Brownian motion: a cure for subcrime cancer?

While the G7 in Washington was inconclusive, Europe advanced more yesterday by generalising G. Brown’s approach: each country will use its own resources, but the plan is coordinated –  aiming to interbank lending and temporary quasi-nationalisations (taxpayer- based recapitalisation of banks). Today’s rally (now 6% in Europe, at 4 pm GMT) is meaning nothing: we were observing a decreasing length of rally periods after injections of money and policies. The political good news is the return to a Berlin-Paris axis, which traditionally marks political waves of Europe building.

LEX

 G. Brown is a Robin Hood PRO TEMPORE: after the crisis, he’ll give banks back to rentiers, and Nottingham will be exploited as  it was before.

Brownian Motion in Europe

Published: October 13 2008 09:48 | Last updated: October 13 2008 16:24

Perhaps Gordon Brown should travel more often. The lugubrious British premier, out of sorts at home and seriously adrift in the polls, has been styled as a swashbuckling conductor in the Spanish press, and a “magician” in France. Europe has apparently bought into Mr Brown’s conviction that this is a severe, but transient crisis of confidence that can be overcome by piling on more and more government debt.

While the wisdom of that strategy is questionable, it is clear that there is strength in numbers. If governments all muck in together, using taxpayers’ money to recapitalise banks while providing guarantees on new debt issuance, they sacrifice their balance sheets en masse. Some budget deficits will widen more than others. But if they cock a collective snook at fiscal rules and targets, they’ll discourage capital arbitrage within the Union …

RGE

Roubini Hood is optimist for the 1st time in years

I spent the weekend in Washington attending the IMF annual meetings and giving a series of talks in a variety of public and private fora (IADB talk, C-Span interview, Euro 50 Group meeting, IMF panel, etc.). After last week crash in stock markets and financial markets (and it was indeed a crash as during the week equity prices fell as much as the two day crash of 1929) policy makers finally realized the risk of a systemic financial meltdown, they peered into the systemic collapse abyss a few steps in front of them and finally got religion and started announcing radical policy actions (the G7 statement, the EU leaders agreement to bailout European banks, the British plan to rescue – and partially nationalize – its banks, the European countries plans along the same lines, and the Treasury plan to ditch the initial TARP that was aimed only buying toxic assets in favor of plan to recapitalize – i.e. partially nationalize – US banks and broker dealers. While many details of these plans are fuzzy and there will be some national variants the contour of the approach are similar andclose to the recommendations that I made in this forum

Black Monday degenerated into a 6-11 October BLACK WEEK

Today’s Slate cartoon, by Mike Thompson, http://cartoonbox.slate.com/mikethompson/

homeless, but not hopeless

The point on policies: great expectations on 2 world w\e meetings in Washington. 

FORGET THE FINANCIAL SYSTEM’S PERFECT STORM: IT’S JUST DEAD, AND NO OXYGEN WILL MAKE IT RESURRECT.

RADICAL SOCIALIST INCOME REDISTRIBUTION MEASURES ARE NEEDED NOW, IN ORDER TO AVOID A 2010s DEPRESSION.

ONLY A STONG CLASS STRUGGLE CAN SUPPORT THIS ALTERNATIVE TO THE ENSLAVING OF STATES TO RENTIERS.

Moment of Truth Paul Krugman – ANCHE I PROFESSORI TALORA S’INCAZZANO.

Moment of Truth, by Paul Krugman, Commentary, NY Times:

Last month, when the U.S. Treasury Department allowed Lehman Brothers to fail, I wrote that Henry Paulson … was playing financial Russian roulette. Sure enough, there was a bullet in that chamber: Lehman’s failure caused the world financial crisis, already severe, to get much, much worse.

The consequences of Lehman’s fall were apparent within days, yet key policy players have largely wasted the past four weeks. Now they’ve reached a moment of truth: They’d better do something soon — in fact, they’d better announce a coordinated rescue plan this weekend — or the world economy may well experience its worst slump since the Great Depression.  (..)

Why this weekend? Because there happen to be two big meetings taking place in Washington: a meeting of top financial officials from the major advanced nations on Friday, then the annual International Monetary Fund/World Bank meeting Saturday and Sunday. If these meetings end without at least an agreement in principle on a global rescue plan … a golden opportunity will have been missed, and the downward spiral could easily get even worse.

