Monday, October 06, 2008
The moment of good feeling in the money markets which I referenced on Friday has evaporated. My money market source says that the headline news from Europe has overwhelmed the markets and fear is once again ascendant.In addition to the widely disseminated headlines there are other stories percolating below the surface which have also contributed to the dire glum mood.
also -- and this from a man who is not particularly given to melodrama:
The conventional wisdom held that the successful passage of the rescue legislation would introduce some stability into the markets. The ink was not dry on the legislation when stocks began to head south again, and in a serious manner. It is beginning to look as though the authorities well need divine intervention to save the day.
My suggestion is that members of the staff at the New York Fed should take some time and trek two blocks south to Our Lady of Victory Church at Pine and William. They should get down on their knees and pray and then light a candle.
That looks like the only viable solution for now.
new fed actions -- decidedly not the massive global coordinate rate cut that nouriel roubini might have advocated to stave off collapse -- look weak in the face of this monster. assume crash positions? the worst outcome looks increasingly probable.
UPDATE: felix salmon manages yet deeper pessimism thaan roubini.
We're long past the point at which a global coordinated rate cut -- the dropping of vast amounts of money from helicopters -- will help things. Central bank liquidity injections are powerless in the face of serious worries about the solvency of the global financial system. In order to restore trust, what's needed is massive bank recapitalizations.
Given the pain involved in getting TARP through Congress, I can't imagine that anybody has any appetite for yet another massive bailout bill, even if such a thing is desperately needed. At the very least, we're going to have to wait for the arrival of a new administration, in January. Which means the next three months could be extremely gruesome indeed.
UPDATE: more from john jansen:
The Federal Reserve announcement earlier today of a gigantic increase in the size of the TAF program has not broken the logjam or sweetened the mood.The gentleman with whom I speak on this topic suggests that if we have a few more days of this inactivity and illiquidity, then the direness of the situation will leave the Fed will it will be force to guarantee Libor deposits and commercial paper.
He also remarks that we are at the point of self fulfilling prophecy. On that point he references the S and P downgrade of Royal Bank Scotland this morning.