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Another Day Without Precedent

by: John Jansen September 25, 2008 | about stocks: JPM / WM    

John Jansen

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I wrote a couple of weeks ago when Lehman (LEH) collapsed or AIG (AIG) collapsed that observing the financial markets today is like reading financial science fiction.

This is another unprecedented evening after an unprecedented day. There is no history to consult and no markers to guide us. We are flying seat of the pants and at the moment it appears that the pilot has had a heart attack and is slumped over the control panel.

We have all read about the collapse of the rescue plan as hopes for a package faded TS Eliot style “not with a bang but a whimper”. I am fearful for the markets tomorrow as the already much stressed markets confront this latest blow to confidence.

Consider the level of Discount Window borrowings in the week ended Wednesday: $262 billion. As the Romans said,”res ipsa loquitur,” which in English translates to “the thing speaks for itself”.

The words of JPMorgan Chase economist Michael Feroli say it best:

"You’re seeing financial institutions all over the place take advantage of the Fed’s offer to extend credit ...The Fed may be the lender of last resort, and I guess a lot of people are at their last resort now.”

I have a feeling that, unless there is some middle of the night announcement regarding the bailout plan, we are in for a wild ride tomorrow. If credit conditions worsen I would not be surprised to see the Fed address the problem with an old fashioned rate cut.

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This article has 22 comments:

  •  
    Sep 25 11:31 PM
    it is our folly for electing fools
    Reply
  •  
    Sep 25 11:35 PM
    There will be no bailout deal until heads are on the ends of pitchforks.

    Citizens want accountability.
    Reply
  •  
    Sep 25 11:39 PM
    @User 257896, Mmm, nope. I don't recall voting for the CEOs of risk-happy banks.
    Reply
  •  
    Sep 25 11:45 PM
    I wish it were that as simple as cutting the rate. At first blush, it reads like a probable course of action for Fed. However, they lowered it from 5.25% to 2%, while the credit froze. So it didn't help much.

    Banks are like the Titanic survivor floating on the ice cold water. They are freezing, and some will go underwater soon, while the Leaders keep talking that the economy is sound....
    Reply
  •  
    Sep 25 11:52 PM
    Fed rates mean nothing. What does matter are LIBOR-OIS spreads (unsecured lending versus effectively pure interest rate risk consideration) and TED spread (Treasury versus real lending rates).

    You could have 0% Fed rate and still have frozen credit if nobody in the banking system trusts anybody else.
    Reply
  •  
    Sep 25 11:54 PM
    At my job If I don't perform, I get fired. Why should it be any different at Wall Street? Paulson is a wall Street insider. Bernanke has been sleeping at the wheel. Both political parties are not doing enough to protect the interest of the average joe. Special interest groups are and have been controlling Washington. Get to the root of the problem.. We need a real change..
    Reply
  •  
    Sep 25 11:56 PM
    Likes to old times in SSSR. Nationalize banks. Liquidate capitalists. Announce five year plan.
    Reply
  •  
    Sep 25 11:56 PM
    aswo,

    Citizens are the problem. Just because someone offers you a loan or credit card doesn't mean you should take it. Ultimately the taxpayer took the money that it couldn't pay back and now doesn't want to pay for it. So wanting accountability is going to make things worse across the board.

    Now is the time to grease the wheels and try to get things moving again. Hopefully people have learned from this, but I doubt it.
    Reply
  •  
    Sep 26 12:03 AM
    No matter what the dopes in gov't do or don't do it will end badly.

    The seeds have already be sewn. Now we are reaping the harvest. Somebody will wind up holding the losses in one way or another. The closer it gets to actually happening, the more urgently the politicos will thrash.

    I believe this is where the #2 hits the fan.
    Reply
  •  
    Sep 26 12:07 AM
    The problem is that we have allowed for the creation of financial oligopoly's via mergers and acquisitions with decision making in the hands of a very few CEO's. This bailout should not be building larger financial institutions! It should be deconstructing them into smaller institutions that we don't classify as "To Big To Fail!" And prevent future mergers and acquisitions that create companies classified as "To Big to Fail!". A diverse financial ecosystem with many companies would be structurally less brittle to these types of financial events.
    Reply
  •  
    Sep 26 12:09 AM
    What we need is negative interest rates. That will solve the liquidity crisis.
    Reply
  •  
    Sep 26 12:26 AM
    Democrats are not stupid. Sabotaging this bailout will hand the election to Obama. If it passes too soon and the economy seems to stabilize McCain may win. If it fails, central bankers will lose the control of the political system they have enjoyed since 1913. In January, Obama and Democrats may be in the position to remake the financial system any way that suits them. Welcome to NEW, new world order.
    Reply
  •  
    Sep 26 01:49 AM
    No wonder we are in a mess. The Congress and Senate clearly do not understand the financial system. As ever they are playing politics with our lives. Fortunately I went all cash on Thursday - I'll come back into the market when they stop the idiocracy and start listening to Paulson.
    Reply
  •  
    Sep 26 02:31 AM
    i agree with smarty pants - the seeds are sown--and they have been for many a year. No one canfix what these distrustful white collar thugs have done to what was once a great, reputable Wall Street.

