Hell Street plunging again in devil’s bubblesmoke…-)

DID WALL STRETS TURN AGAIN TO A HELL STREET, or never stopped to be hellish?


A tale of  W street and the W recession


New post: Equities: Reaching The Danger Zone http://tinyurl.com/y94y8h7 /Monday 12 April, 5 pm GRT

Look at this elementary graph, that you can easily redo yourself on the 1st page of today’s wsj oL, even without being a subscriber – as I must be professionally.

Well, not only the bigger share of the dead bubble appeared in Wall Street, much more than in the RoW (Europe, BRICS and Japan: aggregated and implicit here, in the difference between the two curves – SIMPLICITY and SYNTHESIS matter, for a 1st look).

But, since from the 2009 policy-driven rallys, devil’s smokes reappear again at Hell St.; much before a recovery of Mean St. I don’t think there is any  serious debate about the fact that AT LEAST Hell\Wall St. is already in a new bubble: with all the self-evident, dramatic implications of such a tenet. The analytical-policy complex debate (where perspectives, schools and interpretations of the empirical facts necessarily diverge, before looking for a new convergence focus and a relative ricomposition of the profession) is about how much such a New Bubble is a matter of “CONGIUNTURA o STRUTTURA”, SR or LR in its very nature – i.e. the relevant dynamic forces behind this unsustainable model: of overvaluation of Western assets, at the price of a permanent Eastern overgrowth. My position is that the LR bubble is evident, and actually was never fully dried up; while we are about to enter also an additional SR one, starting from some asset markets. La musica  non cambia.

A lot of work for the world  Obamas, their teams and 1st of all the invisible college of CBs that saved us from another 1929\31 – until now. At a price.

According to the two distinct (but a bit overlapping: GLI ESTREMI SI TOCCANO SEMPRE) Austrian and post-Schumpeterian (evolutionary) schools: AT THE PRICE of  repressing the “Invisible Foot” who makes room for a New Wave of innovations and their bundles. No foot, no room.

As for the congiuntura, there are all the usual caveats about the VWL (VolksWagenLite) shapes of the recession in the different macro-regions of the world, and 20 days ago I listened to such an interesting breakfast time (03/25/2010 09:34) twitting as:

@zerohedge New post: Is Something Big In The Market Coming? http://tinyurl.com/y97jayc“.

The twitting and the post were introducing to an acute FINALE by David Rosenberg (Breakfast_with_Dave_032510.pdf), concluding that markets are signalling turnarounds

And lastly, there is no V-recovery anywhere, except in the Fed-prodded stock market.

Even that bastion might not be firm for longer. In fact, today at early dawn here in Verona, the same little Spring bird awakes me via TweetDeck sounds to tell me:


IMF Prepares For Cataclysm, Expands Backup Facility By Half A Trillion For “Contribution To Global Financial Stability” http://bit.ly/a4vMeh

With linguistic determinism, the philosophical WordPress blog cracking process distills down here such a nice continuation: the-gates-of-hell-open!!!

… what if the demons from Hell decided to enter Wall Street and other business sectors so as to better manipulate and corrupt society? And thus Hell, Inc. was born.

We are at a more ground level here, and we are looking at the devils in the markets details.

Who’s afraid of Timothy Woolf


WALL STREET: Sen.Dodd talks of Bank Nationalisation while markets are open: BoA and Citi (>50%  State owned) precipitate. Pension funds relocate from Banks to high tech, in search of dividends.


TODAY, AS YOU KNOW:  – 5,8% MIB MILANO, worst in Europe.

STUCTURALLY WEAK, in perspective,  the 2 leading Italian banks (of course in a frame of subCrime and structural crash of the entire Globalisation architecture; but  NOT SO “innocent” Angels. Even “Last Angel” JP Morgan … see below).



1) in all today’s markets, and very neatly in Milan, the so called RE-RATING PRINCIPLE HAS BEEN APPLIED. Although in a rather strange way in Milan, namely in the key last hour,  half-hour and  final (SELECTIVE) sales rush of the market — revealing a bit of wh’appens in the exchanges secret trades and UNOBSERVABLES (single transactions). UniCredit was leading the fall, OK? But, in the last  1/2 hour Intesa SP was loosing  all of a sudden another 6% point, Banco Popolare 4, UniCredit UNBIELIEVABLY stopped falling. On such  a proportion, this is  no RE-RATING at all (as il Sole 24  ore financial correspondent was saying at radio 24, on the contrary: but it is not so easy to give the whole picture in real time: at that moment, I also thought the same way). I’d  better call this: LEAP-FROGGING in a downward pent. NO OTHER ANSWER: someone, either 1 operator at a VLS, very large scale, or more likely 2-3-4 of them at average-to-large scales, were buying at closure prices (€ 0.89). We’ll comment this in a while: so interesting. I didn’t buy, although it’s MY bank.


2) Let us say: in the unprecedented last hour of Piazza Affari (A CONCENTRATED SHRINKING OF ALL  THE BLACK OCTOBER 2008, and just in Milan), some operators were in panic, some were applying RE-RATING (a sort of arbitrage, and hierarchy among leading firms in an industry). Just a few, perhaps a handful were manoeuvring against the main current, as only the most clever and resourceful fishes do – AND THIS HAS STOPPED the UniCredt decline in THAT key hour.


Who bought UniCredit after 4.oo pm GMT (5 in Italy)? I won’t tell you,  except under torture.



The Italian Duopoly  (1 bank in many respects),

at repair from any market contendibility (i.e. roughly translating our friend and fine wine connaisseur Baumol’s dis-equations: POTENTIAL competition, since Aristotle was never allowed to make it REAL), control the whole Classic Media, and penetrated deep into the Social Media blogo- and  ludo-spheres. Truth (they’ll never tell you) is

they are by far over-rated, still:

– I don’t analyse here Banco Popolare, except to say: I have a sincere esteem  of his CEO, Mr Fratta Pasini; in Verona there is an important sense of civicness, “coming out” with decision  in the last few weeks and even  more strong in today’s hectic day. For a disastrous process of hyper-concentration and that Surrealistic Theater called “globalisation” by its PRs, we have lost 1/2 banks; better than Naples that lost its only one (worst: the only left large job supplier in the city centre, an infinite  gift to Gomorra from politicians). The population of Verona is with the heart, sincerely on the side of “our” bank (no populism but local culture, the labour and work of a cooperative bank); in a very large majority of the spieaking public opinion, we believe 1) we have the right man, 2) managerial animal spirits are one of the rarest “commodities”; 3) and, to close such an improper sillogism,  we want him to stay there: exactly because a 2nd concentration would be lethal for the quality of  the civic tissue of the city, and CORRECTLY interpreted as a 2nd, historically even more intolerable EXPROPRIATION (David Harvey). Attention, because Verona  insurged with no hope against Napoleon: there are hidden anarchist resources in these quiet communities!! We will pay due scholarly attention to  Pop another time: this Social War will be so long; in the next few days it’ll be Fort Apache every day. Verona as a city,  i.e. a collective “in the good sense” (the one song by Simone Weil in the poem Venise  sauvée, for our sorella maggiore), firmly doesn’t want any Waterloo for Pop. By reasons of ethic-epistheme coherence, this doesn’t imply anyhow Pop is any “Angel” at all, even less that “our” Mr Fratta Pasini Angelically avoided all the traps on his path. On the contrary: i) if you compare him with Mr Profumo below, we love even more Mr Fratta Pasini for his humanity and finiteness: ii) as prof. Roubini’s intransigence taught us, a real picture of the situation is strictly necessary, in order to geo-position correctly  the Pop “barricades” against the Tsunami;  iii) not only some populist “stracciarsi le vesti“, or invoking  (again? nooo!) the closing of all financial markets everywhere, don’t deserve a reply here. Worst: for their stupidity,  they’re Trojan horses, weakening the city’s barricades or trincee, as I am arguing in the local press, with all the  passion and love for “Verona sauvée” which circulate in my blood (genius loci).

