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Monday, September 22, 2008

New Era in Financial Markets Begins

Items of Interest:

Nouriel Roubini / Financial Times:
The Shadow Banking System Is Unraveling -- Last week saw the demise of the shadow banking system that has been created over the past 20 years. Because of a greater regulation of banks, most financial intermediation in the past two decades has grown within this shadow system whose members are broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders...
Bloomberg: Goldman, Morgan Stanley Bring Down Curtain on an Era
Wall Street Journal: Lawmakers Battle Over Rescue Plan
Paul Krugman / New York Times:
Cash for Trash — Some skeptics are calling Henry Paulson's $700 billion rescue plan for the U.S. financial system “cash for trash.” Others are calling the proposed legislation the Authorization for Use of Financial Force, after the Authorization for Use of Military Force …
Mark Adams / American Street: And Now They Want MORE?
Calculated Risk: Krugman: Cash for Trash
William Kristol / New York Times:
A Fine Mess — A friend serving in the Bush administration called Sunday to try to talk me out of my doubts about the $700 billion financial bailout the administration was asking Congress to approve. I picked up the phone, and made the mistake of good-naturedly remarking …
New York Times:
2 Candidates Back Bailout, With Caveats — PHILADELPHIA — Senators John McCain and Barack Obama warned Sunday that there should be more oversight built into the government's $700 billion plan to stabilize the financial markets but said the potentially enormous expenditure would not force …
Kevin Bogardus / The Hill:
Dodd to seek changes to Treasury relief package — Sen. Christopher Dodd (D-Conn.) said that the $700 billion bailout for Wall Street firms proposed by the U.S. Treasury Department needed to be modified and Democrats would most likely add new provisions to the package.
Discussion: The Swamp
New York Times:
Democrats Set Terms as Bailout Debate Begins — WASHINGTON — Congressional Democrats began to set their own terms on Sunday for a plan to rescue the nation's financial institutions, including greater legislative oversight of the Treasury Department, more direct assistance for homeowners …
Patrick Ruffini / The Next Right: Republicans Should Vote Against the Bailout
Donald Douglas / American Power: Paulson Plan Could Lay Foundations for Recovery
Mark Kleiman / The RBC: Note to Henry Paulson
Sean Hackbarth / The American Mind: ON BAILOUT STAND BY YOUR CRITICISM
The Politico:
CEO pay emerges as bailout barrier
New York Times:
Big Financiers Start Lobbying for Wider Aid
Mike Allen / The Politico:
Obama might keep Paulson
Josh Marshall / Talking Points Memo:
THE BIG QUESTION: 2+2=4? — The New York Times reports …
Attaturk / Firedoglake: U B S(uckered)
John Riley / Spin Cycle: McCain: Calling for oversight
James Pethokoukis, Capital Commerce
Washington's Mother of All Bailouts -- So after the Mother of All Bubbles comes the Mother of All Bailouts. Main Street saves Wall Street. It now looks like Uncle Sam will create a new entity to take hundreds of billions of bad debt off the books of America's major financial companies. (Look for this to get done before Election Day, if not early next month.) "This is a gigantic step forward, the only way to fix the crisis," writes Ian Shepherdson, economist at High Frequency Economics. "Economy still a mess, but systematic risk way down."
NY Post:
ALMOST ARMAGEDDON -- Markets were 500 trades from a meltdown.

The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post.

Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline! - while the clang of the opening bell was still echoing around the cavernous exchange floor.

According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning...

Financial Armageddon was close on Thursday, Sept. 18, 2008
Todd Harrison / Minyanville:
Monday Morning Quarterback: Back in the U.S.S.A.! -- We’ve been offering that the credit crisis must resolve itself in one of two ways as the debt issuance mounted on the September horizon.

The first is credit cancer that is chewing through various industries. This will phase through homebuilders, banks, “financials in drag” (such as General Electric (GE), General Motors (GM) and Ford (F)), technology, retail, credit card companies and commodities until the body is rid of disease.

The other is an outright car crash; a collision where credit seizes, capital markets freeze, price discovery permeates and social mood shifts as we come to terms with the new world order.

The government is attempting to buy the cancer and sell the car crash through the massive bailout and banned short sales in the financials. There has been much debate over their actions but it is what it is and we’ll do what we must.

The simple yet scary truth is that if the government continued to administer ad hoc drugs to mask the disease, the stock market would have experienced a cataclysmic crash and that’s not something that benefits anyone...
Phil Erlanger / Minyanville:
This is a rather humorous email, but to the point. It hit my firm's inbox over the weekend.

The Securities and Exchange Commision has ordered all hedge fund managers to report to train stations by noon Monday for immeditate transport to the Manzanar Detention Center, not used since World War II. Upon arrival at Manzanar, fund managers will be interrogated after being cavity searched for short positions. The Commission believes that this move, in addition making sales of any securities, real estate, or other hard assets illegal for the next year, should restore investor confidence in the capital markets.

Daily Options Report:
What Happens When $1 Trillion Is Floating Around Unchecked?
The Lehman Brothers Effect -- The collapse of Lehman Brothers and the makeover of American capitalism will affect a lot of people in a lot of ways, not least of all New Yorkers.

Mayor Mike Bloomberg said every Wall Street job creates 2 others and predicted tough times ahead for the 5 boroughs...

But the trickling down of Wall Street's woes will likely hit those of more modest means, too...

Lehman Brothers Effect: trickling down of Wall Street's woes----

Calculated Risk

MishTalk - Mike Shedlock

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia