5

9/29/2008 11:11:00 AM

Quote :

" Nouriel Roubini | Sep 29, 2008 It is obvious that the current financial crisis is becoming more severe in spite of the Treasury rescue plan (or maybe because of it as this plan it totally flawed). The severe strains in financial markets (money markets, credit markets, stock markets, CDS and derivative markets) are becoming more severe rather than less severe in spite of the nuclear option (after the Fannie and Freddie $200 billion bazooka bailout failed to restore confidence) of a $700 billion package: interbank spreads are widening (TED spread, swap spreads, Libo-OIS spread) and are at level never seen before; credit spreads (such as junk bond yield spreads relative to Treasuries are widening to new peaks; short-term Treasury yields are going back to near zero levels as there is flight to safety; CDS spread for financial institutions are rising to extreme levels (Morgan Stanley ones at 1200 last week) as the ban on shorting of financial stock has moved the pressures on financial firms to the CDS market; and stock markets around the world have reacted very negatively to this rescue package (US market are down about 3% this morning at their opening). Let me explain now in more detail why we are now back to the risk of a total systemic financial meltdown… It is no surprise as financial institutions in the US and around advanced economies are going bust: in the US the latest victims were WaMu (the largest US S&L) and today Wachovia (the sixth largest US bank); in the UK after Northern Rock and the acquisition of HBOS by Lloyds TSB you now have the bust and rescue of B&B; in Belgium you had Fortis going bust and being rescued over the weekend; in German HRE, a major financial institution is also near bust and in need of a government rescue. So this is not just a US financial crisis; it is a global financial crisis hitting institutions in the US, UK, Eurozone and other advanced economies (Iceland, Australia, New Zealand, Canada etc.). And the strains in financial markets – especially short term interbank markets - are becoming more severe in spite of the Fed and other central banks having literally injected about $300 billion of liquidity in the financial system last week alone including massive liquidity lending to Morgan and Goldman. In a solvency crisis and credit crisis that goes well beyond illiquidity no one is lending to counterparties as no one trusts any counterparty (even the safest ones) and everyone is hoarding the liquidity that is injected by central banks. And since this liquidity goes only to banks and major broker dealers the rest of the shadow banking system has not access to this liquidity as the credit transmission mechanisms is blocked. After the bust of Bear and Lehman and the merger of Merrill with BofA I suggested that Morgan Stanley and Goldman Sachs should also merge with a large financial institution that has a large base of insured deposits so as to avoid a run on their overnite liabilities. Instead Morgan and Goldman went for the cosmetic approach of converting into bank holding companies as a way to get further liquidity support – and regulation as banks – of the Fed and as a way to acquire safe deposits. But neither institution can create in a short time a franchise of branches and neither one has the time and resources to acquire smaller banks. And the injection of $8 b of Japanese capital into Morgan and $5 b of capital from Buffett into Goldman is a drop in the ocean as both institutions need much more capital. Thus, the gambit of converting into bank while not being banks yet has not worked and the run against them has accelerated in the last week: Morgan’s CDS spread went through the roof on Friday to over 1200 and the firm has already lost over a third of its hedge funds clients together with their highly profitable prime brokering business (this is really a kiss of death for Morgan); and the coming roll-off of the interbank lines to Morgan would seal its collapse. Even Goldman Sachs is under severe stress losing business, losing money, experiencing a severe widening of its CDS spreads and at risk of losing most of its values most of its lines of business (including trading) are now losing money. Both institutions are highly recommended to stop dithering and playing for time as delay will be destructive: they should merge now with a large foreign financial institution as no US institution is sound enough and large enough to be a sound merger partner. If Mack and Blankfein don’t want to end up like Fuld they should do today a Thain and merge as fast as they can with another large commercial banks. Maybe Mitsubishi and a bunch of Japanese life insurers can take over Morgan; in Europe Barclays has its share of capital trouble and has just swallowed part of Lehman; while most other UK banks are too weak to take over Goldman. The only institution sound enough to swallow Goldman may be HSBC. Or maybe Nomura in Japan should make a bid for Goldman. Either way Mack and Blankfein should sell at a major discount of current price their firm before they end up like Bear and be offered in a few weeks a couple of bucks a share for their faltering operation. And the Fed and Treasury should tell them to hurry up as they are both much bigger than Bear or Lehman and their collapse would have severe systemic effects. When investors don’t trust any more even venerable institutions such as Morgan Stanley and Goldman Sachs you know that the financial crisis is as severe as ever and the fear of collapse of counterparties does not spare anyone. When a nuclear option of a monster $700 billion rescue plan is not even able to rally stock markets (as they are all in free fall today) you know this is a global crisis of confidence in the financial system. We were literally close to a total meltdown of the system on Wednesday (and Thursday morning) two weeks ago when the $85 b bailout of AIG led to a 5% fall in US stock markets (instead of a rally). Then the US authorities went for the nuclear option of the $700 billion plan as a way to avoid the meltdown together with bans on short sales, a guarantee of money market funds and an injection of over $300 billion in the financial system. Now the prospect of this plan passing (but there is some lingering deal risk the votes in the House are not certain) -as well as the other massive policy actions taken to stop short selling “speculation” and support interbank markets and money market funds - is not sufficient to make the markets rally as there is a generalized loss of confidence in financial markets and in financial institutions that no policy action seem to be able to control. The next step of this panic could become the mother of all bank runs, i.e. a run on the trillion dollar plus of the cross border short-term interbank liabilities of the US banking and financial system as foreign banks as starting to worry about the safety of their liquid exposures to US financial institutions; such a silent cross border bank run has already started as foreign banks are worried about the solvency of US banks and are starting to reduce their exposure. And if this run accelerates - as it may now - a total meltdown of the US financial system could occur. We are thus now in a generalized panic mode and back to the risk of a systemic meltdown of the entire financial system. And US and foreign policy authorities seem to be clueless about what needs to be done next. Maybe they should today start with a coordinated 100 bps reduction in policy rates in all the major economies in the world to show that they are starting to seriously recognize and address this rapidly worsening financial crisis."

