September 30, 2008
Juncture 228-205
Juncture 228-205, disembark here for a free fall experience that will rock your life.
If we were to put a title around this month`s outcome, it would have to be 228-205; the straw that breaks the camel`s back if you want a different cliche.
There are many topics I would like to write a journal on but none seems so pertinent than the current state of the financial sector, equity markets and general liquidity, or well lack of it. If anyone perused the financial times weekend edition it is evident that they have a similar view. From their Doom and Boom to the Great Wall St of China, HSBC / KEB, toxic assets, time for bail out ... In fact the whole paper consisted of nothing more than a pessimistic focus on current state of the, well not a sub-prime lending crisis anymore or a credit crunch but a complete financial liquidity failure and asset write down disaster.
Let me just flick my eyes onto the Bloomberg screen for a moment (yes we still have internet connection and news feed): Nikkei down 544 bps at one point in the day, DOW down 778 points (its biggest drop ever in existence as the best part of over 1.2 trillion in market value is incinerated), S&P down 881bps (that is the biggest one day loss since 1987 crash), Nasdaq down 914, FTSE down 530, China escapes as it is on holidays but the rest of the screen is flashing red arrows. From Brazil to Taiwan it`s finding the floor and starting to dig.
228 205, that is there are 228 blind folk and 23 votes short of a green arrows and blue skies, well theoretically, the problems are more systemic than this. Ladies and Gentlemen you have to suffer some form of myopia or been sitting on a beach drinking pena-collada for weeks not to see the ramifications of your actions. It has taken 158 years to build Lehman`s the cotton picking banker (they started off trading cotton, interesting history and worth a read) and then I suppose just a few days to dissolve it.
What about Bear Stearns, quite a distance away if time is measured in units of bankruptcy or Merrill Lynch which has had a tumultuous year dating everyone from Temasek to General Electric before marrying its sweetheart BOA. Then the Freddie Fannie ugly twins; now that was always a disaster from inception. But it doesn't stop there, we have Wachovia, HBOS, AIG; the queues on this one went out the door and round the block in Singapore when AIG put its hand up for federal reserve liquidity support. It`s endless. It`s mayhem and it needs a solution.
Bloomberg article
Bloomberg:``On the worst day in global financial markets in 21 years, investors who have seen it all were left shaken. Sept. 30 (Bloomberg) Australian Prime Minister Kevin Rudd joined U.K. counterpart Gordon Brown in urging U.S. lawmakers to pass a financial rescue package and pledged to provide liquidity and take whatever action is necessary to ensure stability.``
The congress argument for rejection of the bailout package, there are many starting with;
If the US government becomes lender of last resort it is moving itself to a state owned institution of commercial debt, picked up by the tax payer and that might be deemed as communist, OH WOW. Surely any kind of centrally controlled regulation system (the current one is broken) could be classified as having some semblance of Marxism, I am sure we could draw parallels if we took enough cartesian twists and turns. The alternative package devised by congress was an insurance contract which would be instantly exercised and thus can`t be priced as it is a ``so deep in the money American put option``.
Let`s sit on this for a second the markets are falling out backwards so what is the cost of another second. In reality forget pointing fingers or fat cats, the regulatory system itself has failed and it is thus at least partially responsible for a rescue package. An insurance scheme for a house that is already on fire is unlikely to be suitable at this point-in-time, we have that already in the credit markets.
Posted by CausalEvents at 04:36 PM
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