What should be done? The United States and Europe should just say “Yes, prime minister.” The British plan isn’t perfect, but there’s widespread agreement among economists that it offers by far the best available template for a broader rescue effort. 

0K. Nonetheless, although Paul is a flagship Keynesian, he keeps just proposing here FINANCIAL socialism (part-time nationalisations, HOOD ROBIN), and not a Keynesian blend  – ROBIN HOOD, namely restoring a balance in income redistribution, against the rentier class, therefore attacking the current Marx-Kalecki-Keynes-Minsky node: “How to avoid a severe recession to become a decade depression”.

Another Paul, Paul Thoma, not a revolutionary socialist indeed, already got it today.  And he also quotes, in his precious blog, The Guardian’s Time to grasp the fiscal nettle, by Barry Eichengreen yesterday: A MILESTONE PAPER, moving  faster than Paul k. along neo-keynesian lines (aggressive, internationally coordinate fiscal policies; we agree 100%, and just add the redistributional dimension with more stress and with an open connection to a class struggle revival, from Milan to Mumbai and Shangai,  on technology appropriation, profits, rents and wages). Giacomo Vaciago, in today’s il Sole 24 ore edito, on the same line: the emergency now is growth, and consumer expenditure.

Don’t despair: Paul is slow in changing his mind but, when he does, he moves the public and intellectuals median opinion to the point. 

It’s a diffusion of innovations geography game: Nouriel,  Paul, then the critical mass. 

 

Saturday’s newspapers: Slate

TODAY’S PAPERS
Worst. Week. Ever.

By Jesse Stanchak
Posted Saturday, Oct. 11, 2008, at 6:03 AM ETThe Dow Jones Industrial Average had its most volatile day ever Friday, oscillating more than one thousand points before ending up 128 points down, capping the worst week in the Dow’s 112-year history. The index lost 18.2 percent of its value between the opening bell Monday and closing bell Friday. Amid the panic, some very somber discussions are being held and all the papers lead with some kind of reaction to the bad news.

The Washington Post leads with finance ministers from the U.S. and six other wealthy nations vowing to take “all necessary steps” to deal with the burgeoning financial crisis. The Los Angeles Times leads (at least online) with Treasury Secretary Henry Paulson coming out of that meeting and saying the U.S. government would buy non-voting stakes in financial institutions, as part of an ongoing attempt to restore market liquidity. The New York Times leads with a double billing of the international cooperation announcement and word ofpossible merger talks between General Motors and Chrysler. The Wall Street Journal devotes the top half of its front page to summing up Friday’s manic market activity; it tops its world-wide newsbox with both presidential candidates issuing new economic proposals in light of the crisis.

Friday’s facts.

il Sole 24 ore. Borsa: l’Europa chiude un’altra seduta da brivido. Milano -7,1%

 Sui mercati prevale una situazione di estrema volatilità. Le Borse europee, appesantite dai cali registrati a Wall Street, chiudono in forte ribasso. Milano perde circa il 7 per cento. Francoforte è la peggiore e cede l’8,05 per cento. Le vendite hanno colpito l’intero listino. Attesa per misure straordinarie dal G-7 a Washington.  …» 

Friday, October 10,  3.30 pm GMT

11:32 a.m. EDT (3.32  pm GMT)  10/10/08 Major Stock Indexes (wsj

  Last   – Change  – % Chg

DJIA (Dow Jones) 8171.39 -407.80 -4.75

Nasdaq 1577.94 -67.18 -4.08

S&P 500 861.01 -48.91 -5.38

DJ Wilshire 5000 8712.03 -475.91 -5.18

Russell 2000 479.83 -19.37 -3.88

DJ World exUS 145.66 -11.31 -7.21

Japan: Nikkei Average* 8276.43 -881.06 -9.62

DJ Stoxx 50* 2090.58 -201.19 -8.78

UK: FTSE 100* 3981.70 -332.10 -7.70

Brazil: Bovespa   34246.43   -2833.87   -7.64%

China: DJ Shanghai* 204.20 -9.95 -4.65%

Bombay Sensex* 10527.85 -800.51 -7.07%

FTSE/JSE All-Share* 20595.23 -657.06 -3.09%

 * at close

CHART: S&P 500 the last 2 years: now (before closure) at 869, 1 year ago twice at 1550 (in July and October) – http://online.wsj.com/mdc/public/npage/2_3050.html?symb=&sid=3377&page=us&symbChange=aaaaa~0&time=2yr&freq=1dy&DrawChart.x=63&DrawChart.y=2&startdate=&enddate=&type=64&compidx=aaaaa~0&comp=Enter+a+symbol&ma=1&maval=100&lf=1&lf2=4&lf3=1024

