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 to get interbank lending rates like LIBOR down. Treasury’s GS wunderkind Kashkari is due out Monday AM with the opening TARP moves, which probably require equity recap announcements given the late stage of the game. And as you may already know, last night, Pelosi signaled November 17th the House & Senate will be called back for a $150b tax cut.
Update 4:15 PM: The Dow closed down 128 points. The VIX, a proxy for volatility and market risk, reached a new record of 74. The yen weakened to 100 to the dollar. Brent crude fell to $76 a barrell and gold fell to $850 an ounce.
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I’m getting angry about the Plunge Protection Team covertly funding GS and crony specialists to BUY BUY BUY, which immediately evaporates like sprinkling water on a hot griddle because honest investors (me, for instance) sell on any little uptick.
PLEASE please please someone in NY bust these incredibly stupid Fed tricks. Billions are being wasted, literally vaporized.
While I understand the schadenfreude regarding the PPT that I have heard expressed here and elsewhere on the web, hasn’t it become crystal clear with the failure of LEH that they simply cannot let these banks fail?
The sight of people cheering while Rome burns repulses me.
The sight of people cheering while Rome burns repulses me.
Ditto.
“…Paulson, coming out of the IMF meetings, will … roll … a joint …”
Good. What we need is a little mellowing out period for the market.
Here’s the problem:
We cannot let the banks fail, but what’s worse is the stealth gifting of money to the bank equity holders. Rewards the imprudent at huge cost, and does not fix the problem. The honest approach is to simply nationalize the whole system.
Unfortunately, denial continues to drive policy. This realization will not be reached quickly.
Yves,
In the last sentence, it is $76 a BARREL. Love your blog.
it amazes me that anyone believes that the way to handle the stock market is to control it, up down or sideways. It cannot be controlled. it can and is being manipulated, first kept within a narrow range at a level that didn’t reflect the true story of what the economy was doing nor the scandalous activity being conducted by investment banks, insurance and rating agencies, brokerages with only buy recommendations, and everything related to maintaining an artificially high valuation of share prices.
When the dam burst finally, after warnings, very clear warnings for more than 2 years: Soros, ‘…a global bubble will burst.’ Elliott Spitzer going after AIG and warning Wall Street -even if it was rude he understood what was going on, and Rubini who has backed up his positions with cogent argument and statistical evidence, in thankless service to society.
The longer the market is held up artificially (illegally -where was the emergency the PPT was responding to?) the worse the reaction. And, we are seeing that right now.
“We cannot let the banks fail, but what’s worse is the stealth gifting of money to the bank equity holders.”
Who cares now if GS will be given some 10-50 BN gift.
The economy is collapsing, everything, EVERYTHING, must be done to save it. No more time for ideology.
The Government will always be in position in the future to take back everything.
It’s really sad to see so many people dancing around the corpses: I said so, I told you, please get a life.
Aren’t you all the ones that said the banks must be let fail? look a Lehaman, biggest treasury mistake up to now.
tyaresun,
Oh, how embarrassing, Thanks for the catch. Have corrected the post.
I would not be too quick to say the PPT is keeping the market up by themselves.
When Goldman and Friends put the squeeze on Hedgies via increased margin requirements, the Hegies have little choice but to dump good equities to raise capital.
And just who is ready to buy up the dumped equites? Great straddle, if one can pull it off.
“The sight of people cheering while Rome burns repulses me”
Only if you’re a Roman. The Roman banking soldiers have turned the population into slaves. They have nothing to lose but their credit card debt.
Aren’t you all the ones that said the banks must be let fail? look a Lehaman, biggest treasury mistake up to now.
Wrong. That was required to expose the ponzi scheme. Better sooner rather than later. Even now, there are many in denial.
You may not mind wasting taxpayer money on GS and other shareholders, but you presume that will fix the problem. It wont – that’s why wasting money to bailout the imprudent is so foolish.
What comes through reading these comments is that there is absolutely no confidence in Paulson.
And it is not just that he is incompetent, but a 24-carat crook as well.
