So why is the stock market up this morning? Because the Fed released a plan under which they will become direct purchasers of term commercial paper. CP, loosely, is a short-term borrowing (less than 270 days) by creditworthy businesses, and it’s unsecured more than half of the time. (Sometimes it’s secured by assets.) Over the last three weeks, issuance of CP has been severely impaired, | Read More »
Now that we’ve gotten through an ugly spasm of political theater and legislative sausage-making and enacted the Paulson rescue plan, it’s time to ask whether it’s working, and how we’ll be able to tell. As I’ve said before, there are two different crises in the financial world. We have an acute credit crisis that directly affects capital markets and is now in the process of | Read More »
The ground is shifting in the acute financial crisis that started around Labor Day, and erupted like a boil into public consciousness about three weeks ago. While Congress continues its indecision over whether to respond with forceful measures, the crisis has begun to have a powerful impact on the Main Street economy. None other than Warren Buffett (who’s been around for a lot of years | Read More »
Several of our conservative friends have pointed to the very large reduction in the LIBOR interest rate between Tuesday and yesterday as evidence that the credit crisis is easing. LIBOR is one those arcane things no one but geeks should need to understand. It’s a notional interest rate published at 11:00 AM GMT every day in London. It represents an adjusted average of the “offers” | Read More »
Yesterday’s somewhat anticlimactic news from Capitol Hill was that the Senate passed a new (and disgustingly pork-laden) version of the Paulson rescue proposal. Asian stock markets fell on the news, although overnight-dollar interest rates also fell somewhat. The action moves back to the House of Representatives, which is expected to vote on the new draft on Friday. In failing to pass the previous version the | Read More »
Treasury Secretary Paulson gets the Oscar for Worst Salesmanship in Support of a Financial Rescue Plan (Super-Heavyweight Division). I think you’d be hard-pressed to find one person out of twenty who understands that Paulson’s bailout plan is not a transfer of tax money from the middle class to the wealthy. It’s not the slightest surprise that more than half of Congress would find it impossible | Read More »
Well, the sausage factory worked overtime this weekend. What a bizarre result we got. Secretary Paulson came to Capitol Hill about ten days ago with a very simple, three-page plan to do something I could describe in three paragraphs. Congressional Democrats gave us over one hundred pages of additional weirdness that is either ineffectual, noxious, off the point, or will work against the goals of | Read More »
During my daily chronicle of the Panic of 2008, I’ve had occasion once before to say that the fever has broken. That was a week ago Friday, after Secretary Paulson first announced the outlines of his plan to buy up to $700 billion in distressed mortgage-backed paper. I’ve also had several occasions to tell you that officials at the Fed had taken extraordinary actions in | Read More »
We’ve all now been debating the Paulson mortgage-bailout plan for over a week now. We’ve been told endlessly that rapid passage of this plan is necessary to prevent an imminent meltdown in financial markets. That is actually not untrue. But we’ve been told nothing to dispel the now widely-held perception that this bill calls for an immediate transfer of $700 billion (more than the Pentagon | Read More »
At this moment on Friday morning, Congress looks set to do… well, there’s simply no information to answer the question. Members of both parties appear to be just as frozen in place as the credit markets, deeply fearful of being tarred and feathered by angry voters if they pass the Paulson bailout plan. I’m going to leave aside the very interesting but not definitively-answered question | Read More »
And the fun and games on Capitol Hill will recommence soon. We’re still sorting out what happened yesterday to throw the Paulson bailout plan into a cocked hat. The spin in the reporting this morning is that Barack Obama hopped up to support an alternative bailout plan proposed by several Republicans. The alternative has had little in the way of review by the Treasury Department, | Read More »
Published reports have it that Congress couldn’t get a deal done on the Paulson bailout plan. Sketchy reports at mid-day said that Congressional leaders had the outlines of a plan in place, with a raft of what appeared to be largely extraneous changes to the structure of the deal. Evidently those modifications were intended to give Congress a way to second-guess the progress and implementation | Read More »
The basic storyline in financial markets remains unchanged today, as everyone waits for Congress to act on the Paulson bailout plan. In the meantime, overnight conditions in the world’s money markets are again approaching the extreme stress levels we saw exactly one week ago. Keep reading…
The attention of financial markets yesterday was fixed on the Congressional testimony of Treasury Secretary Paulson and Fed Chairman Bernanke. It was an up and down day, mostly down. Bernanke finally gave us an (elliptical) answer to one of the questions that most concerns Wall Street about the bailout plan: the valuation at which distressed mortgage-backed securities will be purchased. The other question, whether there | Read More »
Yesterday morning, the new week started off on a hopeful note in world financial markets, as all eyes turned to the action in the US Congress. Secretary Paulson and Chairman Bernanke had managed to create enough fear among lawmakers to convince them that a large emergency bailout is needed, in order to repair the balance sheets of banks, Wall St. firms, and other financial intermediaries. | Read More »
We’re now into our second day of market reactions to the Treasury and Fed’s Troubled Assets Relief Program (“TARP”), or if you prefer, Mother of All Bailouts (“MOAB”). Market reaction in general is quite positive, which I’ll get to shortly. But the action is moving to Capitol Hill, where Paulson and Bernanke need to convince Congress to pass enabling legislation for the plan before they | Read More »
Let me tell you a story about mortgage-backed securities purchased with borrowed money (“leverage”). An MBS is basically a package of individual home mortgages pooled together so that it can be priced and analyzed like a bond. (And usually the pool is also divided horizontally into credit-quality tranches too.) MBS are a big hit with institutional investors, because their bond-like analytics made it possible to | Read More »
Today is Day 6 of the “New Trade”: the death and rebirth of the financial system as we know it. Every single day this week has brought things that no one working today has ever seen before. Yesterday was no exception It was a day of unprecedented volatility in the credit and money markets. The prices of short-duration Treasury securities traversed ranges that are usually | Read More »
In my judgment we’re now at a point where fear and uncertainty are worse than they were during the depths of the Bear Stearns scare last March. The combination of investment bank failures, the nationalization of America’s largest insurer, and most especially the disruption of money markets have brought us to a very delicate moment. Which shoe will drop next? There are at least two | Read More »
Just when you thought things couldn’t get any weirder comes a disaster that will affect a great many ordinary people in the pocketbook: the Reserve Fund’s Primary Fund has suspended withdrawals. The Primary Fund is a money-market fund. The kind of fund where you put your cash for short periods of time to get a higher interest rate than on passbook savings. The whole selling-point | Read More »
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