first!

So while in U.S. we have 100+ year old institutions shutting down or being merged, how about banks in UK? I am mainly curious about Barclays as I got a job offer with them…

UK work week is among EU’s longest…UK workers are among the hardest working people in Europe, with only Romanians and Bulgarians putting in longer hours, new research shows….The UK workers also get less annual leave than the average EU worker.(source: http://news.bbc.co.uk/1/hi/business/7598467.stm)So you would think that with all that working the UK economy would be better than the EU average? Au contraire…Jobless set to top two million as the UK economy heads for meltdown(source: http://www.guardian.co.uk/business/2008/sep/14/economics.redundancy)

4th? Can’t believe it on this historic day. Not only Hats off but Kowtow to Prof. Roubini. With LEH gone, the Fed is indeed showing character and courage AND asking a lot of really good questions to those thrown out on the street. There is a price to pay for causing prime defaults. Fed to AIG: We need you to pay up.Heli Ben, fantastic job in shutting down LEH; it could have been worse! We need a 100 bps cut NOW with AIG on the ropes (or is it count of 9?).Hopefully, we’ll not fall into the deflation precipice and need that ARM after all. Remember, to do stay off the precipice, we need toPrint First Ask Questions Later.P1AQL.

MERRILL NOT SAVED, FUNERAL MERELY DELAYEDEveryone is heaping praise on John Thain today, even former detractors like Barry Ritholtz. But all Thain did was delay Merrill’s day of reckoning. In a ringing endorsement of the deal by the market, stock of Bank of America dropped over 20%. How much more will BofA need to drop before a shareholder revolt ensues? Failing such a revolt, Bank of America will be bankrupt or nationalized in a few months or sooner and Merrill will come to its well deserved end.

Just take a look at Argentina, and you will find how this story may end. US: Argentina 2001 in slow motion.

you guys must be smoking crack!BAC will swallow MER and CFC and become a leader in the financial world. There is no way Benny will let BAC fail here!Look for a rate reduction in the next day or 2 if the markets do not bounce up. Remember who you are dealing with here! I closed my IVV shorts today with 110% upside. I’ll watch from the sidelines until things settle then decide which way the wind is blowing!

Barclays is definitely too big to fail. It’s where I have my account. Besides, our generous chancellor has made it abundantly clear that the worst that could happen would be nationalisation rather than failure.

The rule of law has been sacrificed once again to executive expediency. I really wonder about America these days. Will elections be overturned in the name of expediency too?The restrictions on bank lending to securities affiliates in 23A were a fundamental principle of the Federal Reserve and FDIC framework dating back to 1933. How Paulson, Bernanke and Geithner can decide as an executive matter to simply disregard the black and white letter of a statute and get away with it is amazing. The same with taking equities as collateral.Back before America became whatever it is today there was a quaint concept of Congress making the laws and the courts interpreting them. I find the lawlessness and arrogance of the unaccountable executive one of the scarier aspects of the crisis we face, as it means they really believe they can get away with anything, no matter how illegal.Here in the UK we may have bigger economic and financial troubles, but we still have central bankers who make every effort to stay within the law and do the right thing. Mervyn King proved that in refusing to break the law for Northern Rock. Between the two countries, I’d rather be in the country with rule of law than in the country without it as the crisis unfolds.

Barclays backed off from Lehmans because(1) Its charter requires it to get a vote off all shareholders before taking such actions as getting involved in Lehmans. The shareholders act as a restraint upon the over-weening egos of the CEOs who believe themselves infallible and who are motivated primarily by their own short-term gain (compensation and keeping their job)(2) The UK regulators said “not a good idea boys. Come home and play with the toys that you have. No new toy for you.” (As reported by “THE” Times in London.) This too puts a real check on the types of shennanigans that are sinking US financial firms. The US regulators merely smile and say “oh, aren’t the children just too clever with the games they have invented for Wall St.” The UK regulators have real power unlike those in the US.Both of these factors serve to restrain power-seeking, reckless CEOs – and will keep Barclays going. It has been around for over 318 years so far. Doubt the British government will let it go under or take stupid risks since its existence is synonmous with the country. Too many years of history and too much national pride for that to happen.

@ LB;well said. I agree. I can’t believe I live here! I’m through writing my Congressman! I’m fearful of what they might do. IRS audit, etc. to quiet the sheeple. It’s really said.

His name is Nouriel Roubini.Idiot.

BE NICE

Guest wrote:

we would let the market handle the entire process, come what may

@Guest, the market is broken. Public good is called for in broken markets. There’s a law against committing suicide.That’s why the Fed is accepting equity as collateral too. If the Fed is offering margin money for equities, why would anyone get it from Morgan Stanley or GS?This is not your mother’s free market (proverbially speaking)P1AQL.

As discussed yesterday:Shorted BOA today…….21% down.Shorted MS ………. 13% downNow LEH & MER look good………..im geting greedy on those.

And now for a commercial break -Matt Damon on President Palin – very funny, and very scary at the same time as he’s dead right.http://www.youtube.com/watch?v=anxkrm9uEJk

Roubini is flat out wrong when he calls this socialism. This is only “socialism for the rich”, so in that respect it is closer to Italian style corporatism (fascism), crony capitalism, or just plain old plutocracy. But certainly not socialism; a socialist bailout, like it or not, would have a different method and intention but so far everything has been consumption and finance side from the top. There are other economic and political features of a socialist government response that are missing. This isn’t a moral / political issue but factual / historical.In fact, you could even argue that Roubini is suggesting some “socialist” style changes of the European or even Chinese kind, in the sense that markets should be well regulated, that taxes should be reorganized, that production needs to be more efficient, that infrastructure should be improved, etc. (Or perhaps “progressivism” in US “exceptionalist” terminology?).Roubini is a very smart guy but this kind of confusion makes him look ignorant of political economy. I know that it has rhetorical appeal but it isn’t logical. Maybe too much time in the US? He isn’t a politician but an academic and intellectual with an international perspective so he needs to do better than this.Whitey

Amen.