Whether they are true or not, what these accusations tell me is that, with the lack of credibility in this administration, it will be near impossible for it to mitigate this crisis.
It’s going to be a long three months until January 20th.
Love the blog, Yves. It’s better than Toto pulling back the curtain on that little man hidden in the booth in the back of the Great Oz’ audience chamber.
Was that the effect you’re hunting?
Isn’t the LIBOR rate a symptom, not the disease?
Gotta LOVE those 100 handle moves! I think they were throwing the trading community a bone going into a holiday weekend….
Well, Paulson spoke, and I don’t see any LIBOR-saving measures in the Bloomberg release. Unless the equity infusion itself is supposed to be the save, in which case I think it’s probably going to be ineffective.
<< No more time for ideology. >>
Aw, jeez. Ideology = an organized system of ideas, like private property, contract, equity, net present value.
What you and Paulson want is a blank check, no thinking, no ideas, just "try" one harebrain patch after another. Letting Lehman fail was the one legally correct decision.
I know, I know, too late to worry about the rule of law. Commissar Paulson don't need no stinking law.
I’m cheering while Rome burns. This is blowback from decades of happy talk and magical thinking regarding excess leverage for everyone. The snap back is so ferocious because it’s never a “good time” for the system to put down the hyperlevered growth drug in favor of sustainable economic development that would benefit actual people. Well the forest fire is burning back the undergrowth now and it is terrible to behold.
How much weed could 700 billion buy? We could use it.
Agreed on the dancing while rome burns, not helpful.
Saw Paulson’s press conference tonight, does not give much hope from there. He stated that if they do buy equity in banks they will not have voting rights. No talk about whether they are going to require a management change up front before the buy.
The Brits got it the rightest. If you want money, we want your job, and no more dividends.
The idea that they are even bargaining at this point is more than a little distressing.
I hope they do get something out of this weekend, we really do need it, and the WORLD has to work together on this one. We can no longer pretend that we are not in this together.
The People that are so concerned about the dancing while Rome burns sound like they were wearing pompoms when the kindling was laid.
If not then I’m sure you are all rushing to distance yourself from plans that won’t fix the problem, since you are so worried about the economy and all.
Quite honestly the need to use emotion laden, self serving rhetoric in knee jerk support of whatever inane ideas our so called leaders are promoting this week, and in an attempt to defeat reasoned articulation of alternatives, as well as to defeat clarity as to cause… is the problem. in a big way.
Thanks, Mr. Superior.
Some of the head-butting we're seeing amongst readers, writers, and citizens, is caused by being at different stages in the Grieving Cycle over this monumental change which is also a 'loss'. We can see and say assorted views at certain stages, while other's at a different stage "hear" something quite different than what was spoken.
Much that’s expressed when at the Acceptance stage may still sound insensitive or intolerable to even those who’ve progressed to the nearby Testing stage. Most blog readers are still rotating between the first 4 cycles.
[Please copy & distribute]
The Kübler-Ross Grief Cycle
Elizabeth Kübler-Ross, a Swiss doctor, spent much time comforting and studying dying people. Her 'On Death and Dying' included a cycle of emotional states, the Grief Cycle, whose universality was observed in life experiences including how people were affected by bad news such as losing their jobs or …seeing their financial paths and dreams shattered.
Shock stage: Initial paralysis at hearing the bad news.
Denial stage: Trying to avoid the inevitable.
Anger stage: Frustrated outpouring of bottled-up emotion.
Bargaining stage: Seeking in vain for a way out.
Depression stage: Final realization of the inevitable.
Testing stage: Seeking realistic solutions.
Acceptance stage: Finally finding the way forward
http://changingminds.org/disciplines/change_management/kubler_ross/kubler_ross.htm
Yves, do you think it is the LIBOR banks that are the focus now? Here is a list of the US Dollar LIBOR panel banks that I got from the BBA site (see http://www.bba.org.uk and then go to “BBA LIBOR” and find the “LIBOR Panels” link):
* Bank of America
* Bank of Tokyo-Mitsubishi UFJ Ltd
* Barclays Bank plc
* Citibank NA
* Credit Suisse
* Deutsche Bank AG
* HBOS
* HSBC
* JP Morgan Chase
* Lloyds TSB Bank plc
* Rabobank
* Royal Bank of Canada
* The Norinchukin Bank
* The Royal Bank of Scotland Group
* UBS AG
* West LB AG
Some of these are not very healthy and some just got saved by the UK (e.g. RBoS). Are these banks the focus (while banks like GS are not)?
