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Wednesday, October 8, 2008

Credit Crisis Spawns Global Rate Cuts

Items of Interest

"Politics is the art of looking for trouble, finding it everywhere,
diagnosing it incorrectly, and applying the wrong remedies."
— Groucho Marx via CalcRisk
NY Times:
Central Banks Coordinate Global Cut in Interest Rates -- In a move of unprecedented scope, the world’s major central banks lowered their benchmark interest rates Wednesday, a coordinated effort to halt a collapse of share prices and a freeze in credit markets that threatens to set off the first global recession since the early 1970s.

The action failed to calm gyrating markets, however, amid the growing realization that a serious and prolonged recession may be difficult to avoid.

The Federal Reserve, the European Central Bank, the Bank of England and the central banks of Canada and Sweden all reduced primary lending rates by a half percentage point. Switzerland also cut its benchmark rate, while the Bank of Japan endorsed the moves without changing its rates...

John Fraher /Bloomberg:
Trichet Engineers `Regime Change' at ECB as Europe Banks Totter -- European Central Bank President Jean- Claude Trichet is opening up the floodgates as the credit crisis threatens to cripple the region's banking system...
Mish's Econ. Analysis: Trichet Offers Unlimited Cash
A Meltdown in Iceland -- As banks across the world teeter amid the market meltdown, Americans and Europeans watch their governments intervene to stave off catastrophe. But for the 301,000 citizens of Iceland, the slide is more like a free-fall, as the tiny country finds itself engulfed by massive debts that have spun out of control in a matter of weeks. Iceland's currency, the krona, has plunged about 30% against the euro in just 10 days — and has lost more than half of its value over the past year. The declining krona has caused sharp spikes in the price of essential food and fuel imports to the remote nation, with the country's dwindling foreign exchange reserves and the collapse of some of its key banks raising questions about Iceland's ability to service its foreign debt...
NY Times:
For Dow, Final Swing Was Down -- Wall Street could not hold onto its gains on Wednesday, as a 150-point rally vanished in the closing minutes of trading amid the fear and uncertainty that continue to course through the financial system.

Dow Jones Avg. price swings on Oct 8, 2008The Dow Jones industrials average ended down 189 points, after falling 316 points in the final 28 minutes of the session.

The broader market finished down 1.1 percent, a modest decline compared to the rest of the week, as measured by the Standard & Poor’s 500-stock index...
Hard Times at Time

Time: The New Hard TimesNiall Ferguson / Time:
The End of Prosperity? -- The U.S. — not to mention Western Europe — is in the grip of a downward spiral that financial experts call deleveraging. Having accumulated debts beyond what's sustainable, households and financial institutions are being forced to reduce them. The pressure to do so results from a decline in the price of the assets they bought with the money they borrowed. It's a vicious feedback loop. When families and banks tip into bankruptcy, more assets get dumped on the market, driving prices down further and necessitating more deleveraging. This process now has so much momentum that even $700 billion in taxpayers' money may not suffice to stop it...

Yet the underlying cause of the Great Depression — as Milton Friedman and Anna Jacobson Schwartz argued in their seminal book A Monetary History of the United States: 1867-1960, published in 1963 — was not the stock-market crash but a "great contraction" of credit due to an epidemic of bank failures.

The credit crunch had surfaced several months before the stock-market crash, when commercial banks with combined deposits of more than $80 million suspended payments. It reached critical mass in late 1930, when 608 banks failed — among them the Bank of the United States, which accounted for about a third of the total deposits lost. (The failure of merger talks that might have saved the bank was another critical moment in the history of the Depression.) ...
Time: Are Paulson and Bernanke Running Out of Options?

discussion: The Big Picture
$25.9 trillion — Gone ...

World Equity Market Declines: -$26,000,000,000,000 — Here's one to take home with you tonight, although it might make it tough to keep your dinner down. Since last October, the value of stocks worldwide has fallen 41%, or $25.9 trillion. As shown in the chart below, Bloomberg's World Market Cap index has fallen from $62.5 trillion at its peak on October 31st, 2007 to its current level of $36.6 trillion...

World Markets lose $26 Trillion since October 2007----
Sad Guys on Trading Floors --

"Turning the economic crisis into one of those clever internet memes."

Sad Guys on Trading Floors
discussion: The Big Picture
Wall Street Journal:
Housing Pain Gauge: Nearly 1 in 6 Owners 'Under Water' -- More Defaults and Foreclosures Are Likely as Borrowers With Greater Debt Than Value in Their Homes Are Put in a Tight Spot

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year...
Atrios / Eschaton: Under Water
Housing Wire:
Pending Home Sales Surge -- Pending home sales activity surged in August as buyers took advantage of low home prices and affordable interest rates, according to the National Association of Realtors.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in August, jumped 7.4 percent from July to August, and stood 8.8 percent higher this August compared to August 2007. The index is, in fact, at the highest level since June 2007.

Home sales are considered pending when the seller has accepted an offer, but the deal has not closed. Generally there is a one- to two-month lag before a sale is completed...
The Big Picture: Pending Home Sales Index Rises Year-over-Year -- some surprisingly good news from the NAR ...

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