– in 1 year Intesa SP  fell from € only to € , while its future is bleakening at the speed of light, and they apparently don’t know well where to start from. Today, it was UniCredit leading the re-rating game, but the East European dependence (making UniCredit a lame duck) is NOT the major issue (by the way, this is an answer to Sebastiano Barison, radio 24, wandering: “Why all this crash, if the majority of their sales is in Italy”. Correct answer: “The majority of the duopolists problems ARE in Italy, actually”). In sum:

You better wait some massive devaluation and recapitalisation, before any BUY.

– On the other side of the SAME COIN, a UniCredit awfully managed by SuperEgo Alessandro Profumowe’ll never forget  the sense of self-sufficiency  stemming from his icy eyes, and his open despise of reality, top clients, whatsoever, worlds. A living Murphy law:  if there was a possible strategic mistake, he went straight into it, without arrière pensées; he’s an Aristotelian top executive: if something is possible, he’ll make it happen. But he’s weak in 9 other items of an interview: human relations; knowledge decision support; macroeconomic environments intuition; medium-long run view; reduction of useless extracosts and hierarchies; scenarios interpretation; selectivity; team work; vision. I would rate him: 1/10.

UniCredit  is surprisingly down only at €o.89 (from € ). Profumo’s another case in such a long gallery, we thought  up forever, exp. after the micro-economic roots here of the “Japanese desease”: pursuing  max growth while blatantly ignoring corporate finance sustainability constraints, and fucking stakeholders’ interests. There is even such a well known, VERY OLD BUT STILL TAUGHT textbook lecture on the “Profumos”: the Marris model. Every graduate student from a decent school, who was taught Industrial Organisation (and not just Games, the real thing as well; Maths and History, as Baumol says) knows  perfectly the problem and  might remember its multiple solutions (a 2 equations nonlinear system, under a linear sustainability constraint).

Add the macro- and geo-economic frame: any dilettante (IFF consulted) would have just stopped “a gamba tesa” Mr Profumo 10 years ago, since at that time most of the Western Economies’ Actives had been by far over-rated for a decade, and you could not reasonably take so many risks together in just one firm; plus the country-specific and the E. European regional ones. The average expected success  Prob. was very close to 0 on an array of scenarios. And the hyperconcentration of the governance, the very bad  use if the fusion (CredIt, CdR) just for Imperially spreading incompetent Roman Bureaucrats  in the Conquered Province (incl. my beautiful Verona) is no excuse: it is part of the problem itself; if the owners accepted it as a solution of their principal\agent bargaining with Mr Profumo, and did not  monitor how the cintarct was executed, they just got what they were looking for. A crazy mono-strategy  (Rome against the Unni at the border of Russian steppe) whose potential failure, unbearable risk and wrong timing was very easily detectable, at just one external independent check, since many years ago.

In sum:

No reason to buy unless strategically, as in the Qaddafi case. In fact, Qaddafi and another M.East SWF are subscribing UniCredit convertible bonds at €3 (versus today’s 0.89 mkt value)

Mr Draghi, much cooler and a plomb than Min. Tremonti is (1st class clever, but badly affected by emotions-driven Prime Minister), is just saying, and he’s correct: devaluate all your toxic rubbish (see below how much “toxic” is a daily changing, metamorphic notion), then recapitalize ASAP.  Please don’t fool yourself (as  yo do fool ourselves: see we’re fed up with Marxism plea) with your “stabiity”: the sooner, the better. Sure, implementing such a strategy meets hard times.

This is why the major National (from December, no more global: see Brad Stetller on the US capital flows) Capitalisms recur to the 4th-5th best, or last solution of Nationalisations. But Italy has its own path-dependence: after Enrico Mattei, Craxi and De Michelis. The beloved Beniamino Andretta (as you already know in Italy, the political “father”  and  mentor of Mr Prodi) fought very hard in the 1980s coalition governments in order to save the public debt from the catastrophe (I remember Gianni De Michelis’ versions of such a War on Budget). Beniamino had all the knowledge and will to fight and  he did it, he gave hard times to the opposite political line (as from my personal, oral evidence), but no real power.

This is history by now, it is written in many books: Craxi could hamper Mr de Mita’s  impressive and farsighted “Revolution” of the DC, aming to move it from a European to an American political science and tradition paradigm of great coalition Party. He was repaid by the traditional DC caucuses (he had saved from Nichilism: the usual grey men like Andreotti, Forlani etc.) with an infinite State budget ceiling (the one Super Ego Profumo was convinced to have, but he never had, as any psychiatrist or cognitive psy woud have told him  before the end of the  1st meeting). The change occasion was postponed to “Mani Pulite” that generated Berlusconi’s business diversification (a much more cautious application of the Marris Model’s normative implications on such strategies; a friend of mine, a top executive of the privatised Dutch Post, told me at the epoch of the “diversification” that he could no more consider Fininvest in the set of potential allies, since the political risk was unmeasurable; in Eindhoven they teach Economics comme il faut).

In sum: Italy will not have, for some and perhaps many generations, the means to nationalize anything,  AND VERY LITTLE ROOM for any other counter-cyclical, industrial or social  policy. The chance stands for “MANY” above since:

a) the Late-comer First Industrialisation happended in Italy, under the  hyper-corrupted Giolitti Period (Early 20th C.), with a German financial system (the Mixed Banks going  bankrupt and natonalised in the early 1930s; CredIt was privatised  not so much before concentrating into UniCredit) and under a German I-O umbrella: these “filière” systemic links always grew upon time (in parallel with not so different political regimes, mutatis mutandis). Germany, our Elder Brother with some paternal rights, was not paying attention to the younger brother in the 1980s, but from now on will never allow for easing his\our public financial constraint. Unless  we  move to Africa.

b) The Italian political system did finally diverge from the 65-years  Nippon stagnation path. But not so much, e.g. in intergenerational policy terms. Unless the PD (dead today, but  this is good news for  potential change) challenges PDL’s  monopoly-and-monopsony, where will change come from? The State debt will keep forever around 100% of a very slow growth, often zero-growth GNP. In a sort of coupled hysteresis.



1. PENSION FUNDS MOVE WHERE DIVIDENDS ARE HIGHER: WHAT ELSE?THIS EXPLAIN THE DIVERGENCE TIDAY BETWEEN DJIA AND NASDAQ. In the sublime as always, but today really ON THE NEWS Sebastiano Barison’s broadcast (to which I owe 2/3 of this post’s concepts, under my rewriting and idiosyncrasies of course), we coukd listen to a top US exoerte, Mary NN, saying; No way for dividends from US banks. She said “I’d really like JP Morgan [!] to pay them, but they are in the same situation”. Some room only , exceot the zero-option, for a further reduction of already low dividends (Nietzsche and Severino are right; God is dead, and with Him all the Angels = there is no ethernal structure left on this earth. JP Morgan was the last one, still an Angel under the Fed’s protective Holy Spirit,  in mid-March last year …).



4. INCREASING UNCERTAINTY UPON KEY PARAMETERS; namely, referring to the various Timothies, if they have an idea (perhaps not): which governance and business models  in the State-owned majority of the much  less global Credit Industry? Sociology taught us: it’ll be a big fight. Yes, but: A) a fight for Governance Rules under which Meta-Rules of the game? B) How  can we repeat  the Lithany  that the late Schumoeter was so wrong, totally wrong? C) The anti – “Capitalism, Socialsm and Denicracy” VUKGTA, cane from vested inteersts: the Workers’ Movement bureaucracies had to dissen’minate the ideiigy of Biig Socialism as a volunatry conquest etc, etc, Bukkshut.