 

This early morning in Asia

TOKYO

Asian stocks dive as panic erupts over financial crisis (from India Times)

10 Oct 2008, 0950 hrs IST,AGENCIES

Tokyo dived more than 11 percent as investors took fright at news that Yamato Life Insurance will file for bankruptcy protection, becoming the first Japanese insurer to go bust amid the global credit crisis.

The bloodbath quickly spread to other markets. Sydney plunged 6.5 percent, Singapore lost more than seven percent, Seoul was down 7.5 percent and Shanghai opened 3.8 percent lower. Hong Kong followed, opening down 7.7 percent.

“It’s beyond panic,” Oh Hyun-Seok at Samsung Securities told Dow Jones Newswires. “Concerns about the global economy are deepening further and there is no signs of easing in the global credit crunch.” 

Shangai is down 60% frome year start. The Nikkei ends the day almost at -10% – in its biggest one-day drop since the 1987 crash –  with a weekly fall of  -24%. Nikkei limps to 24% weekly drop.

MUMBAI

Fearing recession, markets end sharply lower

10 Oct 2008, 1632 hrs IST,  www.economictimes.com

Bombay Stock Exchange’s Sensex closed at 10,536.69, down 791.67 points or 6.99 per cent. The index touched an intra-day low of 10239.76. 

Retired Bill is poorer and poorer

Buffett pips Bill Gates to top new Forbes list: Report
10 Oct, 2008, 1602 hrs IST, REUTERS

Warren Buffett has overtaken Bill Gates to become the richest American in Forbes list, said a media report. Young Billionaires | Top Global Brands | Richest people of US


The euro-american afternoon.

Now, at 3.00 pm GMT (Italian legal time 5.00): – 4% then – 5% NY, -6% Bovespa SP,  – 8% Paris and London; Frankfurt closing worst, at – 8.7%.

Although Milan (-7.4% Mibtel at close)  suspends all the “vendite allo scoperto”:  UniCredit at -14% (falling towards €2,  after a title suspension), Intesa SP recovering from the morning and “only” – 4.8% but at €2.9, i.e.  under  €3 per share, Mediaset suspended for excess obscillations. People laugh at today’s new Berlusconi appeal (during stock markets opening time !!! he’s just crazy and silly) to buy now undervalued shares, namely ENEL (- 7.5% today)  and ENI (-6%) –listen to the audio file – and (yesterday): don’t sell Mediaset. Telecom Italia down at €0.75. Portfolio, fund managers must sell “good” shares, and therefore contribute to diffuse the fall to energy and manufacturing industries. Berlusconi from Naples: in Europe we will rewrite all rules in a new Bretton Woods, and we might suspend markets (than he denies having said the latter); “non  siamo ad oggi in una recessione”.

He’s even more funny, stupid and unreliable than a prudent, and lately metamorphic President Bush.

BBC at 2:14 pm GMT

The Dow Jones Industrial Average dipped below 8,000 but then recovered slightly to trade down 3% at 8,321 points.

President Bush has sought to reassure traders, saying the US government was acting to resolve the crisis and restore stability to the markets. 

Wall Street has lost more than 20% of its value in the past ten trading days and is heading for one of its biggest weekly falls since the Dow was created 112 years ago. (..)

In Europe share prices falls have been much steeper. In London the FTSE 100 share index was down 6.9%, Paris was down 8.4%, and Frankfurt was down 8.9%.

Finance ministers from the G7 are to meet in Washington later.

As well as the G7 meeting, talks will be held at the International Monetary Fund (IMF) in Washington.

(…) The BBC’s business editor Robert Peston said markets were worried about Friday’s auction of insurance claims on the debts of the collapsed US investment bank, Lehman Brothers. 

