The NYT has once again an excellent article that provides insight to how things started to escalate once Lehman Brothers went under.
The Reckoning - As Credit Crisis Spiraled, Alarm Led to Action - Series - NYTimes.com
I was in NYC last week, the night our genious President gave his speach to get the support of the American people for the bailout.
He scared the shiite out of me, so much so that I went to an ATM late that night and got as much money as I could with all my bank cards. I proceeded to call my wife and ask her to do the same. I was expecting a run on the banks the next morning.
I was quite releived yet surprised when it did not happen. My collegue Paul Conway had a great explanation - very few people tuned in to the speech!
The NYT article revels that there was indeed a run on banks but of a different kind that exasporated the credit crunch even further.
And the worst is yet to come.
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Op-Ed Columnist - Moment of Truth - NYTimes.com
The NYT has once again an excellent article that provides insight to how things started to escalate once Lehman Brothers went under.
The Reckoning - As Credit Crisis Spiraled, Alarm Led to Action - Series - NYTimes.com
I was in NYC last week, the night our genious President gave his speach to get the support of the American people for the bailout.
He scared the shiite out of me, so much so that I went to an ATM late that night and got as much money as I could with all my bank cards. I proceeded to call my wife and ask her to do the same. I was expecting a run on the banks the next morning.
I was quite releived yet surprised when it did not happen. My collegue Paul Conway had a great explanation - very few people tuned in to the speech!
The NYT article revels that there was indeed a run on banks but of a different kind that exasporated the credit crunch even further.
And the worst is yet to come.
Jack Cafferty: If Sarah Palin Being One Heartbeat Away “Doesn’t Scare The Hell Out Of You, It Should”
New York Times once again has a revealing article on the whole financial mess, this time A.I.G.’s collapse:
Behind Biggest Insurer’s Crisis, a Blind Eye to a Web of Risk - NYTimes.com
The interesting tid bits:
Cause of the collapse - a rouge division ran by an ex-executive from Drexel Burnham Lambert who made hudreds of millions of dollars in the last few years. They are still around, and sinking stuff!
Goldman Sach’s exposure to A.I.G., beleived to be $20B which would have clearly put the company into a similar path to Lehman Brothers.
And the unsaid - why Paulson a.k.a. Secretary of Treasury also known as ex-CEO of Goldman, may have decided to save A.I.G. and not Lehman?
All this is too connected to be coincidental…
I love Paul Krugman and keep posting his columns here. He is very insightful and has a very long term view. Here is his latest…
Op-Ed Columnist - Cash for Trash - Op-Ed - NYTimes.com
I still say, stagflation shortly followed by dumping of the USD by soverign treasuries in favor of the Euro as the reserve currency around the world regardless of what the US treasury does.
You heard it here first: 1 EU = 5 USD in less than 24 months…
This is where the US dollar starts unravelling… Read the latest column from Paul Krugman of the New York Times.
On Sunday, Henry Paulson, the Treasury secretary, tried to draw a line in the sand against further bailouts of failing financial institutions; four days later, faced with a crisis spinning out of control, much of Washington appears to have decided that government isn’t the problem, it’s the solution. The unthinkable — a government buyout of much of the private sector’s bad debt — has become the inevitable.
The story so far: the real shock after the feds failed to bail out Lehman Brothers wasn’t the plunge in the Dow, it was the reaction of the credit markets. Basically, lenders went on strike: U.S. government debt, which is still perceived as the safest of all investments — if the government goes bust, what is anything else worth? — was snapped up even though it paid essentially nothing, while would-be private borrowers were frozen out.
Thus, banks are normally able to borrow from each other at rates just slightly above the interest rate on U.S. Treasury bills. But Thursday morning, the average interest rate on three-month interbank borrowing was 3.2 percent, while the interest rate on the corresponding Treasuries was 0.05 percent. No, that’s not a misprint.
This flight to safety has cut off credit to many businesses, including major players in the financial industry — and that, in turn, is setting us up for more big failures and further panic. It’s also depressing business spending, a bad thing as signs gather that the economic slump is deepening.
And the Federal Reserve, which normally takes the lead in fighting recessions, can’t do much this time because the standard tools of monetary policy have lost their grip. Usually the Fed responds to economic weakness by buying up Treasury bills, in order to drive interest rates down. But the interest rate on Treasuries is already zero, for all practical purposes; what more can the Fed do?
Well, it can lend money to the private sector — and it’s been doing that on an awesome scale. But this lending hasn’t kept the situation from deteriorating.
There’s only one bright spot in the picture: interest rates on mortgages have come down sharply since the federal government took over Fannie Mae and Freddie Mac, and guaranteed their debt. And there’s a lesson there for those ready to hear it: government takeovers may be the only way to get the financial system working again.
Some people have been making that argument for some time. Most recently, Paul Volcker, the former Fed chairman, and two other veterans of past financial crises published an op-ed in The Wall Street Journal declaring that the only way to avoid “the mother of all credit contractions” is to create a new government agency to “buy up the troubled paper” — that is, to have taxpayers take over the bad assets created by the bursting of the housing and credit bubbles. Coming from Mr. Volcker, that proposal has serious credibility.
Influential members of Congress, including Hillary Clinton and Barney Frank, the chairman of the House Financial Services Committee, have been making similar arguments. And on Thursday, Charles Schumer, the chairman of the Senate Finance Committee (and an advocate of creating a new agency to resolve the financial crisis) told reporters that “the Federal Reserve and the Treasury are realizing that we need a more comprehensive solution.” Sure enough, Thursday night Ben Bernanke and Mr. Paulson met with Congressional leaders to discuss a “comprehensive approach” to the problem.