    The chickens always come home to roost, regardless of the emergency summit going on. Yes, 700 billion here, 1 trillion in credit card debt there, hedge fund speculators getting smashed and deflation (which is way worse than inflation) will rear its ugliness to the market soon. I'm way heavy in cash now, and have been for six months sans some coal, metal, gas and gold stocks. (ACI, BTU, CHK, PPL, FCX. ABX).
    Reply
  •  
    Sep 26 04:57 AM
    Racerz said a once great,reputable Wall St........excuse me while I puke..I've been dealing with those slimy bastards for over 35yrs.he must be talking about prior to that..
    Reply
  •  
    Sep 26 07:03 AM
    Hate to say I told you so, but the wheels went in motion when Paulson announced the backstop for Fannie and Freddie. All of the up movement was just irrational, wishfull thinking.

    Next we will see a collapse of the dollar and 20% interest rates. A bailout will downgrade the US to junk status (if not on paper, in the worlds mind). No action will collapse banks and run the US debt through the roof, which will downgrade the US to junk status. Check Mate Hank and Ben.
    Reply
  •  
    Sep 26 08:41 AM
    re: "...The Fed may be the lender of last resort...." -

    i heard a commentator last night say, "...and the taxpayer is the creditor of last resort."

    nice; now if we could just get some respect :-)
    Reply
  •  
    Sep 26 01:17 PM
    Quick everyone act surprized!

    It took DECADES of corruption, greed, hubris, and stupidity to create this train wreck. Congress, the Fed, the Treasury, and the Financial institutions all colluded because there were such nice piles of sweaty money and every one got a cut. There is plenty of blame to go around.

    One problem though, this whole corrupt ponzi scheme was built on the rediculouse assumption that you could build prosperity out of a MOUNTAIN of debt.
    That mountain of debt was built on the backs of the American Consumer and the scheme is collapsing because he is TAPPED OUT.
    The Bank that just raised your credit card interest rate to 30% needs more juice but nobody will loan it any money and nobody is stepping up to buy its toxic garbage assetts.
    THE ONLY WAY it can get more juice is by CONFISCATING OUR FUTURE LABOR by force of law via TAXATION!
    Remember "No taxation without representation!" Our forefathers fought a revolution against an Empire over this crap!

    Anyone who tells you that this rip-off is for the good of the "average" American is a LIAR and a TOOL.

    There is no "easy button" quick fix. Your savings, your retirement accounts, your equity, the value of a USD; POOF they are gone. They aren't coming back. This "plan" just puts you in a deeper hole and fits you for a yoke of slavery to corporate fascists.

    Oh, and the same people who saw this comming say the "bail-out" won't work.

    Now go back to sleep, because the government is here and they will take care of you.
    Reply
  •  
    Sep 26 01:20 PM
    US household sector net worth is north of $50 trillion. We can easily afford to fix this. But we can't afford to pretend it isn't there and play games tossing hot potatoes around with nobody taking the losses. That just destroys everything it touches and multiplies the losses 10 fold.

    Just pay the damn bill and fix the mess. Growth resuming is the only thing that matters for overall wealth of all concerned.

    Wall street pays Washington $480 billion *per year* that Washington uses to buy votes with middle class entitlements. Then those whose votes are bought that way scream that Wall street is robbing them, if Wall street ever needs anything for the money. Like after main street defaults on a trillion in easy loans the pols encouraged bankers to make to main street...

    All this populist crap has to stop, yesterday.
    Reply
  •  
    Sep 26 01:27 PM
    TOOL!
    Reply
  •  
    Sep 26 05:00 PM
    Just pay the damn bill and fix the mess. Growth resuming is the only thing that matters for overall wealth of all concerned.

    Must have a lot riding on this one. worried about that 401k / IRA? Don't want to work a few more years instead of retiring?
    work for an investment bank?
    Reply
  •  
    Sep 28 12:08 AM
    @ user kumayouiburu, If you voted for the ninkompoop thats in office now, you sure as hell did vote for the ceo's indirectly. His history of how he made his money is just as bad as the ceo's who are responsible, (with his cooperation) for our current situation. And for those of you who are against the bailout plan, well it is OUR situation, Its OUR country thats in trouble. I agee with smarty pants. No matter what they do it will end badly.
    Dave
    Reply
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