Wall Street was sharply lower after a dizzying open session that saw the Dow fall more than 600 points before recovering most of its losses. London’s FTSE 100 fell 9%. European indices also tumbled. Japanese shares touched 20-year lows, leading Asia-Pacific down as fears of a global recession mounted – 14:53

wsj

Global Indexes Plunge

European stocks tumbled, with Germany losing 9.9% and the FTSE falling 9.3% to below 4000 amid heightened anxiety about the global economy and a distressed financial sector. Asian markets posted sharp losses, with the Nikkei closing down 9.6% and Sydney dropping 8.3%.

October 10, 2008 10:46 A.M.ET

Zooming back to flat
Dow industrials below 8,000 for first time in five years before bounce
        

With aggregate losses deep in the trillions, U.S. stocks suffer latest brutal open, picking up from Thursday’s bloodbath — and the waves of selling that ensued around the globe — but the comeback is stirring.

SECTOR IN FOCUS: FINANCE
Morgan sits out sector turnaround
Financials rise, pacing broad-market bounce off day’s low. But Morgan Stanley remains in the grip of a damaging sell-off.

 

PREVIOUS PARTS OF THIS BLOG POST FOLLOW, looking at yesterday and this morning again:

Friday October 10; 9.30 am GMT

Yesterday afternoon, ice shower on markets from “champagne socialist” Strauss Kahn’s (IMF) certification of our analysis: a global recession is on, and will hit hard in 2009 even Brazil,  China, and then it will be a global stop. Wiping out all the nonsense that has been said against the mere economic reality and truth (the credit crunch monetary mechanisms of transmission into a severe real recession).

il cavalier Pinocchioni

But imbeciles are still in power:  yesterday’s Guinness of PINOCCHIO-of-the-day goes to Cav. Berlusconi (waiting for today’s Bush speech), recommending Italian people to hold stocks, since in the long run they will re-evaluate. Not saying that in the short run, on average they will lose another 50%: stock capitalisations are now 1/3 down from  1 year ago’s maxima. In a few months the will be grosso modo another 50% down, to 1/3 of their maxima: only then a floor will be in sight. This is a rough estimation of fundamentals, in the middle of the hardest world recession of the last 80 years.

Friday morning Tokyo opened at  -4.5%, Mumbai closed at – 7% (see above); in Europe, markets were opening from  -6% to – 10%, then they were correcting upwards during the morning, but only slightly, with Frankfurt still at – 7.8% (now, at 9 am GMT) and Milan’s MIB – 6%. UniCredit is losing 12%, Intesa SP 10%, Italy’s Telecom 9% down to €0.75 (our target price: €0.25). 

 

A review of some top oL pages today, in the European morning:

ft

Equities plunged after a dramatic late sell-off in New York. London’s FTSE 100 opened 10% down before recovering somewhat to stand 5% lower. Japanese shares touched 20-year lows, leading Asia-Pacific down as fears deepened that the world economy was heading for recession. Overnight, Wall Street suffered its biggest fall since the 1987 crash – 09:37 (London time)

Guardian

NAKED CAPITALISM

European Markets Open With A Crash

http://www.nakedcapitalism.com/2008/10/european-markets-open-with-crash.html

It was bad enough that the Nikkei traded down over 9% today and most of the rest of Asia fell 6% to 8%. But the opening of European markets is a dramatic vertical trajectory down: DJ Stoxx 50 down 8.3%, FTSE down over 10% in five minutes, now down a comparatively modest 9.23% Dax 30 down 9.8% CAC 40 down 9.8% The yen is at 98 to the dollar, Brent crude is at $79 a gallon, gold is $926 an ounce. …

nyt

Markets in Europe and Asia Plunge

Global stocks plummeted, with selling momentum accelerating after a Japanese insurance company was driven out of business. In Tokyo, the Nikkei fell 9.6 percent.

wp

Fears of Recession Deepen Rout

Fear and foreboding took hold on Wall Street yesterday, as the stock market again plunged and investors became convinced that the nation is on the verge of a deep and prolonged recession. The rout continued in Japan, where stocks plummeted in early…

3 hours ago in The Washington Post

wsj

Global Indexes Plunge

European stocks tumbled, tracking a global stock market rout, amid heightened anxiety about the global economy and a distressed financial sector. Asian markets posted sharp losses, with the Nikkei closing down 9.6% and Sydney dropping 8.3%.