5. EUROPE REGIONAL FACTOR – As Prof. Nouriel Roubini is saying, there is an emerging Regional Factor – the comparative delay in  making effective the anti-Meltdown injections. An antidote for Italy is today’s Bruxelles approval of the “Tremonti Bonds”.

6. NATIONAL NO-DECOUPLING or no-Nation decoupling (particularly in Credit: Brazilian Mean Streets have exhibited heroic decoupling forces in 2008, as  in a Myth, an Amazonica-Nordestina conta of strange, UNIQUE animals). ITALIAN BANKS DIDN’T “TALK ENGLISH” YES. BUT THEY DEUTSCH SPRACHE, and therefore they are full of original (doc) Toxic products (not just the unsellable Italease, a dead walking emanation of Banco Popolare). The counter-information industry (= all the Italian media, except only the one directly owned by the ensemble of all the non-credit Capital: il Sole 24 ore, the Confindustria newspaper – just with forgivable and BONA FIDE mistakes) told us for 18 months that the Italian credit  industry was living in  another planet. We could stand the Tsunamy by .. lending each other within borders, as Barison was mocking today, during the mini-Tsunami. It was  just to suck you your left savings.

7. THE TOXIC DERIVATIVES – Wh’happens here is that there are by now A FEW  GENERATIONS OF TOXIC artificial Beings, like in any Pandemia. After the “doc” subCrime 1st G, they are self-reproducing  in Labs (the Banks’ canteens, in the ususal metaphor about the canteen as a compensation room in between Surface Finance and –  legalised by Clintonians – underground Shadow Finance).

FOR OUR BACKGROUND, FRAME SCENARIOS: GO TO OUR RED!0 bulletin. AS for all the DIJA, to put it simply:

A) market operators are adjusting downward their expectations about the Autumn real economy effects of  the fastly built 4-plans (much more than $3 tr., perhaps 4 tr.?) architecture (Detroit, Paulsson no.3, stimulus and subCrime): Obama was effective, and  paid a minor price (namely a 40 mn cut in education) for getting the 3  GOP senators to vote the stimulus. But financial accelerators and all the rest of the REAL-MONETARY-REAL- etc. TRANMISSIIN SYSTEMS (not nec.  classic ones, with genuine, inherent unpredictability) are at work since midAugust 2007.

Hard to stop a snowball when it is an avalanche.

Then there is the issue whether  all this architecture is adequate. And: what is its paradigm – pay attention to Obama, he pays service t American Idls, but with his friend Cass :

Finally, THE issue – why FDR is far from a model:  either in his times (Amity Shlaes) or in our so different times (my deep convinction, on left libertarian philosophical grounds), or in both of them (my chance to ally with Shlaes); or none (an optimistic, backward-looking and Classic US Liberal thesis). NOTABENE  for sensitive souls – “backward-looking” is NO insult, since we know by now that Progress doesn’t “exist”, it’s just a Narration as another one (someone has to dare to tell it to the US Progressives, before they become the Last Mohicans). This is a straight Popperian issue  about whether, how fast and  how far contemporary cultures are a’changing, within the same regional Civilisation. The most respectable scholars told us they changed a lot, and that if there was a Promise Modernity maintained, it was the  effective mega-trend of Individualism. So, how can you come back with “Fordist” solutions or frames, NOW? I refer here also to Carlota Perez 2002, another way to say:  look forward.

B) experts have, on average: let us say, a bit equivocally, a “median expert” (of the few surviving ones, dynosaurs after the punctuated SubCrime equilibrium) has, for professional habit, talent and  intelligence,   much more deep-and-radical doubts than a median GOP Senator or a Wal Street guy. “We” believe (particularly Michele and I) that all such an Ambaradan might  do some  sound social justice if well managed, and eventually alleviate the short term, but (there is here a Gravity Law I’ll explain another day), ONLY TO MAKE THE MT EVEN WORST than “neutrally”. It has to do with 20 years of OverRated Actives in Western Capitalisms, ONLY sustained,  in increasing disequilibrium paths, by (not artificial, as Paul Krugman once dared to say: he was ALMOST right) Planned Hyper-Growth in East Asia Socialist countries (Jap, Kor, 4 Tigers, Chindia). This is rooted in completely, unprecedently  unsustainabe, by all means and criteria, SOURCE-OF-ALL DISEQUILIBRIA in the 2 PRIMARY MARKETS: LABOUR FORCE, AND  SERVICES drawn from irreproducible NATURAL objects (the Kalecki, and the Georgescu-Roegen contradictions). The gone-crazy Minsky cycle is a MASSIVE SIGNALLING about those 2 contradictions,  that for decades no one wanted, no one was keen to listen to, in a Surrealisitic pièce. But this time … surprise! Godot has arrived. When no one was still waiting.

Here comes the ETHICAL AND POLITICAL RESPONSIBILITY OF TODAY’S INTELLECTUAL: just too heavy! Unbearable! Let us not leave the whole of it to Nouriel Roubini as a Dom Quixote. Or the one Hero that had to sustain the Globe on his shoulders. Prof. Atlas Roubini, a good fella of Bocconi.

Il crollo della borsa di NY nel 2009

Dal Bollettino RED.O ormai quasi pronto, anticipiamo oggi uno stralcio. Sono i nostri auguri di Buon Anno, senza cattiveria ne’ pessimismo. Occorre conoscere bene la Bestia apocalittica (il Capitale Finanziario ferito a morte, ma ancora sotto la tenda ad ossigeno del SOCIALISMO FINANZIARIO somministrato dalla tojka Bernanke – Geitner – Paulson, che al 20 gennaio perde solo un socio), con cui combatteremo corpo a corpo le nostre battaglie biopolitiche per  tutto il 2009; ed oltre.

Chi avesse letto i nostri blogpost di giugno (e vedo dalle statistiche che i visitatori se li rileggono con gusto), non avrebbe perso una lira su titoli Lehman Bros. Avrebbe persino avuto tutto il tempo di ricontrattare assicurazioni, pensioni integrative INDICIZZATE Lehmans (la fregatura peggiore, perche’ il “cliente”  non lo sa nemmeno: le associazioni dei consumatori hanno predisposto delle lettere standard per chiedere alle assicurazioni-banche una informativa in proposito).


IL GRAFICO DI SHILLER: 108 anni di p/e depurati dal ciclo

p\e ratio depurato, S&P 1900-2008Fig. 3. NYSE: p\e ratio depurati dal ciclo, S&P 1900-2008. Variazione dalla media secolare.

Da SHILLER, l’attento studioso delle bolle: riprodotto da Authers,  il 9 novembre nella sua rubrica sul ft, e ripreso il 25 nov. su



Nel grafico si notano 2 valli profonde, attorno al 1920 e 1980 (quando arriva Reagan), e questa immensa montagna con vetta nel 2000 (a primavera di quell’anno viene giù il NASDAQ, ma il NYSE  – cui si riferisce il grafico – tiene ancora per qualche mese). La massa di tale montagna e’ tale, da spostare massicciamente in alto il p/e medio secolare che fa da benchmark, livello 0 del grafico.



Avendo la bolla-1 Greenspan – New Gilded Age  raggiunto un Guinness nel 2000, superiore al 1929, in una situazione deflattiva (Aglietta) il mercato avrebbe dovuto:

i) scendere brusco, ed ora potremmo essere ad un minimo (- 0,5) da cui risalire con politiche globali keynesiane (monetarie e fiscali) reflattive.

ii) Invece la bolla-2 Greenspan dal 2003, ha creato un  falso-piano privo di punti d’appoggio. Il mancato aggiustamento in tempo reale, ha compresso energie  deflazioniste immense (come caricare una molla). Ora il crollo di Borsa e’ già, e sarà per un buon paio d’anni drammatico, per scendere sino a -1 circa.