What do you guys think, 2000 points erased from the dow in a matter of weeks?

[Edited on September 29, 2008 at 11:30 AM. Reason : a]

9/29/2008 11:29:57 AM

Quote :

"It is obvious that the current financial crisis is becoming more severe in spite of the Treasury rescue plan (or maybe because of it as this plan it totally flawed)."

well technically I didnt think the plan had passed yet, although Im sure it will today or very soon.

but yeah, this plan probably isnt going to be the savior that paulson, bernanke, and bush told us it was going to be. (damnit they just keep lying to us)

9/29/2008 11:56:32 AM

Quote :

"The next step of this panic could become the mother of all bank runs, i.e. a run on the trillion dollar plus of the cross border short-term interbank liabilities of the US banking and financial system as foreign banks as starting to worry about the safety of their liquid exposures to US financial institutions; such a silent cross border bank run has already started as foreign banks are worried about the solvency of US banks and are starting to reduce their exposure. And if this run accelerates - as it may now - a total meltdown of the US financial system could occur. We are thus now in a generalized panic mode and back to the risk of a systemic meltdown of the entire financial system. And US and foreign policy authorities seem to be clueless about what needs to be done next."

The sad part here is that at every step in this crisis I have said that Roubini was too pessimistic. The crisis would not unfold as fast or as deep as he has forecast. However, at almost every step he has been closer to correct than I have.

9/29/2008 12:16:56 PM

Bill text posted: http://i.cdn.turner.com/cnn/2008/images/09/28/ayo08c04_xml.pdf

9/29/2008 1:09:10 PM

Picture that's on CNN about the bailout vote:



Suits it perfectly imho

9/29/2008 1:22:34 PM

Is anyone else watching CSPAN right now? The vote is going to have like a 5 vote margin in the House.



[Edited on September 29, 2008 at 1:39 PM. Reason : 144 to 142 right now]

[Edited on September 29, 2008 at 1:40 PM. Reason : 162-166]

[Edited on September 29, 2008 at 1:44 PM. Reason : OMG, it's not going to pass]

9/29/2008 1:38:34 PM

Didn't pass. DOW down over 150 points immediately.

9/29/2008 1:45:35 PM

Now it's down about 700 (from it's high today according to money.cnn.com)

[Edited on September 29, 2008 at 1:50 PM. Reason : ]

9/29/2008 1:49:41 PM

i'm actually surprised that it didn't pass

9/29/2008 1:50:41 PM

DOW is stabilizing. We're all still alive.

I'm actually glad this didn't pass. It would have only delayed the inevitable and made it worse by increasing inflation. Now we can start the long, hard climb back up.

9/29/2008 1:57:35 PM

It's almost like keeping a newspaper from back before the internetz

9/29/2008 1:58:22 PM

so where does this go from here?

9/29/2008 2:02:29 PM

the news sites are being more reserved about saying the bill has been rejected.

9/29/2008 2:03:41 PM

Quote :

"so where does this go from here?"

9/29/2008 2:04:56 PM

Word is that the bill is still alive . . . that there will be a revote. I think there is buying on this sentiment.

You have to be at least somewhere thankful that there is no short selling on financials today. There is no telling where we would be.

9/29/2008 2:05:31 PM

motion to reconisder retracted


Its gone . . . word is its gone

[Edited on September 29, 2008 at 2:08 PM. Reason : .]