Blue Chips Slide 678.91 Points, or 7.3%

The Dow industrials plunged 678.91 points, or 7.3%, to 8579.19, falling for the seventh straight day, or more than 20% over that stretch. An early rally morphed into a broad-based selloff that picked up speed near the end of trading.…

5 hours ago in http://online.wsj.com

On Wall Street yesterday (Detroit’s capitalisation was sinking, GM in a moment was at -33%), also:

http://ftalphaville.ft.com/blog/2008/10/10/16871/overnight-markets-rout/

The US stock market suffered its largest loss since the crash of 1987 on Thursday (our bold) amid panic over General Motors, Morgan Stanley and several big insurance companies. The market collapse heightened speculation that the US would unveil a bank recapitalisation plan in the coming days. More…

This was – by contrast – the sunny picture yesterday morning in Europe, when markets were still quiet (after and before the storms), before IMF ice shower:

Thursday October 9, 12 am GMT

After 3 days  underwater, starting from Tokyo and Hongkong, today stock exchanges are actually taking a breath and a holiday finally,  – e.g. – UniCredit was even gaining +8% at mid-day, some fresh air.

But, read below in previous posts (and in AAA updates … page, our always longer and longer selection of economic facts) what we were reading just 1 week ago from Roubini. At the wsj live blogging, Oct. 2, at the FAQ “What if Paulson plan fails ?”, the answer was: nationalisation. Lead by the socialist premier Gordon Brown, even Amerika is fast moving into that dramatic direction of fully fledged bourgeois, financial socialism (reverse Robin Hood, people call it  

“HOOD  ROBIN”:

stealing from poor taxpayers to guarantee and save the rich rentier).

A symptom is Technorati percolation temperature now: in the news the no.1 percolating news is this one:

http://technorati.com/

U.S. May Take Ownership Stake in Banks

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash into banks that request it.…

1 day ago in The New York Times
JUST PAULSON’s DICTATORSHIP from now to Obama taking power in January. The voted plan said exactly the opposite: we buy toxic derivatives; the day after they moved into commercial papers, and  now to FINANCIAL SOCIALISM. Because markets discounted already the failure of Paulson’s Plan A.
Finally, this quasi-news is becoming now a critical mass news,  getting  on screen top in the wsj oL:

U.S. Mulls Stakes in Banks

The U.S. Treasury is considering ways to inject capital directly into banks, possibly by taking equity stakes.

U.S. officials are discussing temporarily backing all U.S. bank deposits if economic conditions continue to worsen, a move that would mark another unprecedented step.

U.S. Mulls Direct Capital Infusions

The U.S. Treasury is considering ways to inject capital directly into banks, possibly by taking equity stakes.

Deal Journal: The World’s Biggest Hedge Fund

The NYT is adding on Friday that

    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….

Of course, Yves Smith   at Naked Capitalism is unhappy, arguing that banks shareholders took their risks and should face them. He concludes Friday morning, at 12.44 am:

Dear God, Rome is burning, and the Treasury Department is hung up on niceties like executive comp and the standing of existing shareholders. If the bank needs capital, current sharedholder WILL be diluted. The fact that this is coming up in discussions about how to keep the financial system from imploding is deeply troubling. 

Among comments to Yves:

    October 10, 2008 2:46 AM 

baychev said…

    The FDIC has coverage for only 0.8% of all deposits, now the gov’t will back debt that probably exceeds GDP. How is this going to soothe any sane investor?

    And what happens to the CDSs written on this debt? Cancelled, default is triggered, or the protection sellers get a free ride from the gov’t?

    October 10, 2008 1:08 AM 
LJR said…
    I think a stake has been driven through the heart of the Republican party’s penchant for deregulation. There’s a bright side to everything that happens.

MORALE. AN AUTO-CRITIQUE: mea culpa …

YESTERDAY WE MADE a good point (nationalisations in the US) but at the same time such A BIIIG MISTAKE, when we predicted that this step would have perhaps occurred in January. It started to get critical mass the day after. It is difficult, BUT NECESSARY, t otake the exact pace of the HYPER-CRITICAL MASS global village ( markets, media, web 2.0 and word of mouth) where phenomena and meta-phenomena happen. That is: the crisis itself, and all the related class struggles,  game powers,  ideologies, narrations and self-fulfilling “news”. No immaterial economy, ON THE CONTRARY: a word of mouth becomes so quickly a Material Tsunami, with megatons of economic power shifting hands in a few hours.