La nostra ipotesi di lettura e’ che, uscendo – come ben sanno gli operatori – da un ventennio ECCEZIONALE, UNICO (1990-2008) di “sopravvalutazione” dei titoli mondiali quotati su NY, gli effetti concatenati originati dal buco nero subcrime (doppio sboom, delle bolle immobiliare e shadow finance) portano “naturalmente”, per dinamica sistemica (vedi Soros 2008: i sistemi si avvitano in giù), ad un decennio 2009-20 di valori “sottovalutati”:  non rispetto ai profitti attesi e “fondamentali”, ma alla media storica.

Quindi non e’ questo il momento, non e’ la fase di LP:

A)  per pensioni integrative market-based: sono un bidone (somministrato con incoscienza ed insipienza da Padoa Schioppa, Sartor, e Triplice Sindacale avida di rendite);

B) per schemi di azionariato operaio (salvo in imprese di successo): non perche’ siano una proposta “non marxista”, saint-simoniana o prudhoniana (questo sarebbe un punto a loro favore); non e’ il momento. Il wsj dice che in Borsa giocando non short ma sul trend, si guadagna sui 20 anni: si, ma solo in quelli “giusti”, appena passati. Altrimenti occorre attendere 40 anni!

il cannocchiale

peso el tacòn del buso


A 2nd, European BLACK MONDAY, 6 ottobre 2008.

Today European stocks are losing as never happened since 1987.

foto (Mara Bastone, AFP \ Getty Images): l’altro Black Monday, quello del 1987

I mercati finanziari, stanno oggi bocciando pesantemente le autorità monetarie US ed europee:


– la radicale insufficienza, il ritardo e la logica assente del grande bail-out di Paulson (le cui vere dimensioni non sono di $0,85 trilioni, ma assai di più, ma non bastano in un POZZO SENZA FONDO ed un EFFETTO DOMINO innesacoto dala loro GIORNATA DI DISTRAZIONE IL 15 SETTEMBRE SCORSO: Lehan Bros).

– IL “FINANCIAL SOCIALISM” classista, inventato a marzo (Bear Stearn bailout) dai LIBERISTI PENTITI (ma sempre banditi di classe, dalla parte dei RENTIERS) del Tesoro, d’intesa con la Fed di Bernanke (e Geitner, il giovane ambizioso Direttore della Fed nell’occhio del ciclone: NY).


– la fellonia dei 4 paesi non-leader europei riunitisi sabato a Parigi per non decidere nulla: per decidere di non decidere e fare nulla a livello sovra-nazionale, ma solo IN ORDINE SPARSO. Il non-piano Merkel. Milano sta crollando nel pomeriggio (prima della chiusura) più del 7,4% dell’11 settembre 2001, vengono giù le borse prima asiatiche (che anticipano una dura crisi creditizia europea), e poi le europee del 7-8%, Milano peggio di tutte seguita da Londra e tutte le altre.   Più tardi Parigi cade del 9%, peggio dell’8% di Milano. Anche NY attorno al – 5% ed il Dw SOTTO LA SOGLIA PSICOLOGICA di 10.000.  Le banche scendono a precipizio, ma non specificamente UniCredit (il titolo, sceso al -15%, dopo sospensioni si e’ risollevato al – 3% diventando la migliore azione della giornata: le decisioni del Consiglio di riconsolidare il capitale  l’hanno fatto tenere).

Il Banco Popolare (titolo bancario oggi più debole) perde il 16%, Intesa Sp – 12% e Telecom scende sotto  1 euro per azione.

La decisione tedesca di assicurare tutti i depositi bancari (seguendo l’Islanda) e’ stata correttamente  letta come: “allora la situazione e’ assai peggio di come ce  la raccontavano”, ed ha creato l’attesa che gli altri paesi la introducano. Sospensioni  delle contrattazioni in Brasile e Russia.

Notizie, cronache del pomeriggio da: bbc, breakingnews, ft e wsj.


Page last updated at 16:01 GMT, Monday, 6 October 2008 17:01 UK

Financial crisis pummels stocks

World stock markets have plunged after government bank bail-outs in the US and Europe failed to stem fears of slower global economic growth.

London’s key UK share index lost 7.85% and France’s Cac-40 lost 9.04%. On Wall Street, the Dow Jones fell below 10,000 points for the first time since 2003. (…)

Trading on key stock markets in Brazil and Russia was temporarily suspended after share prices plummeted by 10% and 15% respectively. Russia’s RTS index ended 19.1% down.

breakingviews, 11:53

Decisiveness deficit

European banks: It was another tough weekend for European politicians and bankers. They did what they were supposed to, but it looks like another tough week lies ahead.

The authorities are certainly trying. On Sunday morning, three European banks faced serious challenges. The rescues of Hypo Real Estate in Germany and the Belgian part of Fortis had proven inadequate, while the Italian Unicredit looked short of capital.

By October 6, these problems had been resolved – by a bigger rescue, a takeover and a capital raising respectively. Not bad for a region with a reputation for muddled indecision. There were also new deposit guarantees in Germany, Austria and Denmark, warm words from the leaders of the four largest economies and broad hints of a recapitalisation of UK banks.

But investors weren’t comforted. The region’s stock markets dropped by 5-6% early on October 6 …

It shouldn’t have come to this. A year ago, Europe looked well placed to fend off financial ills. True, the UK had US-style problems with a housing bubble and a big trade deficit, but the eurozone had few bubbles, balanced trade, reasonably prudent governments, a firm central bank and a strong tradition of government guidance and support in banking.

It turned out, though, that some European banks had dabbled too much in overvalued and overly complex US assets. The authorities have also been slow. Governments solutions to institutional problems have been fragmentary and central bank liquidity provision reactive.

With Asia slowing and the US struggling, Europe cannot depend on the rest of the world to rebuild confidence. It needs to act boldly itself. Perhaps the UK, the most troubled of the big European economies, will take the lead. A comprehensive reorganisation – with taxpayers getting preferred shares and banks being led to an orderly deleveraging – could be just what the markets need.



Government action fails to halt global sell-off

By Michael Hunter and Neil Dennis in London and Lindsay Whipp in Tokyo

Published: October 6 2008 08:35 | Last updated: October 6 2008 17:04

Stocks suffered sharp falls on Monday, as worries about the extent of the crisis in the financial sector deepened after finance ministers failed to reach a consensus on how to react.

WSJ on line nel pomeriggio:

October 6, 2008, 9:13 am

Just Another Manic Monday

Posted by David Gaffen

U.S. markets are in for it this morning. The passage of the bailout bill Friday has not alleviated concerns about credit markets, particularly those in Europe, where a series of capital injections and bank failures has undermined confidence in those markets, which do not benefit from a central federalized system as in the U.S.


* OCTOBER 6, 2008, 11:03 A.M. ET

Bank Turmoil Sinks European Shares

European stocks plunged Monday as a wave of emergency government measures failed to stem concerns about the region’s financial system and economy. (…)

European policy-makers spent their weekend shoring up the financial system. The German government moved Sunday night to arrange a bailout for property lender Hypo Real Estate Holding AG. German officials also issued a guarantee for all consumer bank deposits. The Belgian and Luxembourg governments arranged for French bank BNP Paribas SA to take over the Belgian and Luxembourg operations of ailing financial firm Fortis NV after a previous aid plan failed to prevent customers from leaving. Iceland’s government is also scrambling to rescue its banking industry, while Denmark late Sunday took measures to protect its financial stability. The wave of measures largely overshadowed the passage of the U.S. government’s $700 billion market bailout last Friday.

