Stocks fall sharply as global crisis persists Dow cuts 800-point slide in half amid talk of global coordinated intervention
http://www.marketwatch.com/news/story/dow-ends-off-lows-after/story.aspx?guid={4BD4FBDA-E4B1-4144-B0DE-796E5F0CAC06}
By Nick Godt, Market Watch
NEW YORK (MarketWatch) — The Dow Jones Industrial Average fell as much as 800 points to trade below the 10,000 mark Monday as nervousness over the credit crisis spread after the U.S. government’s $700 billion bailout and interventions in Europe only seemed to add to investor anxiety.
But hopes of a coordinated intervention helped the Dow to stop the bleeding in global markets recoup half of its losses, to close down 369 points, or 3.6%, to 9,955.
We could have a bounce tomorrow, especially if we get a coordinated rate cut by the three main central banks, [in the U.S., Europe and the U.K.],” said Robert Pavlik, market strategist at Oaktree Asset Management.
“That would send a message to the market that they’re cognizant of the problems and they’re ready to do something about it.”
October 6th, 2008 at 8:10 pm
Wow, good thing that 700 billion was put to such good use…
October 6th, 2008 at 9:25 pm
Hopefully we’ll find more stability as the week drags on. With oil falling, the dollar strengthening, and inflation falling into deflation perhaps the Fed will have a rate cut this month.
October 6th, 2008 at 9:26 pm
Here is some unrelated news.
Obama clinches the election on Karl Rove’s electoral map.
http://www.politico.com/news/stories/1008/14294.html
October 6th, 2008 at 9:26 pm
Here is some unrelated news.
Obama clinches the election on Karl Rove’s electoral map.
http://www.politico.com/news/stories/1008/14294.html
October 7th, 2008 at 10:23 am
The Testing Time David Brooks
A good read . . . here is a sample -
“In his astonishingly prescient book, “The World Is Curved: Hidden Dangers to the Global Economy,” David M. Smick argues that we have inherited an impressive global economic system. It, with the U.S. as the hub, has produced unprecedented levels of global prosperity. But it has now spun wildly out of control. It can’t be fixed with the shock and awe of a $700 billion rescue package, Smick says. The fundamental architecture needs to be reformed.”
http://www.nytimes.com/2008/10/07/opinion/07brooks.html?_r=2&ref=opinion&oref=slogin&oref=slogin
October 7th, 2008 at 12:27 pm
The $450 billion payout ( A take from across the pond on the current financial crisis and the difficulties in resolving it quickly)
Bailout after bailout over the weekend, the UK is considering recapitalising its banks and the money markets are broken.
Why the breakdown?
Panmure Gordon’s Sandy Chen has this to say in a note out today:
“We think one of the key drivers has been the tremendous potential demand for cash from counterparties, related to the CDS (credit default swap) payouts on the recent major credit events. To recap, the FNM/FRE CDS settlement auction happens today (6 October), the LEH auction on 10 October (Friday), and WaMu on 23 October. In these settlement auctions, the reference price for the underlying bonds will be set, thus determining the payout levels.
… We think that the CDS payouts related to these credit events will put tremendous strains on the financial counterparties that had written those CDS. We broadly estimate there could be US$50bn of payouts related to FNM/FRE CDS, and US$400bn of payouts related to LEH CDS. We think it highly likely that many counterparties, particularly hedge funds, will not be able to raise the cash to meet their ends of these bargains.
What will this mean? More failures amongst hedge funds, insurance companies and banks, and - given that CDS are largely OTC, meaning that there is limited visibility beyond the immediate counterparty - a lack of trust that translates into money markets remaining effectively shut. And whichever measure of financial stress/lack of liquidity is used - LIBOR-BaseRate gap, TED spread etc - it will remain at elevated levels as long as markets are worried about possible failures of counterparties (or counterparties’ counterparties).
How cheery.
But Chen is making a very good point. Counterparties may have protected themselves from one or two bankruptcies in the system but they would likely not have anticipated failure on the scale seen recently. For instance, if you bought a CDS to protect you on AIG but you bought it from Lehman Brothers, you’re not protected. If you were smart you might have bought protection on Lehman from someone else, but you can’t keep going forever.
As the mystery CDS expert moonlighting at Felix Salmon’s blog notes:
In practice, because multiple counterparties can go bankrupt, you can’t hedge your risks perfectly; the best you can hope for is to minimize them and to understand them.
On the UK banks recapitalisation point, Panmure recommends selling Barclays and RBS on the basis of their 2.4 trillion in credit derivatives notional contracts each at Barclays and RBS (i.e. 1.2 trillion each in credit derivatives bought from counterparties) and possible share dilution from any recap program.