At  the  moment, Paulson has more power than a G8 enlarged to China. FAQ 1: Will he keep it intact until January?

FAQ 2: Is Obama socialist? At the moment, only the far right believes it. 

http://astuteblogger.blogspot.com/2008/10/evidence-is-clear-obama-was-member-of.html,

quoted by Technorati,  argues that 12 years ago, the young lawyer was a member of the “New Party”:

What was the “New Party”? It was a far-left “workers’ party” fighting for:

full employmenta shorter work week

a guaranteed minimum income for all adults and a universal “social wage”

full public financing of elections with universal voter registration

“the democratization of banking and financial systems”, which included public control and regulation of banking

a more progressive tax system

reductions in military spending and an end to unilateral military interventions.

 

 

peso el tacòn del buso

BREAKING NEWS, ore 4:05pm GMT

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:

US

– 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).

EU

– 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.

bbc

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.

Ft

http://www.ft.com/cms/s/0/8eafcd26-936f-11dd-9a63-0000779fd18c.html

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.

* EUROPE MARKETS

* 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.

* TODAY’S MARKETS

* 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

SHADOW FINANCE IS MELTING DOWN, TOGETHER WITH PAULSON-BERNANKE-GEITNER FINANCIAL SOCIALISM

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.

OBAMA NEW DEAL: NOW !

Lehman is dead: will Paulsson save the Queen? How?

LEHMAN DEATH TELENOVELA- 1.

As we already forecasted in March (on reading  Lehman Brothers budgets, Finch data and RGE analysis), and repeated meanwhile in many blog posts (search Lehman  in this blog), the 4th US financial bank is now a walking dead, and after the end of the prospective acquisition by Korea developent  bank, its shares lost 50% in 2 days (43% in a day), then another 40% on Sept. 11. In the last Q it lost another $4 bn.

Sept. 13 update. 

Slate summary: The New York Times and the Wall Street Journal lead with, and the Los Angeles Times fronts, an emergency meeting between major bank heads and the Federal Reserve. Sick of underwriting bailouts, the government is hoping to broker an “industry solution” for the impending liquidation of Lehman Brothers Inc., the ailing investment bank.

 

Now it is to the couple Paulsson (former financial manager) – Bernanke to act.

We bet it will be another move toward  Financial Socialism (but WHICH move, this time?), although some contradictions might arise within and between the two, Paulsson:

– on the one hand more willing to invest the taxpayer money he doesn’t actually have – JUST STRONGER DEBTS REPLACING WEAKER DEBTS, financial entitlements’ circulation -,

– on the other hand with public relations problems in the “societe’ du spectacle” political scene. In fact, the Naked Capitalism blog (fully quoted below), as well as other observers, think that THIS TIME Paulsson needs to show he is not a Trojan Horse of Wall St. at Washington (WHAT HE ACTUALLY IS, of course: By definition), and therefore he will not play the full bail-out as with Bear Stearns.

WHICH ARE THE ALTERNATIVES?

deal journal, wsj: http://blogs.wsj.com/deals/2008/09/09/should-the-fed-step-in-to-help-lehman-can-it/

When it comes to banks and thrifts, the Federal Reserve and Treasury have a wealth of legally approved options, including taking over and liquidating assets or creating a “bridge bank.” When it comes to broker-dealers like Lehman, federal regulators have only a hammer, a plumb line and a wrench. They can force a shotgun marriage, arrange a line of credit or put their authority–often referred to as “moral suasion”–behind an industry-led bailout of Lehman.

the deal jo. suggests these potential buyers, BUT (opposite to such optimism) TIME SEEM OVER  for such a market-lead bailout (see again Naked Capitalism, among other observers): 

rge monitor, sept. 10

 

How Would Authorities Deal With Another Run On A Broker Dealer?           