“People are waiting,” said Benoit Hubaud, head of research at French bank Societe Generale in Paris. “They’re trying to understand the consequences of what has been announced.” (…)

In the credit markets, the cost of insuring against default on €10 million of European company debt for five years jumped to about €134,500 annually, from €125,000 Friday, according to the Markit iTraxx index. (…)

Worse, the markets that banks rely on for funding remained under severe pressure, despite efforts by the world’s central banks in recent weeks to pump more cash into the financial system.

The London interbank offered rate, which is supposed to reflect the short-term rates at which banks lend to one another, rose for overnight dollar loans to 2.37% from 2% Friday. The U.S. Federal Reserve’s target for the overnight rate is 2%. Three-month dollar Libor improved slightly, falling to 4.29% from 4.33%. However, a key gauge of concerns about banks — the difference between three-month Libor and market expectations for central-bank target rates — rose to 2.89 percentage points from 2.84 percentage points. Euro-based Libor rates also rose, with the three-month rate hitting 5.34% from 5.33%.

“The situation is not improving at all,” said Societe Generale’s Mr. Hubaud, who added that he expects central bankers to cut interest rates soon to pump blood into the global economy.


* OCTOBER 6, 2008, 11:11 A.M. ET

Dow Dips Under 10000 As Bank Woes Persist

The U.S. market’s drop comes on the heels of a plunge in European markets during the overnight hours in New York. Investors around the world are increasingly worried that a deep global economic slowdown is taking hold despite measures like last week’s bailout of Wall Street and moves by the Federal Reserve prior to Monday’s opening bell to further encourage bank lending.

“It’s hard to be bullish based on monetary policy or bailouts alone,” said Chris Johnson, president of Johnson Research Group, in Cincinnati. “It doesn’t address the fundamentals of the stock market, which have some very deep problems right now.”

Shadow finance is actually MELTING DOWN, as Roubini predicted. “Financial socialism” doesn’t stop the slump


We receive today this regular e-mail by Prof. Nouriel Roubini’s blog system (rge-monitor):

By requesting a status change from independent broker dealer to bank holding company, Morgan Stanley and Goldman Sachs have officially spelled the end of Wall Street as we know it.  Within six months, all five investment banks – Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley, and Goldman Sachs – have disappeared or are looking to merge with a commercial bank with a stable deposit base and permanent access to the Federal Reserve’s lender of last resort facilities.  The unraveling of the $10 trillion shadow banking system that started with the non-bank mortgage lenders, SIVs and conduits – now with the seizing of major independent broker dealers and money market funds – is in full swing and gathering steam.

THANKS, SUBCRIME CRIMINALS! Your extra – exagerations, extorsions, exxoneries etc. had such  a beautiful BY-product: FUCKING SHADOW FINANCE IS DEAD. FOREVER? We hope, and we’ll work hard for that.


Bear Stearns, Bear markets domino effects


posted by efa 080319, 10.00 am GMT.  Breakfast time letter, 6.00 am GMT by info@rgemonitor.com Good morning! What a difference a few days make.  Starting with the rescue of Bear Stearns over the weekend to the creation of a new discount window-like lending facility for primary dealers, the Federal Reserve has been engaged in a historical effort to fend off every real fear of a financial system meltdown.  Better than expected Q1 earnings reports by peer banks, Lehman Brothers and Goldman Sachs on Tuesday took a lot of the pressure off the markets for the day, while the 75bps Fed fund rate cut to 2.25% (2.50% discount rate) was fully priced in.  See our related coverage: “JPMorgan Agrees To Buy Bear Stearns: The Beginning of a Japan-Style ‘Convoy’ System?” and “Overview of Fed’s New Lending Facilities: Needs More to Be Done?” (…) At this point, the distinction between liquidity and solvency is important.  While nearly unlimited access to central bank liquidity helps roll over existing liabilities and pay off existing debt, it does nothing to prevent house prices from declining further, borrowers from defaulting on their mortgages and leveraged loans, and it cannot prevent the asset quality deterioration within the collateral pools of CDOs, CLOs, and credit card debt.  Eventually, looming writedowns will have to be marked against equity capital.  If the equity cushion is insufficient then the financial institution is insolvent. In order to get a sense of the magnitudes: in Q3 the top 5 broker dealers combined equity capital was $144bn, whereas the ratio of illiquid Level 3 financial assets over equity ranged 0.7x – 2.5x. Roudini & C site keeps the lead across the decades, and challenges the Schumpeterian hypothesis on innovation as a temporary window of opportunity.  If economics on the web is a Tour de France, Prof. Roudini is Lance Armstrong. When this longrun crisis, more or less the same as today (you know by now we have an Aglietta- Chesnais- Marx- Perez paradigm here at deeprecession), was located in Asia, Paul Krugman recommended rgemonitor.com father site at stern.nyu.edu,  with this nice wording:  Nouriel Roubini maintains this amazing site. Follow not just the events but the big intellectual debates more or less in real time.  Opposite to Roudini  and  to yesterday, today’s sentiment in the media and Wall Street (a messy coupling), not in Main Street,  is that we had luck and escaped the much feared Bear Stearns domino effect. With no evident candidate to play JP Morgan Chase role next time. Although the latter has won a super deal, even bought separately and unconditionally the nicer HQs, Madison Avenue building for $1.1 bn (see March 15 here). We cannot imagine anything more fragile than today’s sentiment.

FT today: paper

p.1: Fed cuts rates to 2,25%. Goldman Sachs ad Lehman lift gloom.  “I think we feel better about our liquidity than we ever have” said Erin Callan, Lehman’s CFO. She added that the banks had not seen any erosion in confidence on the part of  lenders or trading counterparties. “The past two days gave us a great chance to test those relationships”, she said. Apple considers iTunes shake-up to deliver music access for free. Apple talks with record groups, for a radical change in the business model. p.9, Cracked foundations? A financial crisis spreads slowly into the real economy (Chris Giles).  The page focus (Gillian Tett, Krishna Guha) is academic Ben Bernanke’s financial accelerator notion. Two uncertainties: 1) fresh equity filling banks capital holes (Comment: it happened, M. Eastern and Asian SF came to rescue, but this just accelerates the US decline, geopolitical trends laying behind the crisis: it is part of the same over-accumulation → shifting unbalances → bubbles-and-crises  process; not a solution); 2) which borrowers will be hit harder: it will not end up only within the financial world, Main Street real-economy borrowers will pay too, as Bernanke’s accelerator takes off.  OUR FAQs: “If est. subprime losses of $200bn (Goldman Sachs minimalism) would give rise to a $2,300bn overall credit crunch, will then a still moderate est. of $1,000bn losses (Roudini’s realism) reduce lending by $11,500bn? Or even more, once a downward spiral is engendered (Ken Rogoff, Harvard: from credit crunch to credit collapse)?  The bottom line?” p.11, Martin Wolf  (reading too much Roudini, but even other Bearish academics): Why today’s hedge fund industry may not survive. OUR ABSTRACT and comments. Dean Foster (Wharton) and Peyton Young (Oxford)  model an unregulated financial system: Hedge Fund Wizard and  The Hedge Fund Game. Incentive systems fail to align managers and investors aims. The lemons theorem says that such markets with asymmetrical  information, attracting the unscrupulous and the unskilled, are likely to disappear (our academic comment – not exactly so; see among others: Kreps, Microeconomics, for a good introduction to lemons. But Wolf’s implicit conclusion holds: you need an agency, a certification, a third party: that is a regulated financial system). Managerial herds behaviour generates cumulative disequilibria, when a low prob. disaster occurs – such as Northern Rock and Bear Stearns (Comment. This argument is really good; it introduces and needs another brand of economic, Santa Fe or econophysics modeling, developed in Italy at Sant’Anna-Normale di Pisa by Giovanni Dosi & C: herd behaviour simulation in financial markets. Their most likely policy implications are again pro-regulation, but with a completely different set of arguments and suggested policies, compared to information asymmetry models. The focus shifts, here, from a simple market failure that can be easily repaired by an “agency”, to a complex financial systems dynamics, far away from both equilibrium and social optimum. With no straightaway agency solution: you have to change, redesign the entire system, together with contracts and incentive schemes. Until now we just spoke microeconomics. Add the macro: along Keynes- Kalecki – Minsky lines, e.g., you approach systematically the issue of the health of the financial system that greases the wheels of capitalism – a quote from NYT yesterday, reporting from Wall St.: even operators and rentiers know and feel it on their skin: the time is out of joint, to quote Shakespeare, and Derrida on Marx).