I always enjoy your blogs.
Rome is not burning, just some still small portion of the debris it came to mistakenly call prosperity.
Though I have a few quibbles with this version:
Boiled down to its simplest [the argument states that] capital accumulation, in the course of a cycle, necessarily generates titles to wealth (stocks, bonds, property deeds and leases, and more recently securitized mortgages, etc.), capitalized anticipations of income in excess of available surplus value, and that it makes up that gap with “loot”, i.e. goods, labor power, raw materials not paid for at their reproductive value, by running down (not reproducing) C (means of production and infrastructure) or V (labor power) past their point of depletion. When available surplus value and loot no longer suffice to support those paper claims, capitalism undergoes a deflationary crisis that wipes out claims (and ultimately real capital, and labor power) until those claims and are once again in some equilibrium with available surplus value. That’s exactly what we are seeing today.
In a nutshell, in the era of the proliferation of fictitious capital, capitalist paper expands, while the material reproduction of society goes backwards. (Loren Goldner, 12 September, 2007)
anon,
BAC announced they are cutting their div. How totally unsatisfactory and unpalatable is that to the taxpayer paying those divs indirectly to their shareholders?
yves,
Did your blog just suddenly get better? Was there a turning point for your blog when it really sparked, or was it always this robust?
The comments and contributions from your blog community are some of the best I have read.
But strangely, I am reading your community comments, something I don’t do much of at other well known blogs.
And riddle me one other Q please, how did a “management consultant” get to be such a smarty pants in this biz? :-)
Listening to the parsing of Paulson’s statements, it seems clear he is in stall mode. He was given powers he didn’t want, to take actions he resists, for reasons he rejects. Paulson isn’t part of the solution, he _is_ the problem at present, because the larger problem can neither be identified nor addressed while he is the decider. Again, Hankie Paul is playing the Herbert Hoover role in this re-enactment. Any action he takes will be, by definition at this point, too little, too late, and sideways to the public interest. Shameful, ‘s what it is.
Re: Rome burning, oh please. Where were you guys _the last fifteen months_ while Hank, Bennie, and Dufus sat on their thumbs doing nothing except shuck and grin at the camera? Look, an industrialized country needs a banking system, which implies that, yes, we need to save some of the banks. Since we don’t know at this point which ones are system-critical, that means that at the present, yes, we can’t let any sizeable bank collapse. But when I say ‘we need these banks,’ what I mean is that we need their depositors to stay put, their lines of credit to remain funded, their staff to conduct business as they can, and their swaps not go flatline. We DO NOT need their senior management or their equity holders, and in due course we do not need to guarantee the positions of their bondholders through we are going to be blackmailed into playing the ‘hold steady’ with them for the nonce by present systemic conditions.
Pirate shops like GS and JPM need to be chopped up and put down. But that’s for another day, yes. For now, we can simply seize them, hang the pirates, and keep the desks humming. But to do that, it’s pretty clear we’ll have to remove Hank first. The damage his tardiness will achieve in the next three months plus are what y’all might better be worrying about, ’cause as a proconsul for the wealth class he’s dealing you more loss than profit. Soooo how ’boutcha get with the program?
Richard
“We do not need their sr mgmt or their equity holders” ~
here, here
As a further note on Rome burning as an analogy, the Roman Empire collapsed fundamentally because the bottom 95% of the population became so incensed with their rapacious 5% leadership class that the refused to serve in the army, withheld all taxes and services whenever possible, and personally secceeded from their kleptocracy. That was the situation, socially, by c. 280 or so.