9/29/2008 2:08:04 PM

could you imagine how much shit those people who changed their votes would get

9/29/2008 2:09:30 PM

You dumbshits are gonna get what you asked for.

Good luck getting a loan in the next couple years

9/29/2008 2:15:55 PM

wow, totally cannot believe it didnt pass, wow

what will happen next

9/29/2008 2:17:49 PM

^

Quote :

"The next step of this panic could become the mother of all bank runs, i.e. a run on the trillion dollar plus of the cross border short-term interbank liabilities of the US banking and financial system as foreign banks as starting to worry about the safety of their liquid exposures to US financial institutions; such a silent cross border bank run has already started as foreign banks are worried about the solvency of US banks and are starting to reduce their exposure. And if this run accelerates - as it may now - a total meltdown of the US financial system could occur. We are thus now in a generalized panic mode and back to the risk of a systemic meltdown of the entire financial system. And US and foreign policy authorities seem to be clueless about what needs to be done next. Maybe they should today start with a coordinated 100 bps reduction in policy rates in all the major economies in the world to show that they are starting to seriously recognize and address this rapidly worsening financial crisis."

9/29/2008 2:19:40 PM

^^businesses/people will learn that they shouldn't partake in loans that they cannot pay back

[Edited on September 29, 2008 at 2:20 PM. Reason : ^]

9/29/2008 2:20:10 PM

^ How about the people that already knew that?

I'd rather we cut our losses and bail wall street out than go into another depression for the sake of "teaching people a lesson".

[Edited on September 29, 2008 at 2:22 PM. Reason : 2]

9/29/2008 2:21:54 PM

Quote :

"Good luck getting a loan in the next couple years"

I'll be ecstatic if that's the worse thing that comes out of all this

9/29/2008 2:22:28 PM

Quote :

"You dumbshits are gonna get what you asked for. Good luck getting a loan in the next couple years "

responsible lending practices? what a horrible future!

9/29/2008 2:22:40 PM

^OK then, good luck getting a new job in the next few years. Unemployment could jump into the double-digits by the middle of next year if some forcasters are correct.

^^Yeah, no shit.

This is a fitting end to the Bush Presidency, even if he wasn't solely to blame for this mess.

[Edited on September 29, 2008 at 2:24 PM. Reason : 2]

9/29/2008 2:23:15 PM

I'd rather go into a depression and teach people a lesson. Hey, somehow it worked the first time around. It would work again... atleast until government mangages to put their dirty hands back on it.

9/29/2008 2:24:16 PM

thats fine with me, I wasn't planning on needing any loans for the next few years until I buy a house.

by then the market should still be pretty cheap and recovering and banks should be willing to loan again.

9/29/2008 2:25:46 PM

blame Pelosi for this mess

she was out to make it Democrats vs. Republicans from the beginning

-- mess = not passing the bill

[Edited on September 29, 2008 at 2:27 PM. Reason : .]

9/29/2008 2:26:44 PM

This is all a bit over dramatic. The way we come out of depressions is that the badly run companies die and the overall system grows stronger. Expect higher down payments required for home loans and higher interest rates on all loans, which will later be balanced out by lower housing costs, which people will also bitch about and call the end of the country as we know it.

9/29/2008 2:28:19 PM

Quote :

"The measure needs 218 votes for passage, but it came up 13 votes short of that target, as the final vote was 228 to 205 against. About 60% of Democrats voted for the measure, but less than a third of Republicans backed the measure. President Bush is "very disappointed" by the House vote, his spokesman Tony Fratto said Monday. "

WOW how ironic. Democrats and Bush sharing the same camp approving the bail out; but only a 1/3 of the GOP voting in favor.

9/29/2008 2:31:48 PM

well damn

9/29/2008 2:32:18 PM

Quote :

"wow, totally cannot believe it didnt pass, wow what will happen next"

What will happen is the internet survivalist-wannabes will do an about face once they realize this isn't a game.

9/29/2008 2:32:37 PM

Quote :

"I'd rather go into a depression and teach people a lesson. Hey, somehow it worked the first time around. It would work again... "

Nonsense. Without looking at the numbers, I would imagine that hundreds of thousands of people around the world died due to the Great Depression.

And if Milton Friedman is to be believed, the worst of that downturn could have been prevented by government intervention. Kind of like right now. Only some of you are too short-sighted to see that this liquidity trap can only be fixed with a massive federal infusion of capital.

9/29/2008 2:32:43 PM

I wasn't aware of this, but apparently in the midst of this bailout, there was a 25 billion dollar bailout to auto companies

http://www.usnews.com/blogs/flowchart/2008/09/24/a-25-billion-lifeline-for-gm-ford-and-chrysler.html

9/29/2008 2:32:43 PM

Seriously, some of you are just fucking stupid. If this was just about making it so that loans/credit continued to be easy to get, no one would give a shit. They should have never been that easy to get to begin with.