Ups and downs in financial global markets: Bernanke’s hyper-activism adds chaos to turmoil. Paul Krugman said a few days ago: Greenspan is the one teaching ex cathedra how to close the door, when stables are already empty, and the flock is gone. Bernanke makes the difference:  he got Speedy Gonzales and  succeeded – in a couple of months – to convince 75% Americans that Roudini as well as radical pessimists have sound bases. Lehman Brothers opened yesterday  at -15%, and closed only at -19%. See Slate‘s syntheses of US newspapers, and sing: “You just better start sniffin’ your own  rank subjugation jack ’cause it’s just you  against your tattered libido, the bank and the mortician, forever man and it wouldn’t be luck if you could get out of life alive”

 Knock-knock-knockin’ on heaven’s door (4 times)


Knocking on Lehman’s Door

 By Daniel Politi Posted Tuesday, March 18, 2008, at 6:12 AM ET  Financial news continues to get top billing as all the papers try to digest the latest news from the Federal Reserve and the markets to figure out how far the current crisis will spread. The New York Times‘ lead story notes that although the stock market didn’t plunge as was widely expected, there were several ups and downs as uncertainty ruled the day on Wall Street. By the end of the day, the Dow Jones Industrial Average closed the day with a 0.2 percent increase, largely due to the strength of J.P. Morgan, which rose due to the widely held belief that it was able to acquire Bear Stearns at a veritable bargain. The Washington Post leads locally, but off-leads news that shares of many of the largest banks and investment firms plummeted yesterday.The Los Angeles Times leads with a look at how many are wondering whether the Fed is taking on too much risk and for how long it can keep pumping money into the economy in its attempt to save the country from a deep recession without hurting the nation’s overall finances. Over the past few days, many economists have said that the key question now is not whether the country will enter into a recession, but rather how long it will last. Ordinary Americans seem to agree. USA Today leads with a poll that shows 76 percent of Americans think the country is in a recession. In addition, 79 percent said they’re worried about the possibility of a depression that could last several years.  [our red&bold]De(e)pre(ce)ssion  so popular, so soon? we didn’t  hope so much!


WASHINGTON — More than three in four Americans think the country is in a recession, a USA TODAY/Gallup Poll over the weekend shows, reflecting a crisis of confidence that economists say could make the economy worse.(…)

 Seventy-six percent of those polled said the economy is in recession, compared with 22% who said it’s not. Not since September 1992, two months before President George H.W. Bush lost re-election, have so many said the economy was in such bad shape. (…)

Asked whether the nation could slip into a depression lasting several years, 59% said it was likely, and 79% said they were worried about it. A recession is an economic downturn that usually lasts at least six months; a depression is longer, deeper and more broadly dispersed. (…)

Democratic presidential candidates Barack Obama and Hillary Rodham Clinton urged greater action. Obama, campaigning in Pennsylvania, said the economy “is heading toward recession. We probably already are in one.” He said, “We must focus on what we can do to restore the public’s confidence in the market.”

Clinton was more cautious. Calling it a time of “stress and uncertainty,” she said there was “urgency” to continue monetary policies like those taken Sunday. “We are in the soup, and we better get ourselves out of it before the consequences get drastic,” Clinton said in Washington.

Presumptive Republican presidential nominee John McCain was in Iraq Monday. His top economic adviser, Douglas Holtz-Eakin, said McCain has confidence in the Federal Reserve’s action to shore up the nation’s financial system. Although that action may have been necessary, he said, it’s imperative to “ensure that Main Street America does not bail out financial speculators.” 

The Fed Goes Deep

By Daniel Politi

Posted Monday, March 17, 2008, at 7:06 AM ET

The New York Times, Washington Post, Los Angeles Times, and USA Today all lead with, while the Wall Street Journal devotes much of its Page One to, the Federal Reserve announcing a series of moves to try to bring some stability to the increasingly shaky financial markets. Lest these be confused as just one more of the series of measures the Fed has taken in recent months, the papers make clear that this latest action is “dramatic” (WP), “extraordinary” (LAT), and “apparently unprecedented” (NYT). The Fed opened up its lending practices to make more money available to the biggest investment firms on Wall Street, and cut a key interest rate (the so-called discount window) for financial institutions by a quarter of a percentage point. The central bank also announced it would extend a $30 billion credit line to help J.P. Morgan Chase complete the purchase of Bear Stearns for what the WSJ calls “the fire-sale price” of $2 a share.

The NYT catches Wall Street sentiments:

Specialists say their biggest worry now is not whether the economy is already or will soon be in a recession. Far more fundamental and troubling is the health of the financial system that greases the wheels of capitalism.

“Recessions come and go — that is something investors can deal with,” said Marc D. Stern, chief investment officer at Bessemer Trust, an investment firm in New York. “The bigger issue is, Can our financial system be restored to a sense of normalcy? In recent weeks we have been moving away from that, which is potentially very serious.” 

Lex: Queasy Street

(Investors’  calm)…  is unlikely to last long. After all, at a price of about $2 a share, the deal has wiped out Bear shareholders almost completely.

And the Federal Reserve, which initially supported Bear on Friday, is having to pledge $30bn to fund Bear’

s less liquid assets to allow the deal to happen at all.If another broker loses the confidence of investors and counterparties, the Fed will be on the hook again. But, if there is a next time, it is not obvious which of the big banks would ride to the rescue. Their balance sheets are already seriously constrained, and Bear was the smallest of the leading Wall Street firms. MY NOTE: “20bn of exposure are covered through (Fed’s) non-recourse, and only 13bn remained as net exposure to JP Morgan” (JP Morgan)posted by efa, 080818 at 11 pm GMT 

March 17, 2008

How the Fed avoided the Northern Rock trap

The case against the Fed doing so was put by Gretchen Morgenson in the Sunday New York Times:

Regulators must do whatever they can to keep the markets open and operating, and much of that relies upon the confidence of investors. But by offering to backstop firms like Bear, who were the very architects of their own — and the market’s —

current problems, overseers like the Fed undermine a little bit more of that confidence.

Meanwhile, my fellow FT blogger Willem Buiter put it thus:

While the bail-out of Bear Stearns is still a very young, thus far at any rate I have heard not a single convincing argument for why this financial business should be assisted by the Fed, rather than the ball bearings company in Cleveland, Ohio.

The economists, including Prof Buiter and Nouriel Roubini, generally favour the view that the Fed ought not to have intervened to prop up a non-bank institution and, if it was not able to hold back, should have proceeded straight to nationalisation. Prof Roubini argued this last month and restated it on Friday:

First fully wipe out those shareholders, then fire all the senior management and have the government take over such a bankrupt institution before a penny of public money is wasted in bailing it out.

But I think the different outcomes in the cases of Northern Rock and Bear Stearns at least help to justify the Fed action.  

posted by efa, 080318, 11.00 pm GMT 


Acting quickly to prevent a bank run on major global financial firms, the Federal Reserve cut its discount rate by a quarter percentage point to 3.25% and offered to lend money to a longer list of firms than ever before. 

