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Thursday, October 16, 2008

Credit Rumbles Still Reverberate in Markets

Items of Interest:

credit derivatives: the $58 Trillion Elephant in the RoomJesse Eisinger / Portfolio.com:
The $58 Trillion Elephant in the Room -- The roots of this year’s financial crisis go back to a small team of bankers at J.P. Morgan in New York. Now, their invention—credit derivatives—has helped bring down Wall Street and has left Morgan with its biggest exposure of all.

At a time when the reputation of bankers has been shredded, Bill Demchak is a throwback. The day I meet him, the financial world is once again poised on the brink of destruction. The Dow Jones Industrial Average lost 358 points the day before and is already down another 150 this morning. Yet the green-eyed Demchak, in pleated khakis hiked up unfashionably high onhis waist, seems preternaturally calm—especially for a man who, unwittingly, has had a hand in bringing Wall Street to its knees...

Demchak ... the leader of a small group at J.P. Morgan in New York [in 1997] that pioneered the kind of financial instruments that eventually led to this autumn’s wreckage on Wall Street. The J.P. Morgan team created and then industrialized credit derivatives, which have enveloped the global markets, growing to a mind-numbing $58 trillion worth of credit contracts. They have spread and morphed in ways that Demchak never intended but always feared...

related:
Jacob Leibenluft, Slate
What the $596T Derivatives Market Means - How can the derivatives market be worth more than the world's total financial assets? ...
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Megan Barnett / Portfolio.com:
Who Got Screwed By the Bailout? --
  1. J.P. Morgan Chase — Jamie Dimon
  2. Merrill Lynch — John Thain
  3. Goldman Sachs — Lloyd Blankfein
  4. Wells Fargo — Dick Kovacevich
  5. Lehman Brothers — Dick Fuld
  6. Homeowners — What's at the root of this crisis? Falling home prices. What's being done to stop prices from falling? Nothing...
  7. Short-sellers
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Root of the Crisis = Home Foreclosures

Damian Paletta / Wall Street Journal:
FDIC Chief Raps Rescue for Helping Banks Over Homeowners -- Federal Deposit Insurance Corp. Chairman Sheila Bair on Wednesday criticized the federal government for failing to take more aggressive steps to prevent Americans from losing their homes, highlighting a rift between her and other senior U.S. officials over terms of the $700 billion rescue package.

FDIC Chairman Sheila Bair after Treasury Secretary Henry Paulson announced Tuesday a plan to take stakes in banks.The government plan will help stabilize financial markets but it doesn't do enough to address home foreclosures, the root of the crisis, she said in an interview with The Wall Street Journal...
related:
Daniel Taub and Dan Levy / Bloomberg:
Losing Las Vegas Shows How Americans Crap Out in Housing Casino

Barry Ritholtz / The Big Picture:
Home Prices Seen "Far from Bottom"

Vikas / NY Times:
Home Prices Seem Far From Bottom
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Interactive Graphics / Portfolio.com:
  • Icing on the Debt -- Who will supply the $700 billion for the bailout? Look who's covered our debts in the past....
  • By the Numbers -- $700,000,000,000.00 is an awfully big number. Let's try to put it in some perspective. ...
  • Bailout: Rescue or Ruin? -- Will the bailout restore calm to credit markets, or lead us to ruin? Here are the arguments....
  • Wall Fall Down -- The financial landscape gets redrawn. Who emerges the strongest out of the carnage?...
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Minyanville:
The Stagflation Equation -- Inflation + Deflation = Stagflation

When the value of everything you own is falling, and the cost of everything you need to survive is rising, you're experiencing stagflation.

Today, the stagnation (deflation) side of stagflation is very evident. Frightened investors are seeing their 401ks drop precipitously; home values continue to decline as foreclosures increase. The economy is, at best, in a state of stagnation; at worst, it's moved into a deep recession.

The inflation side of the stagflation equation is also clear: We're all experiencing persistently high and rising prices in food, energy, health care and college tuition, even as the wholesale prices of oil and commodities have been cut in half. The current rally in the US dollar is only exacerbating that fall...
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