The kleptocracy managed to stay more or less in power for almost another two hundred years by using their taxing authority to hire _foregin mercenaries_ who constituted the largest and only effective portion of the military. Meanwhile, the bulk of the population turned to Chrisitianity not because they loved it but because religious institutions were shielded from taxation. By 400 CE, at which time Rome had not yet fallen (it did the following year), the great bulk of the population were all but literally at war with the state and its non-Roman mercenaries.
Rome fell because its kleptocracy sold out their people, who in turn starved the state of money an staff until it finally disintegrated. I kid you not: you can look it up.
—So you out their worried about Rome burning and the popular response: Look in your own mirrors and see the enemies for who they are. Come and join the rest of us, or turn to your thugs, ’cause we know the score.
John,
Thanks for your kind words, I am very pleased to have such high quality comments here, thanks to the thoughtful input of so many readers. I do learn a lot from them, and they do slap me around if I am off base!
Having said that, I think my older work is good too (pick a couple of months in 2007 and read a few posts) but it was a bit different just because there was far less chaos than now. Fewer juicy news times each day, but more time/opportunity for thoughtful commentary. And the older posts have held up well.
As for my background, I'm more of a generalist than is normal in the business, which is a plus for blogging but in some ways a minus in selling my services (t is a lot easier to sell narrow expertise, even if the client has a thorny problem that doesn't fit neatly into a single box. Companies now spec out jobs descriptions narrowly too, a fashion for the last decade).
I've worked for investment banks in corporate finance (underwriting) and for a foreign bank starting up its US M&A operations. As a consultant, I've worked on treasury, credit cards, fund management, derivatives, emerging markets, real estate syndication and technology projects. I have also advised PE firms, hedge funds, and substantial individuals (Forbes 400 level) on evaluating deals in financial services, media, and niche technologies.
Yves knows.
Yves knows the lay of the land.
Yves knows crab apples from road apples.
Yves knows acquisitions from disquisitions.
Yves knows civility from servility.
Yves knows hazlenuts from wingnuts.
Yves knows that antidotes are anodynes for what bit yah.
Yves knows silence illicts a better answer.
Yves knows from pixels.
Yves knows that genders aren’t neutral but territories can be.
Yves knows capitalists are naked under their documentation.
Yves knows Sarah: doesn’t cotton to her.
Yves knows a good question is worth more than a rote answer.
Yves knows sense, and cents, and where the two do and do not coincide.
Yves knows the dawn before we know the day.
Yves [may] know the way; discuss.
Yves knows.
[Yves: I’m working on the subject of our emails; probably Saturday.]
Suddenly I feel better about Matt Dubuque.
Richard Kline,
You’ve proved what I suspected all along: you are a delightful human being.
Richard ~ once again hat tip for the poet it you!
yves,
Thank you for your reply.
Right now, I am partly fascinated, and partly spellbound. Your resume may not appear to be very sexy on the cover, but when I unwrap the paper your appeal is mesmerizing!
Yves, you, your blog, and your community are a wonderful package. And if you’ll grant me permission to come aboard, I’d love to stick around and be part of the crew.
Sometimes I may just lurk and yves-drop, other times I may pitch in and make a contribution.
ps. who is “Sarah” that you don’t cotton too? :-)
The sight of people cheering while Rome burns repulses me.
The slaves of Rome or the tribes paying taxes to Rome might want to bring Sausages and Beer, no.
Maybe the LIBOR being higher than the FED rate is the sign of a *functioning* credit market where supply and demand sets the price and not the Central Planner.
I.E. he banks do not want to lend at rates below inflation so the rate will be higher regardless of what the FED claims it should be?
Thomas Jefferson wrote,”The central bank is an institution of the most deadly hostility existing against the principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but coin. If the American people allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.” I say let them fail. Many are waiting patiently, readying the nooses, sharpening the blades of justice. We as a country will survive. Our children will be better off once we rid ourselves of the parasites among us.
How soon before the world dumps the greenback in favor of another currency like the Euro? How many trillions of dollars have been cranked out to try and keep the ship afloat? Earlier in the year the Euros’ were trying to match our printing presses dollar for dollar to keep the Euro from exploding but have since stopped that practice. Economic law of supply and demand says the more of something the less its cost…