The extraordinary weekend moves came as J.P. Morgan Chase (JPM) sealed a deal to buy Bear Stearns Cos. (BSCfor just $2 a share backed by up to $30 billion borrowed from the Fed. The Fed board gave its approval to that unique funding arrangement, which guarantees JP Morgan against losses from buying Bear.

Posted efa March 16, 11:30 pm GT


 PAY ATTENTION! Very important “old news” here.

Not only  finance experts-managers subscribing to Finch: any RGE (no. 1 macroeconomics site) cautious reader already knew, by end of July 2007, that 2 of the big 5 US investment banks were virtually bankrupt: their toxical “residual balances” from securitisation equalled more than half their tangible equity. According to our analysis of Finch-through-RGE data (see  our “Banks go bankrupt” page and enclosed data pdf for details)  this abnormal ratio toxic interests = 1/2 tangible equity:a)  holds  for Bear Stearns at least as early as 2004;b) Lehman Brothers joined the risky league in 2006. Bearn Stearns is dead,  now is it Lehman Brothers’ turn?  Today’s breaking alert opening of rge-monitor main page (red bold added):

WSJ: Lehman’s liqudity position stronger than BS was but weaker than other peers. Lehman learned lesson from 1998 liquidity crunch: less reliance on short-term funding.

Cumberland: Main difference to BS: Lehman generated over 60% of their revenues outside the U.S. in Q4 2007.

Bloomberg: March 14: Lehman Brothers, largest mortgage underwriter in U.S., obtained a $2 billion, unsecured, three-year credit line from 40 banks. “The unsecured facility replaces an existing credit line”; JPMorgan and Citigroup led the effort.

Reuters: CDS spreads spiked to 465bp after Bear announcement, most among investment banks.

Fitch (via RGE): At the beginning of the turmoil Bear Stearns had the highest toxic waste (“residual balance”) exposure as percent of adjusted equity on balance sheet: BSC = 54.5%; LEH = 53.3%; GS = 21%; MER = 17.8%; MS = 8.3%.

Fahey (Fitch): Lehman Brothers reported Level 3 assets-to-equity of 1.68x in 3Q07 (BSC 1.56; GS 1.84; MER 0.70; MS 2.74: gross notional Level 3 asset value, not netted with derivatives hedges in Level 1 or 2 as reported by other banks)

Hedges on Level 3 assets (i.e. “short their own instruments”) produced book gains of $750m at Lehman (largest amount among 5 brokers) but Fitch decided that gains from credit spread widening will not be considered in evaluating operating performanceLehman Brothers Obtains $2 Billion Bank Credit Line (Update2)

By Andrew Frye

March 14 (Bloomberg) — Lehman Brothers Holdings Inc. obtained a $2 billion credit line as the investment bank tried to blunt the stock’s worst drop in almost eight years and assure investors the firm isn’t short on cash.

The unsecured, three-year facility from 40 banks replaces an existing credit line, New York-based Lehman said today in a statement. JPMorgan Chase & Co. and Citigroup Inc., also based in New York, led the effort, the firm said. (…)

Last Updated: March 14, 2008 16:50 EDT

Before the turmoil (RGE from Finch, July 31, 2007)

Finch on “residual balances”, i.e. toxical waste from securitization, on subprime crisis verge, in the magnificent 5: Bear Stearns (BSC), Goldman Sachs (GS), Lehman Brothers (LEH), Merrill Lynch (MER), Morgan Stanley (MS).

The investment banks retain interests in select senior, subordinated, and/or residual tranches of securities issued by Variable Interest Entities (VIEs) which they have underwritten. All of the investment banks reported higher residual interests at 1H07 versus fiscal year end 2006 (see table)

As a percent of adjusted equity, these residual balances are as follows: BSC = 54.5%; LEH = 53.3%; GS = 21%; MER = 17.8%; MS = 8.3%. (…) Not surprisingly, the percentages are most significant for Bear Stearns and Lehman Brothers.

Bear Stearns Saturday Update

Charlie Gasparino at CNBC reports: Bear Stearns Weekend Talks Reveal 2 Key Contenders (hat tip risk capital)


… potential bidders for Bear have been narrowed to … J.C. Flowers and JPMorgan Chase


… bankers have now come to the conclusion that a deal must be done by Monday …


If there’s no deal Bear Stearns will have to file for bankruptcy, executives said.


Posted by CalculatedRisk at 6:13 PM


It’s fun for the weekend, a bit like looking at an ancient Rome, or Verona Arena show:

This is how CNBC continues, on CapitalisMafia Cannibalism

… it is not clear what JPMorgan CEO Jamie Dimon will do if his company JPMorgan Chase & Co buys Bear; he hates the bank and doesn’t need traders. The likely scenario, sources say, it that he gets rid of most everything except prime brokerage and clearing operations. He also apparently likes the Bear building which is around the corner from the less elegant Chase headquarters.

One big problem is that whoever buys Bear will want to retain some of the talent. However, they are already being offered jobs elsewhere.

In the meantime, the Bear debacle is a huge blow to New York City and its Metro-area economy where most of Bear’s workforce lives. Many will be out of work. Bankers and other execs have lost fortunes since many were paid in Bear stearns stock.

Voyeurist? Watch Wall Street through keyholes! U might find the two highest US and world economic policy authorities, where u wouldn’t have imagined …

Wall Street Journal’s spying eye, captured by Calculated Risk’s monitoring eye: The story discusses how Bear Stearns, JPMorgan and the Fed regulators worked around the clock Thursday night to put together the bailout.

At about 5 a.m. Friday, regulators including New York Fed Chief Timothy Geithner, Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and the Treasury under secretary domestic finance, Robert Steel, convened by conference call. At the end of the call at 7 a.m., the Fed had decided it would offer the loan.


A fascinating story.


And a bitter, sharp comment by (competing? cooperating?) FT-Alphaville blog: at Calculated Risk they missed to anticipate the bankruptcy, so now they try hard to struggle against the irreversibility of the time arrow .., and give you any hints ex post.

Such a nasty, really nasty comment, suggests to me a Methodological Note on economic blogs webs.

Even economic blogs are economic agents, or (better) agencies, of a new sort; therefore they compose, make and unmake beautiful, complex, efficient, redundant and Pandora’s box social webs of cooperation-and-competition across them:

– not just a mere replica of social webs amongst the agents behind such agencies; this too, but even more. E.g., Prof. Roudini’s scenarios are diffusing in early 2008, not without resistance, counter-arguments and replies, across blogs.

– I would not be surprised if sometimes cannibalism had to re-emerge, by the law that if you keep watching Wall street tribal cannibalists at work, unwillingly you absorb something.

They’re so complex and multi-faced, the cross-blog flow components of Web2 social networking, that no econophysics’ web rough graph (so nice to look at) can capture their true, full-senses flavours, and crossed regards of the 2nd, 3rd .. Nth order. Much more sophisticated econometric and sociometrics tools, human and social in-depth analysis are required.

You are now watching me, watching C Risk, watching WSJ, watching Bernanke and Paulson (!!!) at unusual early morning job, watching Bear Stearns empty safe: it makes a 5th order – that is, a much longer chain, compared to what Experimental Economics evidence tells us about 2nd-3rd order expectations widely adopted as conventions in financial markets !!! Students and scholars know well that reinforced Nash equilibrium notions, often assume very high-order expectations on other people’s expectations, but in reality we rarely base our strategies going beyond the 4th or 5th order. As common in the current state-of-the-art, cognitivism, experimental economics and psychology come here to help, by correcting unrealistic assumptions emebedded into Games Theory maths.

But are perhaps social networking practices violating these “natural” limits of our social behaviour?