  • Naked capitalism: Would Paulson let Lehman fail? “The short answer is yes: Unlike Bear, Lehman is not a big credit default swaps protection writer
  • Paulson Chatham House speech, July 2: “We need to create a resolution process that ensures the financial system can withstand the failure of a large complex financial firm” –> For the long term, Hank Paulson envisages separate resolution processes for deposit institutions and investment banks. Bernanke and FDIC’s Sheila Bair also advocate separate resolution processes
  • Paulson at Committee Hearings, July 10: There are however systemically important institutions that need government intervention in case of a run.“Looking beyond immediate market challenges, the trigger for invoking government’s emergency authorities should be very high – such as filing for bankruptcy”

 

naked capitalism’s LEHMAN DEATH WATCH

today, sept. 11:

http://www.nakedcapitalism.com/2008/09/lehman-death-watch-are-fulds-days.html

The market’s reaction to Lehman’s way worse than expected earnings announcement of $3.9 billion in loses due to $5.6 billion in writedowns was ugly, but even uglier is the lack of much (any?) progress towards getting the firm out of its fix. Yes, dividends are being cut, but the other two key elements, spinning off much of the troubled commercial real estate portfolio to shareholders and selling (well, sort of, as we will discuss) its asset management business.

But what would be left? A firm shorn of its best asset, now even more heavily skewed toward fixed income, which by all appearances is suffering not only a cyclical but also a secular decline. The private securitization market is much smaller than it used to be and does not appear likely to return to its former size for a very long time. if ever.

The new (or rather, more openly discussed theme) was can and should Fuld survive? Both the Wall Street Journal and the New York Times have reports on that topic, never a good sign. However, who would take his job? 

(…)

The Journal story has some good reporting on how Fuld’s pushing for the best deal and impatience undid some possible deals.

Bloomberg tells us Lehman’s fate hinges on the sale of a stake its asset management unit, But the story contends Fuld is overplaying his hand:

“Fuld doesn’t want to let it go,” said Bruce Foerster, a former Lehman executive who is president of South Beach Capital Markets in Miami. “He went out of his way to buy it and he knows it’s a good asset.”…

Even a successful sale may not be enough to satisfy credit- rating companies.

sept. 10

Lehman Death Watch: Will Paulson Let Lehman Fail?

The short answer is yes, but we need to define fail. (…)

Even though Bear and Lehman are similar in size, their business mix differs in ways that make Lehman dispensable. In fact, Paulson almost needs to let a financial player fail to prove that he is not a toady of the industry.

Reuters labels it “an insolvent firm”.

sept. 9

Merrill. Lehman Trading Operations Valued at Zero by Market

We had noted earlier that the price discussions around the possible sale by Lehman of a stake in its asset management operations valued the rest of the firm at close to zero. A story at Bloomberg has taken this line of thinking one step further.

 

From Bloomberg:

 

    Lehman’s market capitalization of $11.2 billion is almost equal to the value of its asset-management arm, which includes Neuberger Berman Inc. That leaves its main business of trading stocks and bonds as having little worth. The numbers are similar for Merrill Lynch & Co.: Take out its retail-brokerage and asset- management businesses, and the investors’ valuation of the rest of the third-biggest U.S. securities firm is zero.

    After being the most profitable business on Wall Street, generating more than $65 billion in pretax profits for the four largest U.S. securities firms between 2002 and 2006, trading has become a black hole. It still accounts for about half of the revenue at the Wall Street firms. Yet Lehman Chief Executive Officer Richard Fuld and Merrill CEO John Thain have been unable to convince shareholders to attach a value to the businesses.

Sept. 7

http://www.nakedcapitalism.com/2008/09/lehman-fundraising-talks-stall-firm.html

We were willing to be proven wrong in our skepticism of Korea Development Bank’s pursuit acquiring a stake in Lehman. We had no doubts about the interest; the KDB CEO was the former Seoul branch manager for Lehman and full bore behind a deal. But the reception of the Korean government, which had to approve the deal, was lukewarm at best. It’s rare for an individual to overcome official indifference and inertia. We had noted that the Korean bureaucrats could simply study the deal to death, that would put an end to it with every having to official turn the KDB or Lehman down.

And the rumors about other possible suitors have been simply bizarre.

