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Thursday, October 9, 2008

Credit Panic of 2008 Lays Waste To Markets

Items of Interest:

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NY Post headline for Oct. 9-10, 2008: Lookout Below---
CNNMoney:
Dow tumbles 7% -- Dow falls below 8,600 for first time since 2003 - on the 1-year anniversary of its all-time high.

market wrap October 9, 2008Markets tanked Thursday - with the Dow falling nearly 700 points during the session - as panicked investors dumped stocks across the board.

Bank lending remained tight as nervous institutions continued to hoard cash. Treasury prices fell, raising their corresponding yields. The dollar gained versus the euro and the yen. Oil, gas and gold prices fell.

The Dow Jones industrial average (INDU) lost 679 points, or 7.3%, closing at its lowest point since May 21, 2003. It was the Dow's third biggest one-day point-loss ever.

The Standard & Poor's 500 (SPX) index lost 7.6% and closed at its lowest point since April 28, 2003. The Nasdaq composite (COMP) lost 5.5% and closed at its lowest point since June 30, 2003...
Wall Street Journal: Blue Chips Slide 678.91 Points, or 7.3%

Kyung Bok Cho / Bloomberg, Oct. 10, 2008:
Asian Stocks Fall, Set for Worst Week on Record; Banks Plunge
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NY Times:
Nations Weigh Global Action to Crisis -- The United States and Britain appear to be converging on a similar blueprint for stemming the financial chaos sweeping the world, one day before a crucial meeting of leaders begins in Washington that the White House hopes will result in a more coordinated response.

The British and American plans, though far from identical, have two common elements according to officials: injection of government money into banks in return for ownership stakes and guarantees of repayment for various types of loans...
discussion:
Minyanville:
Give the Banks What They Need: Capital! -- Battered American banks could be nearing a turning point.

As the Treasury Department scrambles to implement the newly minted $700 billion Emergency Economic Stabilization Act of 2008 -- otherwise known as the “bailout to (hopefully) end all bailouts” -- Wall Street and Washington participants alike are gaining mindshare that direct capital injections may be the speediest way to right the country's sinking financial ship...

Colin Barr / Fortune: Why Taxpayers Should Own Banks
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Vikas Bajaj / New York Times:
Stocks Plunge Again; Dow Under 8,600 — Stocks fell sharply in late afternoon trading in New York on Thursday as concerns about the global financial system mounted and investors priced in a deep recession. — The Standard & Poor's 500 stock index was down nearly 7.6 percent …
Discussion:
Tim Paradis / Associated Press:
Dow plunges more than 678 to fall below 9,000
Discussion:
John Cole / Balloon Juice: DOW and S&P Tanking Again
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Nouriel Roubini's Global EconoMonitor:
The world is at severe risk of a global systemic financial meltdown and a severe global depression -- The US and advanced economies’ financial system is now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system, i.e. those non-banks (broker dealers, non-bank mortgage lenders, SIV and conduits, hedge funds, money market funds, private equity firms) that, like banks, borrow short and liquid, are highly leveraged and lend and invest long and illiquid and are thus at risk of a run on their short-term liabilities; and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms...
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Paul Krugman:
Dow 9,000! — Stock prices are, however, the least of our worries. The money markets are frozen; the TED spread is 4.14%. — G7 meeting tomorrow, IMF-World Bank over the weekend. Now is the time for major action — an announcement of coordinated capital injections, liquidity measures, and more.
Discussion:
Brad DeLong / Grasping Reality with Both Hands: As Paul Krugman Says, the Stock Market Is Not the Big Problem
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Peter Goodman / NY Times:
Taking Hard New Look at a Greenspan Legacy --
“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.”
— Alan Greenspan, former Federal Reserve chairman, 2004
George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.”

And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street...
Discussion:
The Big Picture: Deconstructing Greenspan
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Phil Izzo / Wall Street Journal:
Economists Expect U.S. Crisis to Deepen — The U.S. economy has sunk into a recession and government action is critical to stem the damage, according to economists in the latest Wall Street Journal forecasting survey. — “We're in the middle of a very dark tunnel,” said Brian Fabbri of BNP Paribas …
Discussion:
Frank James / The Swamp: Financial, economic gloom grows
Menzie Chinn / Econbrowser: Prospects for Output: The WSJ Survey
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Ambrose Evans-Pritchard / Telegraph:
Financial Crisis: Who is going to bail out the euro?
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