Look, I hate this bill as much as the next person, but allowing the economy to go on without intervention at this point would be like pedaling a bicycle with a broken chain. Pray they get something figured out.

And yes, the reason this didn't pass was because the house is full of a bunch of chicken shit politicians who were too afraid of having their voters turn on them.

9/29/2008 2:33:55 PM

Quote :

"What will happen is the internet survivalist-wannabes will do an about face once they realize this isn't a game."

LOL

I wonder how many in this thread will do an about-face when the shit really hits the fan.

It won't just be bad companies that die out as a result of this.

[Edited on September 29, 2008 at 2:36 PM. Reason : 2]

9/29/2008 2:35:56 PM

We don't need no water let the motherfucker burn.

[Edited on September 29, 2008 at 2:39 PM. Reason : .]

9/29/2008 2:39:11 PM

everybody keeps saying its bad and mentioning a depression.. what specifically will happen to individuals like me

Quote :

"the reason this didn't pass was because the house is full of a bunch of chicken shit politicians who were too afraid of having their voters turn on them."

Policitians aware of voters' opinions and voting accordingly? I'm a fan of that concept, even if the result of the vote ends up being negative. Everybody has been saying this wouldn't fix anything in the long-term anyways, so I still don't understand why it's such a necessity. The shit is going to hit the fan no matter what

9/29/2008 2:41:58 PM

Quote :

"the reason this didn't pass was because the house is full of a bunch of chicken shit politicians who were too afraid of having their voters turn on them."

You're saying that the problem was democracy? If the constituents managed to block the bill by disapproving of it, I'd say the system is working as intended.

9/29/2008 2:42:09 PM

Anyone know how David Price voted?

9/29/2008 2:43:34 PM

I can understand the rationale behind the bailout of the financial institutions as these companies tanking can have far reaching consequences beyond Mr. CEO having to cancel his yacht club membership.

On the other hand I think the auto industry bailout is not justified. Ford and chevy suck. They are choking from decades of sub-par reliability, bland design/performance in the high end market, and economic viability in the bottom end. Unfortuantly flying 1000 American Flags at the car lot like Chevy Truck does in Wilmington, putting Made USA #1, and relying on family loyalty is not enough to compete with Japan and Euro car makers.

Lately it looks like they have been putting forth a solid effort to reorgainize, become more efficient, and recapture a much receded customer base. Regardless I think its stupid and irresponsible for the gov't to play favorites with GM and Ford with the $25Billion bail out.

Just look at the Soviet Union funded car manufacturers during the cold war.....
that's right none probably exist b.c they all broke done; since they were kept propped up regardless of market conditions.

9/29/2008 2:43:35 PM

Ok -- word is that this is going to come together soon. They are going to let the Dow drop spook the public and give them some cover.

I just can't see this not going through. The Congress is going to let the President take the heat on selling this to the public.

9/29/2008 2:43:39 PM

Quote :

"You're saying that the problem was democracy? If the constituents managed to block the bill by disapproving of it, I'd say the system is working as intended."

There's a reason we don't have a direct democracy

9/29/2008 2:43:53 PM

this is bad news. really bad news. anyone who is currently looking for a job, and even those who are recently hired, should be very worried.

and we can blame big bad evil wall st. all day long, but we should also blame the hundreds of thousands of americans who bought houses and speculative properties they couldn't afford. our fellow tax payers are just as much to blame as corporate america.

9/29/2008 2:45:38 PM

Quote :

"Policitians aware of voters' opinions and voting accordingly? I'm a fan of that concept, even if the result of the vote ends up being negative."

Quote :

"You're saying that the problem was democracy? If the constituents managed to block the bill by disapproving of it, I'd say the system is working as intended."

Yes, democracy fucking failed on this one, big time. This is also the country that elected a moron to the white house for two terms, so it's not like it's an isolated incident.



[Edited on September 29, 2008 at 2:50 PM. Reason : :]

9/29/2008 2:47:59 PM

Or we could blame the Federal Reserve. Why should private banks control our economy?

9/29/2008 2:48:06 PM

Former WaMu exec is suggesting that bank deposits are seeing some flight. That is the the possible possible possible beginning of a run on commercial banks.

9/29/2008 2:48:51 PM

Quote :

"Yes, democracy fucking failed on this one, big time. This is also the country that elected a moron to the white house for two terms, so it's not like it's an isolated incident."

The free market sucks too

Fascism ftw, amirite

9/29/2008 2:50:00 PM

"We have to do x! We must do it now or y will happen!"

"I don't know. X seems bad."

"Yes, but y is worse!"

"Oh, okay."

9/29/2008 2:51:31 PM