And on a positive note, if all the recent cash-hoarding is in preparation for these few credit events, maybe (a big maybe) money markets will get better soon.
Libor is slightly down today (one month dollar at 4.09 per cent vs 4.11 per cent), presumeably because of Tarp, though the dollar-OIS spread is still out at about 290 — way above historical levels.”
http://ftalphaville.ft.com/blog/2008/10/06/16686/the-450-billion-payout/
October 7th, 2008 at 1:00 pm
Videos from Reuters:
FED in Unchartered Waters
http://cosmos.bcst.yahoo.com/up/player/popup/?rn=3906861&cl=10073850&ch=4226720&src=news
Bernanke - More Economic Pain Ahead:
http://cosmos.bcst.yahoo.com/up/player/popup/?rn=3906861&cl=10073850&ch=4226720&src=news
Your Money: The Election and future taxes
http://cosmos.bcst.yahoo.com/up/player/popup/?rn=3906861&cl=10073850&ch=4226720&src=news
To determine how Obama’s policies and McCain’s policies will affect your 2009-2012 taxes, see: http://www.electiontaxes.com
October 7th, 2008 at 2:25 pm
Time for all good peasants to pick up their pitchforks!
I hope someone asks McCain or Obama at tonight’s Town Hall debate if either one of them can publicly name the AIG executives who were massaged, facialed, and pedicured at their cushy weeklong $440,000 retreat less than a week after the feds signed we taxpayers up to bail out their sorry pampered derrieres.
Read this and start looking for a rasp to sharpen those tines!
From Washingtonpost.com
After Bailout, AIG Executives Head to Resort
Tuesday, Oct 7, 2008 UPDATED: 11:31 a.m.
Less than a week after the federal government offered an $85 billion bailout to insurance giant AIG, the company held a week-long retreat for its executives at the luxury St. Regis Resort in Monarch Beach, Calif., running up a tab of $440,000, Rep. Henry Waxman (D-Calif.) said today at the the opening of a House committee hearing about the near-failure of the insurance giant.
Showing a photograph of the resort, Waxman said the executives spent $200,000 for rooms, $150,000 for meals and $23,000 for the spa.
“Less than a week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation,” Waxman said. “We will ask whether any of this makes sense.”
The committee will ask the company’s executives about their multimillion-dollar pay packages — some of which they continue to receive — as well as who bears responsibility for the company’s high-risk investment portfolio, which led to its near collapse just weeks ago.
“They were getting their manicures, their pedicures, massages, their facials while the American people were paying their bills,” thundered Rep. Elijah E. Cummings (D-Md.), of the executive retreat at the Monarch Resort.
The House committee, which took on executive compensation at bankrupt Wall Street firm Lehman Brothers yesterday, has received “tens of thousands” of pages of documents from AIG, Waxman said.
Those documents show that as the company’s risky investments began to implode, the company altered its generous executive pay plan to pay out regardless of such losses.
AIG lost over $5 billion in the last quarter of 2007 due its risky financial products division, Waxman said. Yet in March 2008, when the company’s compensation committee met to award bonuses, Chief Executive Martin Sullivan urged the committee to ignore those losses, which should have slashed bonuses.
But the board agreed to ignore the losses from the financial products division and gave Sullivan a cash bonus of over $5 million. The board also approved a new compensation contract for Sullivan that gave him a golden parachute of $15 million, Waxman said.
Joseph Cassano, the executive in charge of the company’s troubled financial products division, received more than $280 million over the last eight years, Waxman said. Even after he was terminated in February as his investments turned sour, the company allowed him to keep up to $34 million in unvested bonuses and put him on a $1 million-a-month retainer. He continues to receive $1 million a month, Waxman said.
Waxman also looked skeptically at the executives’ defense that the troubles in the business had to do with larger economic forces and not their own bad decisions.
When a former AIG auditor, Joseph St. Denis, expressed concerns, Cassano told him “I have deliberately excluded you from the valuation … because I was concerned that you would pollute the process,” according to Waxman.
St. Denis resigned in protest.
PricewaterhouseCoopers, AIG’s auditor, told the company in March 2008 that the “root cause” of AIG’s problems was that people assessing risk did not have enough access to the financial products division, where the risky investments originated.
Waxman further suggested that Sullivan had deliberately misled investors.
On Dec. 5, 2007, Sullivan expressed confidence to investors. But a week before, PricewaterhouseCoopers warned Sullivan that the company “could have a material weakness relating to these area,” committee members said.