Although it is way too early to be certain, the foreign exchange markets appear to be responding positively to the plans to shore up the banking system announced by EU leaders earlier today. Since many European banks funded some of their balance sheets in dollars, a fall in the dollar would also offer some direct […]
Read more...The statement of intent by the EU today is progress but far short of a plan. However, measures by major countries are to be announced tomorrow. The statement, that each country will announce measures, may be greeted with disappointment, since there had been some hope that the summit would announce an EU program, as opposed […]
Read more...Reader Tim sent us a link to a press release from The Depository Trust and Clearing Corporation which says that the net payout on Lehman credit default swaps will be comparatively minor, a mere $6 billion, versus the gross exposure, which has been widely reported as in excess of $400 billion. If this proves correct, […]
Read more...Reader Saboor pointed to a BBC report on grim words from IMF chief Dominique Strauss-Kahn about the state of the global financial system; reader Dwight later sent a link to a bit more detailed Reuters report. First from the BBC, “IMF in global ‘meltdown’ warning“: The world financial system is teetering on the “brink of […]
Read more...Britain is moving quickly to use the its new bank rescue facility, which was increased from £59 billion to £75 billion. Note the article suggests that stock market trading may be suspended in connection with the rescues. From the Times Online (hat tip reader Tim): The government will tomorrow launch the biggest rescue of Britain’s […]
Read more...One troubling aspect of the banking crisis was that European banks, like their US peers, are at risk of failure, and some of them are sufficiently large that they are beyond the capacity of any one country to save. While Fortis was bailed out by three countries, ad hoc arrangements are risky. As Keynes said, […]
Read more...We’ve said for some time that European banks are (believe it or not) in even worse shape on average than their US peers, although the public at large is far more aware of the problems here by virtue of our financial system having hit the wall so spectacularly. While US firms waded into risky waters […]
Read more...Equity analyst and market commentator James Bianco of Arbor Research e-maileda a discussion of the breakdown of interbank lending to us along with a few others, His note illustrates a point made by FT Alphaville a couple of weeks ago that we have harped on since, namely, that central banks’ efforts to provide liquidity to […]
Read more...The Dow rallied over 900 points to as high as 283 and is now in positive territory. Reader M passed us this report: A well informed investor I speak to regularly relays that the 3:45 PM speech by Paulson, coming out of the IMF meetings, will include the roll out of a joint clearing mechanism […]
Read more...Those who wrote $400 billion plus of protection on Lehman’s credit default swaps had been expected to make a substantial payout in the 80% to 85% of face value range, but the preliminary auction showed even worse results. How the SEC and Treasury had so little clue that Lehman was in such bad shape is […]
Read more...Economist Paul De Grauwe, who has been an astute and harsh critic of central bank’s models and priorities, makes a very simple point and draw a conclusion. Banks are not lending to each other out of mistrust. Various measures to increase liquidity and backstop banks have not made them look any more favorably upon their […]
Read more...Nearly two weeks ago, it was becomimg apparent that central bank liquidity operations were not merely ineffective, but had become counterproductive in getting banks to lend to each other. As FT Althaville noted: Liquidity is being thrown at the system, but it’s just making things worse. By pumping in more money central banks aren’t addressing […]
Read more...The US is considering more drastic measures to shore up the banking system, namely guaranteeing bank debt and removing the ceiling on deposit guarantees. The idea of insuring bank debt may seem odd, given that writers like John Hussman have urged that bank bondholders, who knew the risks of investing and enjoyed the higher yields, […]
Read more...Now I am really going to rant. What is going on here? The financial system is on the verge of a meltdown, we have the Lehman credit default swaps settlement tomorrow, which is a huge test that has investors on Defcon One. Markets are as unhinged as they can be and still be functioning around […]
Read more...I have been more than a tad concerned about near-paralysis in the money markets and imploding equity prices. But this e-mail, from a well connected international investor not prone to alarm or (normally) the use of capital letters says that the banking crisis is staring to bring international shipping to a halt. By way of […]
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