vaguely prop up the prices of overinflated assets to keep them from deflating completely?
Or a combination of both, in different sectors (falling standard of living)?
Only time will tell.
Cheers!
Just anecdotal, but here’s another farcical element of the trillion dollar bailout. There’s a difference between a money market fund and a money market account. A money market account is guaranteed by the FDIC; a money market fund is not. Accordingly, a fund, because it entails a higher risk, yields a higher return. I invested in a money market account to play it safe. But if I knew then what I know now - that funds would be part of the bailout - I would have invested in them. And now I’d now be enjoying myself at YOUR expense! HAHA! In fact, I might even be enjoying myself with the AIG robber barons in their sauna over there in Europe! HaHa!
TLR,
It seems like ages ago that my typical response to these posts would be a sarcastic, joking “bullish!”. Now, I just cringe.
I think a cheaper and more effective solution to our “problem” would have been for the gov’t to guarantee short term loans among banks. The $850B bailout does little to immediately cause banks to lend money to each other and businesses.
All the hallmarks of being out of control. We will know in very short order if the government has any control over the financial world right now. I don’t think they ever did. It was all an illusion. I think the runaway train will be apparent shortly, but what do I know. I’ll reserve judgment for a bit.
Everyday I think this can't get any worse, it does!
Never forget we are in completely uncharted waters. “Travis McGee” will say no, as this is the typical end to the typical credit bubble, and of course I agree in principle. But in detail, we are in completely uncharted waters. 60 trillion dollars in credit derivatives. Nobody really knows where this will end. Nobody.
The hypothesis in that case would be,"If the U.S. government realizes it has no control, 1)what is their next step 2) if they say, "we will let the market sort it out with no further interference from the government", what is the result?
An interesting exercise for the freemarketer. Some say Greenspan's laissez faire got us into this.
yitbos
So what you are in effect saying is we are up chit's creek without a paddle?
I’m saying the future is completely unknown. Does this end in deflation and depression? Hyperinflation? Collapse of the dollar? A deep recession, then back to normal? 70s style stagflation?
I don’t know. There is no consensus. The way the markets are acting is different than at any time since 1929. This is not quite like 1987 or 1998 or 2000-2002. This is unique.
I can’t conceive of a depression. The scale of this problem seems to be much smaller than the Great Depression. We don’t see people with money leveraged in the stock market at 9:1 ratios. As bad as the housing bubble was, we don’t see every other person flipping investment property. Too many, but nothing like the roaring twenties.
This should be nothing more than a really deep recession that lasts 18 months or so.
Then you have the $62 TRILLION in credit derivatives that Warren Buffett called “financial weapons of mass destruction.” Sorry, you just don’t fade buffett. If he thinks derivatives can vaporize your FIRE economy, that is not something you want to take lightly.
Then there is the sudden, massive printing presses that Chopper Ben is loading into his whirlybird fleet. If all this works out to be just a long, painful recession, then that has to cause some really painful 70’s style inflation on the other side. If deflation in housing and other assets is not done, then we get the full-boat stagflation.
Then we have this massive welfare state that was not this bad back in the roaring twenties or in 70s.
Then you have a war that is being charged on a Fed credit card off the books followed by, oh, $50 Trillions or so of unfunded liabilities from Medicrap and Social Disease Security.
I’m telling you, we’ve been living on a floor of funny money for so long, that when they pull the floor out from under us, we’re going to fall pretty hard. I just don’t know how far down it is under the phoney floor. It’s beautifully tiled with hand-crafted marble and polished to a brilliant shine and inlaid with rare gems, but it’s just an illusion and right now it is crumbling under our feet. It was always an illusion. We were walking in the clouds. Now we get to try our hand at flying.
I’m just hoping and praying the fall isn’t too far and we can get by with a spraigned ankle or a simple fracture, get into physical therapy for a few months, and be on our way. I praying we don’t end up in a body cast.
I can’t find a single credible soul who seems to know how this all ends. The interconnections are so complicated here, probably chaos theory or something, and there is just no knowing how the billions of people on this planet will react to it all.
That’s my point. I have no clue how this ends. I can’t find any credible economist to offer how this probably ends. I can’t position myself or protect myself as a result of that uncertainty, and this is terrifying the markets and causing bank runs and cash to be stuffed in mattresses.
This is real. Illusion over. Reality is here. How does it all end? Nobody knows.
Do we know for sure that the leveraged debt is higher than 1929? I don’t think we know that for sure? Do you know? Any inkling?
Without a doubt, the $60 trillion in credit derivatives appears to be massive on the face of them and I have no clue what real affect they will have on the world’s economies or if they are even payable. Maybe $55 trillion will end in default and the counterparties will just sulk with their tails between their legs and get their yachts repossessed.
I just don’t know if the $62 trillion in debt will have the effect of an honest $62 trillion in lost world GDP. I can’t see it.
So I FEEL the scale of this crisis is huge, but I can’t get my teeth around it and I am very confused if we are better or worse off than 1929. I just don’t know.
Ah, cheer up! Obama will fix it, he's magic man!
At least you are honest enough to say you don't know how this will end. One thing sure, it's probably not gonna be pretty!
Given the same amount of time, the number of transaction that can be executed is many time larger now than it used to. It is much easier to locate the party who wants to trade with you.
Even with the same leverage ratio for single transaction, this will allow you to build much higher leverage pyramid.
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