We don’t know yet what that “comprehensive approach” will look like. There have been hopeful comparisons to the financial rescue the Swedish government carried out in the early 1990s, a rescue that involved a temporary public takeover of a large part of the country’s financial system. It’s not clear, however, whether policy makers in Washington are prepared to exert a comparable degree of control. And if they aren’t, this could turn into the wrong kind of rescue — a bailout of stockholders as well as the market, in effect rescuing the financial industry from the consequences of its own greed.
Furthermore, even a well-designed rescue would cost a lot of money. The Swedish government laid out 4 percent of G.D.P., which in our case would be a cool $600 billion — although the final burden to Swedish taxpayers was much less, because the government was eventually able to sell off the assets it had acquired, in some cases at a handsome profit.
But it’s no use whining (sorry, Senator Gramm) about the prospect of a financial rescue plan. Today’s U.S. political system isn’t going to follow Andrew Mellon’s infamous advice to Herbert Hoover: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” The big buyout is coming; the only question is whether it will be done right.
I decided to temporarily change my theme until I can (personally) design a new one which may be never. I went for the tumblr dash board theme which I think is very cool…
I also realized that I am not really ‘tumbling’ these days.My posts are a bit too long. Where is that more button when you need it?
ShowPony
I saw Brad Feld yesteday in Boulder and asked him to help me fix my Tumblog address in the Feedburner VC feed. He was kind enough to help me as well as post a link to my entry - “Election 2008 and Price of Crude” - on his web site which generated a good amount of traffic for my tumblog and many comments…
Most readers rightly pointed out that I misquoted the Freddie & Fannie debt by ~$495 trillion dollars :) Unfortunately it was an honest mistake (as I wrote the entry on my blackberry in a plane just before we took off and did not properly edit my long tirade on capital costs of $200 billion which resulted in the 2 extra zeros, if you care) but I did loose some credibility with his readers.
One user did not like my color schema which I will take into consideration.
More importantly one reader asked how I can make my argument when OPEC cuts output unexpectedly by 520,000 bpd, and another reader points out that oil futures did not really support my argument which brings me to my point:
I would like to thank the Saudi Arabian government for helping make my case for those of us who think all this is not about the election and geopolitical interests.
The price for crude is well below its peak this year and below the ‘Koshla’ threshold that makes alternative energy projects viable.
The current tax breaks for alternative energy projects are set to expire in December and congress is refusing so far to do anything about it.
The economic slowdown in the rest of the world is not really impacting China’s still booming economy and the demand for natural resources are accelerating (take a look at Brazil and Canada).
The recent strengthening of the dollar is nothing but artificial caused by the US Treasury selling 8B Euros and buying 26B in US $ almost the same day. The markets are fluctuating violently as investors react irrationally to news, moving large positions from tanking commodities to the dollar with no good fundamental reasons.
What is wrong with this picture?
This is no coincidence. OPEC finally realized that they pushed crude prices too far. They have much to gain from a Republican victory in November and any delay in US’ commitment to develop alternative energy resources only extends their grip on the world economy (remember all of this started with an artificial shortage of oil production).
High oil prices are not the root cause of the problems in US economy but the catalyst that initiated the chain reaction and the extent of the meltdown. It is just like September 11: the plane crash did not bring the tower down but the fires that followed compromised the integrity of the structure which led to its collapse.
I bet the artificially low crude prices are going to quickly change after the election regardless of who wins the White House - crippling the US economy further, and fatally weakening the dollar.
By ‘saving’ Fannie & Freddie, taking on their [500]* 5 trillion $ (yes trillion) debt, the US averted a worldwide credit meltdown. They also let the sovereign banks off the hook. They paved the way for Treasuries to slowly shift their foreign reserves out of the dollar until the US $ is no longer the world currency.
I hope I am wrong! If the US $ is no longer the reserve currency, now we are talking about depression greater than “The Great Depression”.
* Correction: [Originally I made a mistake and wrote $500 trillion instead of $5 trillion - the correct number is $5 to $6 trillion of half of the roughly $12 trillion outstanding mortgages in the US.
The capital cost for taking on this debt is expected to be $200B, so think about it the government (we the people) are leveraging ourselves 25x to 30x!]
Going once, going twice :) I took my short off the table a long time ago. This thing is going to ZERO!
From Bloomberg:
Lehman Shares Fall After Talks With Korean Bank End (Update4)
By Yalman Onaran
Sept. 9 (Bloomberg) — Lehman Brothers Holdings Inc. fell a record 45 percent in New York trading after talks about a capital infusion from Korea Development Bank ended. The Wall Street firm is continuing to negotiate with other potential investors, a person briefed on the matter said.
The Korean bank is one of several companies that Lehman, the fourth-largest U.S. securities firm, has been in discussions with in recent weeks, said the person, who declined to name the other potential bidders. The New York-based bank is also continuing talks with private-equity firms interested in buying its asset-management business, the person said.
Lehman is trying to raise capital and shed devalued real- estate assets after $8.2 billion in writedowns and credit losses in the past year. Korean regulators told the development bank it would be “inappropriate” to pursue a Lehman acquisition. Nomura Holdings Inc., Japan’s biggest investment bank, may join bidders seeking a stake in Lehman, Nomura President Kenichi Watanabe told the Yomiuri newspaper last week.
The lack of a deal “is depressing shareholders and infuriating insiders,” said Richard Bove, an analyst at Ladenburg Thalmann & Co., in a report today. The bank “refuses to take what it believes are fire-sale prices for its key assets,” he said.
Mark Lane, a Lehman spokesman in New York, and Korean Development Bank spokesman Cho Hyun Eek declined to comment.
Lehman, the worst performer on the 11-company Amex Securities Broker/Dealer Index this year, fell $6.36 to $7.79 at 4:10 p.m. in New York Stock Exchange composite trading….