 (…) so the firm is on to Plan B, discussed earlier in the week, to spin off problematic mortgages into a separate entity. From Times on line: (…)

 

If the Korean deal falls through, Lehman will press ahead with a sale of its Neuberger Berman investment-management business, estimated to be worth up to $10 billion – roughly equivalent to the entire company’s current market capitalisation.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4692625.ece

 

SocGen: an equity meltdown is coming

ITALY REMEMBERS TODAY, WITH PRESIDENTE ALDO MORO, ALL THE TERRORISM VICTIMS. including Italian State Terrorism italian victims (Piazza Fontana 1968, etc.).

FIRST OF ALL, COMRADE PEPPINO IMPASTATO (i 100 passi), EXECUTED BY THE BLOODY MAFIA THE VERY SAME DAY AS MORO, on the order of Tano Badalamenti.

30 years ago, on May the 9th,  1978, Washington and Moscow (as we always guessed, but now we know for sure from a vast literature)  joined together (through a Yalta-based compensation room located in Paris: Vanni Molinari’s Hyperion liaison office), commanding the Red Brigades to kill Aldo Moro. The DC leader that, with excess foresight, was about to bring Berlinguer’s PCI into a bipartisan government in Rome (but the Cold War was still on: feeding geopolitical wars, spy “faux frais” and protected markets for Military Industrial Complexes). Moro joined his fellow Enrico Mattei, the ENI CEO killed by the Mafia on behalf of the 7 Sisters: he was even more foresighted than Aldo Moro, therefore they were obliged to kill him much earlier.

BUTTIAMO A MARE LE BASI AMERICANE

ASSASSINI! US imperialists still consider Italy their Mediterranean “big ship”, and Craxi was the only one with the attributes: a 100% NATO supporter, but not a Washington puppet. The fucking imperialists used and abused the DC, but didn’t like much its leaders, if they killed the two most outstanding ones (apart de Gasperi). With such a sense of impunity, as not even hiding the smoking gun. 

Edwards: “We are on the cusp of an equity meltdown that will slash and shred portfolios like Freddie Krueger”

Someone was doing the last attempts to deny the ongoing global recession: e.g., by arguing:   “there is no such credit crunch nor Bernanke’s accelerator –  in Europe nonfinancial firms are  increasing their debts and paying the spread, since the stock market is as  thin as a fashion model”.

Crunchy credit (FT 2 days ago): “the new consensus is that the monetary easing already administered by the Federal Reserve could combine with the “stimulus” tax rebates that Americans are about to receive to create a V-shaped recovery.” Well, listen to today’s global strategy weekly  by  Albert Edwards to SocGen clients: 

–  We are trying to give our readers the strongest possible warning (ever!) that we are on the cusp of an equity meltdown that will slash and shred portfolios like Freddie Krueger.

– We see a global recession unfolding. Nowhere and nothing will be immune.

– One of the clearest impressions that I will take away from working in this industry is how darned bullish everyone wants to be. To be sure, nobody likes to be a party-pooper but the bias towards optimism in this industry is truly staggering…

reported by Paul Murphy on alphaville 

Prof. Roubini confirms his view that there is a bifurcation behind: between either a V or U (or W) recession in the US; but he adds today that its outcomes will reverberate in Asia, Chindia (therefore – by feedback – a U shape might last even longer, and become more L-shaped).

Effects of the US recession on Asian growth

 Nouriel Roubini | May 8, 2008

Will this region decouple from the US economic contraction?

The answer depends on the severity of this recession. If the US recession is short and shallow (a V-shaped recession lasting six months) then there is enough of a domestic growth dynamics in the rest of the world and in Asia that the global economic slowdown would be very modest. But if the recession is more severe (a U-shaped recession lasting 12 to 18 months) then that US contraction, together with the sharp slowdown in the other G8 economies (…) will negatively affect growth in China and Asia.

While oil prices take the first pages going beyond $126 (but, Paolo Leon is right commenting on radio Rai3, that this does not yet bring back nuclear energy to cost effectiveness), a $ bottom is called by the FT: Europe and US unite on stronger dollar.

PARIS STYLE. A virtual guillotine at Moody’s. Their CEO and President will leave in July. WSJ:

Moody’s Investors President Steps Down

Clarkson’s Exit Marks Highest-Profile Casualty to Date

Over Role of Credit-Rating Firms in Subprime Rout