In just one step I cross the 6 or 12 steps separating me from another mind at work? Or do I just complicate simple systems: by reading WSJ in paper I would have avoided unnecessary, redundant steps?

And what about serendipity? it happens on Fondamenta della Misericordia, Cannaregio (today to me, Dario and François Chesnais), or in virtual Misericordiae as well. In such a case, random & redundant walks are creative & productive, namely if one meets Adamo and ends up at La Rivetta.

Posted efa. March 16, 12:00 GMT. 


A lovely chart, from Alea, catches Bear shares in agony: it’s pure art, à la Kandinsky. Just two days: and Fed’s over   $200 bn injection in overnight evaporates. Now, at last!, all commentators agree: the underlying problem IS NOT ILLIQUIDITY – IT’S INSOLVENCY. The “cure”, if there is any, should follow from this dialectics.

Prof. Roudini has made this point clear the first, widely influencing macroeconomists’ views of the crisis. At the bullish extreme of the spectrum, WSJ keeps trying hard to put the head under the sand.

De(e)pre(ce)ssion view

There are many prospective insolvencies, that will shift and spread over 2008: Bear Sterns is no.1 of a series. A huge amount of losses are hidden on purpose and strategically, in the global finance system including banking, finance, and the “shadow financial system” (as defined in the Roudini’s quotation to follow).

And there is highly asymmetric uncertainty about how such a trillion $ loss is allocated, with unavoidable, necessary and systemic consequences on trust, inter-bank relations, and the M&C available to the whole economy.

This is how and why, due to their hedge fund clients, Bear’s liquidity evaporated all of a sudden, yesterday.

As financial global markets sink in a deflationary turmoil, instability is now spreading everywhere, from currencies to commodities first, with obvious inflationary effects making part of the recession-deepening process itself:

There are other significant shoes that are in the process of dropping on us, and that’s why I think you’re going to see further increases in the commodities across the board, because it’s the safe haven, it’s the inflation haven, the safe haven, the hard asset haven that investors are just running to right now just because they’re scared.”

John Kilduff, MF Global Energy Analyst

Finally, at the end of the money K chain, i.e., in the commodity K circulation and value creation domains: a M&C and financial impact is accelerating now (and presumably along all the year 2008, at least) the current global recession – which

(a) started in november-december 2007: as output, trade and bulk transport prices show (see updates in our static page: deep recession\depression data “telonio”

); and:

(b) is deeply rooted in the 1987-2007 “Minsky’s age” (versus the over-optimist, ever-forgetting theory of just a short run “Minsky’s momentum” or window) of over-accumulation and continuous financial turmoil – see Chesnais 2008, Fin d’un cycle. Carrè rouge- La brèche, no.1; and the recent Aglietta’s works commented and quoted there.

A deep “real economy” recession would in any case roll-on and spread by now, by tracing back I-O, cross-market and cross-country commercial relations and systemic links – even without this acute M&C crisis, but in that case much less deeply and more slowly.

(c) We will go deeper, as far as we can, in understanding the deep recession unravelling, by supplying all the best analytical references and tools we know, in an imminent new static page of this blog: perhaps to be called A DIARY OF THE 2007+ WORLD CRISIS.

Bear Sterns

Bear Stearns brokers (lenders to hedge funds and 5th largest Wall Street investment bank) shares go down today -53%, as soon as it is known that hedge funds and financial clients flew out, JP Morgan tried hard to save them last night until 7am, and the Fed is backing JP Morgan (more than this: Fed is outsourcing JP Morgan). Bear Stearns liquidation is imminent. Most share markets decline (particularly in the credit industry). See our static page “BBC Global 30” today: BBC Global 30 -1.26%, Dow Jones – 1.63, Nasdaq – 2.26, London FTSE – 1.05, Tokyo Nikkei -1.54, Hong Kong – 0.29, Johannesburg + 1.13, Bovespa-SP + 0.17.

BBC: “Bear Stearns has been severely affected by the loss of confidence in credit markets. The company had invested heavily in sub-prime mortgage instruments and other securities which are now seen as highly risky, and which have fallen sharply in value. And it had less capital than its rivals, such as Citigroup and Merrill Lynch, who were also heavily exposed, to plug the gap.”

Paul Murhpy provides a practical, useful overview of selected blogs on Bear’s crisis.

Roudini comments, with good reasons reported below: I told you 40 days ago (it is an answer to Bulls saying he is Bearish, e.g. Yves Smith, Naked Capitalism: Martin Wolf Reads Too Much Roubini).


Step 9 of the Financial Meltdown: “one or two large and systemically important broker dealers” will “go belly up”

Nouriel Roubini | Mar 14, 2008

In my February 5th piece on 12 Steps to a Financial Disaster I predicted – as Step 9 of the meltdown – that “one or two large and systemically important broker dealers” will “go belly up” and that other members of the “shadow financial system” – i.e. non-bank financial institutions that look like banks in terms of liquidity/rollover risk – will also go bankrupt. As I put it then:

Ninth, the “shadow banking system” (as defined by the PIMCO folks) or more precisely the “shadow financial system” (as it is composed by non-bank financial institutions) will soon get into serious trouble. This shadow financial system is composed of financial institutions that – like banks – borrow short and in liquid forms and lend or invest long in more illiquid assets. This system includes: SIVs, conduits, money market funds, monolines, investment banks, hedge funds and other non-bank financial institutions. All these institutions are subject to market risk, credit risk (given their risky investments) and especially liquidity/rollover risk as their short term liquid liabilities can be rolled off easily while their assets are more long term and illiquid. Unlike banks these non-bank financial institutions don’t have direct or indirect access to the central bank’s lender of last resort support as they are not depository institutions. Thus, in the case of financial distress and/or illiquidity they may go bankrupt because of both insolvency and/or lack of liquidity and inability to roll over or refinance their short term liabilities. Deepening problems in the economy and in the financial markets and poor risk managements will lead some of these institutions to go belly up: a few large hedge funds, a few money market funds, the entire SIV system and, possibly, one or two large and systemically important broker dealers. Dealing with the distress of this shadow financial system will be very problematic as this system – stressed by credit and liquidity problems – cannot be directly rescued by the central banks in the way that banks can. [bold added]

And today the first one of these large broker dealers – Bear Stearns – in on the verge of bankruptcy. Let us be clear: given its massive exposure to toxic MBS and ABS product Bear Stearns is insolvent; the decision by the NY Fed to try to bail out Bear Stearns would make sense if this firm was only illiquid; the trouble that it is insolvent and thus such attempted bailout is altogether inappropriate. It is true that Bear is a large broker dealer; but its systemic importance is much smaller than that of much larger institutions. The world and financial market can survive if Bear disappears.

NY Fed avoided the obstacle underlined by Prof. Roudini, by triangularizing on JP Morgan: it doesn’t change much, exc. that JP Morgan has now insiders info allowing them to make perhaps the best offer for Bear assets. On Prof. Roudini’s close, we at de(e)pre(ce)ssion are even a bit bearer than he is, if possible: on the liquidation of Bear Stearn’s assets, markets deflation will carry on, etc. We will see.

PS. Hedge funds themselves take their time to read Roudini; financiacapital.com, advisor and a California’s fund general partner, suggests to his clients:

Nouriel Roubini’s Blog – Nouriel Roubini is a professor of economics at the Stern School of Business (NY University), and though sometimes too bearish in our opinion, his views on the various economic data are always worth the time to read.

Empirical and theoretical consequence: the shadow financial system has by now become what is called a critical, self-representing complex system, in system theory: they observe us observing them observing us  observing them… .

We formulate expectations upon them, expecting that we … expect them to …  because they expect that we … by supposing they expect that … (a long, but finite chain). Suggested reading: Niklas Luhman.


Posted by enzo fabio arcangeli March 15, 7:45 am GMT