Posted on 10/09/2008 12:05:59 PM PDT by pissant
8995. Wow, I'm impressed how well socialism has helped the markets.
Right now, the government is leaving the issue of lending up to banks. The government is providing a lot of liquidity (HUGE amounts of liquidity) but the banks are hoarding it, keeping cash on their balance sheets at the same time they continue to pay dividends on their common. Why are the banks hoarding? They don’t know what is going down in flames next. They don’t know what counterparty risk they have to meet next, they don’t know whether the ratings agencies are going to downgrade them out of the blue, they don’t know if there is going to be a rumor that initiates an electronic run on them, they don’t know whether they’re going to be shorted to zero today and tomorrow. The one defense a bank has in these times is a fat wad of cash on their books to convince everyone that they’re not going under. Trouble is, no one knows what the CDS exposure is, so there is now a question of “how much cash is enough?”
Bank of America is the first bank to act responsibly in this manner and cut their dividend on the common in half - just this week. If the banks had been responsible, they would have chopped their dividend as soon as they saw the TED spread clear 200bp and certainly by the time they saw it clear 300bp. That would have had banks suspending their dividends as of 9/18 at the latest.
Instead, we see banks taking all manner of liquidity from the Fed.... and still refusing to lend short-term.
This same thing happened in the crash of 1907. The stock market was going straight down in freefall, because the stock market was heavily shorted and there was no cash to liquidate stock positions, or to buy a new long position without selling stocks at a very heavy loss.
JP Morgan (the man) got a whole bunch of bankers together in a room and FORCED them to lend. He would not allow them out of the room until they committed capital to lend to the exchange.
Bankers are people. And while times change, technology changes, people never do. That’s why great literature like Dickens and parables in the Bible are timeless: people don’t change.
Bankers are still every bit the same as Mark Twain described them: happy to lend you their umbrella when the sun is shining, but they want it back at the first drop of rain.
What has to happen is that the government needs to wade in, clean out the CDS problems (possibly invalidating and unwinding contracts that cannot possibly be fufilled), then they have to force lenders to lend or they should shut them down if they can’t lend (ie a wreck of a balance sheet that just can’t be repaired...)
Just in time for a(nother) late day plunge.
I'm waiting to see Asia and Europe tonight before placing my bet. There are a whole lot of company CEOs that won't be sleeping very well tonight.
Bush is going to put his face on TV before the markets open tomorrow. It could make today look downright pleasant.
There's only a very small percentage of the American public that even understand the importance of what is taking place tomorrow. They still think it's all about mortgages.
You know it.
If you look at the patters throughout the day, you can see when the margin clerks are calling the retail investors who still have margin. You see a selloff after 11am, which might be about when the dealers are calling their hedge fund and PE clients, and then at the end of the day, you see the margin clerks dialing for dollars — and not getting any, so they start liquidating.
Chris Cox needs to be sacked. But Bush will never do it. The uptick rule needs to be brought back, and fast.
Bush is an idiot for putting Cox in there. Cox doesn’t know his rump from a hole in the ground, and he’s been an utter disaster of feckless incompetence. We need an uptick rule to slow down these free-falls where there are no buyers. The buyers are so scared now, they’re just stepping aside. I see stocks with no bid depth at all - the shorts/sales come in and the few bids that are there get crushed and then the price just drops downward like a stone. That’s what the uptick rule was put in place to prevent.
I’ll say it again: McCain was right. Cox needs to be fired, now, and fast.
Agreed.
I'm dismayed to see some highly-respected conservatives defending him because he is conservative.
Beats the crap out of me. Farmers are still able to get credit, because Wall Street pretty much washed their hands of ag credit back in the 80’s, after the ag crash of ‘86. The Farm Credit system works more like a credit union at the local level, and the FSA and Farmer Mac have limited exposure to Wall Street. Farmer Mac is a GSE, and they’re likely having to pay up if they want to float a bond, but not all farm financing goes through Farmer Mac.
If, however, the federal budget gets so absurdly over-the-top in debt that it comes down to farm subsidies or losing our AAA national debt rating... I’m pretty certain that Congress is going to hack and slash everything that isn’t absolutely essential to maintain that AAA. Farm subsidies would be high on the list, and that could cause some disruptions.
I don’t think we’ll see a shortage of food in cities anytime soon. There’s far too much incentive on both ends of the system to keep food flowing. There might be some bankruptcies in food processors and feedlots, who often are levered up. That would not be entirely a bad thing, either for the food consumer or the farmer.
Our gov is a key element in this with first the establishment of the Union of North American States as a protectionist move. NAFTA and CAFT and FEMA with DHS have all the 'laws' n place to allow this to happen.OK I'm nuts. If so,what else would make sense.????
re it’s called the genocide of the baby boombers
re #274 Dave.......there’s A Truth coming into play. The jig is up and the dark side is seizing power (in their minds only)
re#226 You are exactly right. Funny thing. My adoptive parents of WV and NC never knew there was a Great Depression in of sort...cause everyone gardened, canned, dried, raised stock, harvested their own milk, made their own butter, raised their own chickens etc, and hunted in the area known as Boone, NC. Good quilt country too!!!
Nikkei 225 8,424.46 9:11PM ET Down 733.03 (8.00%)
What do you think is going to happen Monday?
I have new appreciation for the market description as, “up on an escalator and down on an elevator.” I’ve never seen a chart where money flowed out of the equity markets like this week. Never.
Thanks. I had this thought, briefly, or question perhaps.
Thanks very much, I am going to do some serious heavy-duty shopping tomorrow and stock up.
Thanks. This explains, I am guessing, why I am still getting credit card offers from WaMu.
For Congress to pass $700,000,000,000.00 is no more painful than passing a small kidney stone. The don’t even strain the urine.
Paulson and Bernanke already know how this will play out. So does Congress.
You’ll be voting for years after your death thanks to ACORN!
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