Comments on: Links 9/25/08

By: dh

dh — Thu, 25 Sep 2008 17:03:00 +0000

Rolling Over : The market is throwing in the towel short-term as bad data failed to bolster prices and trade rolls with the bailout stock bounce. Spreads tell a less optimistic story though, suggesting that funding across the spectrum has all but evaporated which will eventually (if not already) have larger repercussions on hiring and capital budgeting for 09. S&P says the default rate on 3-yr junk paper could top 23.2% soon (worst since 81) while mortgage rates are blowing out again. None of the this is good news to markets and while the bailout may be the low water mark for financial shops, it may be too late for the real economy. That sentiment could keep bonds in the game and possibly weather the tidal wave of supply about to hit.

By: doc holiday

doc holiday — Thu, 25 Sep 2008 16:50:00 +0000

Yves,

It hit me last night, that this bailout, with its lack of details is being rushed to prevent runs on mutual funds, money mkt funds and banks. They dont want to spell that out on the tube, but redemption-like panics probably pushed short term bills and note yields to zero yesterday. Also, the action by China needs to be monitored.

I think the race here is for congress to become George Bailey-like and to try to keep as much money in the banks and mutual funs as possible, and this $700 billion is a backstop to slow panic. I don't like it, but it probably is the only thing they can do.

By: Blissex

Blissex — Thu, 25 Sep 2008 14:39:00 +0000

«Given that 700,000,000 is 5% of the market, then they are trying a "slap in the face" as Krugman has suggested»

Ah but Paulson can put into operation a lot more than $700 billion, as that is the limit on the *losses* he makes; so he can use leverage in effect, and some people think that could be worth an intervention of around $2 trillion.

Also, that $700 billion is essentially money; injected in banks at the usual gearing of 15x of commercial banks (still a bit too high, but not as ridiculous as investment bank 35x and GSE 100x), it means it can create around $10 trillion of new credit.

It is a pretty significant mule kick. Problem is that the capital destroyed in asset deflation is probably rather large than $700 billion and that's not sufficient at recapitalizing banks. Perhaps the best commercial banks.

By: Anonymous

Anonymous — Thu, 25 Sep 2008 12:56:00 +0000

Wow! A half-assed zebra...

Closer to a bicycle than a Cadillac and a possible substitute for gasoline.

Could this be the new status symbol in driveways across America?

River

By: Richard Kline

Richard Kline — Thu, 25 Sep 2008 08:51:00 +0000

“Mark-to-Paulson”: that’s too rich [regardless of how one reads the clause].

And that four-legged critter, why it must be a zerro, exactly the spawn which will be on Great Seal of the United States of Fantasia if and when we pour out our full faith and credit on delusional interventions.

By: a

Thu, 25 Sep 2008 07:50:00 +0000

Good story on Bloomberg, entitled “Asia Needs Deal to Prevent Panic Selling of U.S. Debt, Yu says.”