Bleak outlook for Europe’s toads BBC
Shortages In Southeast Create Panic, Gas Lines Washington Post
Wild day, no deal Politico
Discount Window Borrowings: $262 Billion John Jansen. This is more telling than the TED spread or Libor-OIS. The banking system is on life support.
For Greenwich, ‘This Is Our Katrina’ The Wealth Report Blog, Wall Street Journal. Yes, someone did say that with a straight face. And more.
Why The Government Cannot Modify Mortgages If It Purchases $700BN of MBS Adam Levitin, Credit Slips
Latest Bailout Plan Spin: Its a Money Maker! Barry Ritholtz
NYT Gets It Wrong: Credit Has Not Frozen Dean Baker. He clearly doesn’t read the financial press, but Baker does make a valid poit about a New York Times article.
Wall Street worries, Main Street woes David Altig. One metric says housing prices have a lot further to fall.
Short-selling’ church leaders accused of failing to practise what they preach Times Online
Companies Under Pressure New York Times. One thing that is a tad misleading is that it make the deterioration of corporate credit sound like a surprise. Nouriel Roubini and some credit market experts called this one some time ago.
DeLong Smackdown Watch (Special Self-Smackdown Edition): Greenspanism and Its Discontents Brad DeLong (hat tip reader Scott)
Antidote du jour:
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Brad DeLong, grasping reality woth both hands and watching it slip through his fingers.
Mr Broad DeRound hasn’t just admitted an error; he has revealed that he was completely wrongheaded on a fundamental part of macroeconomics. If a physicist said that he had been wrong all along about the physics of Newton, Clerk Maxwell, Planck and Einstein, we’d wonder what right he had ever had to be called a physicist. Perhaps DeRound may now be recognised as falling into the category “Holy Fool”.
Re the detailled Politico article (p. 3), if Bernanke believes that the plan as currently structured is going to aid in price discovery, he does not understand the market he is proposing to enter. One of the issues with the MBS/CDO market is the complexity, customization and individuality of the products. You can’t have some reverse auction where the Fed asks for sale prices on Ford bonds maturing in 15-20 years.
I have been suspicious of academic economists being heavily involved in this process because of their general ignorance of the financial services industry. The fact that I suspect Bernanke was being sincere confirms that suspicion.
The Credit Slips post has a link to Levitin’s little essay on how/why Fed/Treasury cannot modify underlying mortgages simply by owning the MBSs. Excellent nuts-n-bolts explanation for people like me. The essay reminded me of one of those “so obvious I forgot about it” points: Mortgage insurance. As defaults grow, then aren’t mortgage insurance payouts growing? Is this yet another debilitating feed-back mechanism? I realize that not everyone has to buy mort insurance – e.g. VA loans, or having sufficient equity. But didn’t everybody(?) most everybody(?) without significant downpayment, etc., have to buy mort insurance?
An aside re Discount Window borrowing: The people on Squawk Box were yelling at each other again this morning; in the context of reporting this, one of the parties claimed that credit default swaps for McDonalds were trading cheaper than credit default swaps for Treasuries….
Have to steal this from Ghost Busters —
Dr. Peter Venkman: This city is headed for a disaster of biblical proportions.
Mayor: What do you mean, “biblical”?
Dr Ray Stantz: What he means is Old Testament, Mr. Mayor, real wrath of God type stuff.
Dr. Peter Venkman: Exactly.
Dr Ray Stantz: Fire and brimstone coming down from the skies! Rivers and seas boiling!
Dr. Egon Spengler: Forty years of darkness! Earthquakes, volcanoes…
Winston Zeddemore: The dead rising from the grave!
Dr. Peter Venkman: Human sacrifice, dogs and cats living together… mass hysteria!