Print First Ask Question Later, Robbery by financial barons also was against the law before Americans became subjects of a private banking cartel in 1913. Our economy is now on a fast track to serfdom, with a 20% standard of living reduction already factored in as the people’s share in this bailout for bankers which you label “public good.” This may not be suicide but it sure is murdering the taxpayer.

You may recall,I posted this article earlier this year and it is worth a second glance due to today’s action and what we see coming.Global systemic crisis / September 2008 – Phase of collapse of US real economyhttp://www.leap2020.eu/GEAB-N-22-is-available!-Global-systemic-crisis-September-2008-Phase-of-collapse-of-US-real-economy_a1298.htmlhlowe

so, where do we move from here??a bounce?? flat?? AIG next??

Dow futures already down 120. Might be a rough opening in the morning.

Thanks for re-posting – I had not seen itbefore now. Very relevant.

Next, a flight from dollars and dollar denominated assets.the end of BWIIdollar no longer world reserve currency, everyone for themselves, those with something to sell will demand payment in a store of valuedollar crash

Yeah, let’s get crazy Ben, a surprise 300 bp rate cut would be welcome.LET’S BURN SOME CDS!

all of this reminds me of Tyler Durden (Fight Club)remember the final scene where multiple financial buidings were blown to dust,——————————————-Now everything/everyone Resets to ZEROImagine the chaos

there you have it, our first circuit breaker moment..Korea Exchange Halts Program Trading After Kospi Futures PlungeBy Kyung Bok ChoSept. 16 (Bloomberg) — Program trading of shares listed on South Korea’s benchmark Kospi index was halted after index futures plunged, the nation’s bourse operator said.Program trading was halted for five minutes starting at 9:35 a.m. after Kospi 200 futures lost more than 5 percent for more than one minute, the Korea Exchange said today in a statement. It’s the third time this year the so-called “sidecar” was activated according to exchange rules.To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.netLast Updated: September 15, 2008 20:49 EDT

oil in the 91 range and continuing to plummet

Lull the sheeple into thinking that oil is going low again. Sell them big ‘ole trucks, Jethro!

For those who still have some nerves to break:Ivanovich Says U.S. Financial Market Is in `Undue Panic’ [and much more BS]http://www.bloomberg.com/avp/avp.htm?N=av&T=Ivanovich%20Says%20U.S.%20Financial%20Market%20Is%20in%20%60Undue%20Panic%27&clipSRC=mms://media2.bloomberg.com/cache/vSEI.VcB65cc.asfLET’S BURN SOME CDS!

Fed funds jump to 6 pct in mkt, tripling Fed’s targetNEW YORK NEW YORK, Sept 15 (Reuters) – Federal funds traded in the U.S. interbank lending market were indicated to have jumped to 6 percent on Monday, tripling the target rate of 2 percent which the Federal Reserve sets.The move happened even after the Federal Reserve earlier added $20 billion of temporary reserves to the banking system via overnight repurchase agreements.Early Monday, at around 7:10 a.m. EDT in New York, federal funds had traded at 2.0625 percent. When market inter-bank lending rates shoot up, that often reflects distrust among financial institutions of lending to some other counterparties. Global market participants’ risk aversion has surged on Monday as the U.S. banking crisis has escalated, analysts say.AntiSpin: The Fed tries to manage the economy and inflation by influencing short term interest rates. It does that by buying and selling government bonds in the bond market in what are called “open market operations.” They set a target rate, such as 2%, then buy or sell bonds as needed until the effective rate in the bond market matches the target rate objective. Problem is, this process does not always work in times of crisis because the bond markets themselves may be dis-functional, as is the case today.Really, really dis-functional.In 1987 during the crash the Fed Funds target rate was 6% but the effective rate jumped more than two times to 16% as banks lost confidence in lending to each other. Today that spread looks benign.On Friday Sept. 12, the effective funds rate was 2.1 percent, only 10 basis points over the target rate. Now the effective rate is three times the target rate. What it means is that the banks are so distrustful of each other’s credit that they do not want to lend to each other. Who can blame them? Lehman Bros. went out of business today leaving its creditors holding the bag to the tune of $630 billion in defaulted debt.“If the fed funds rate closes high today, I would be really worried as it would mean that there really is no money out there to be lent,” said Stan Jonas, who trades interest- rate derivatives at Axiom Management Partners LLC in New York.- Bloomberg

My sieters, a taxi driver, my daugther’s teacher, a waiter, a policeman and a store keeper have been asking me what should they do with their MPF and insurances at AIA Hong Kong ( a companmy of AIG)?I dont know exactly…who can help?

@Wolf in the Wildsthanks.But we heard that AIG have been using AIA’s money to make investment… wait and see.

I think that may be possible in the US but not for their subsidiaries in HK or any other countries where they have established their subsidiaries. The regulators in these countries are very specific in terms of protecting the insured. One way to check is to go to the governing laws on insurers in HK, or for that matter anywhere else in Asia.

YOU VERY WELCOMETHE SECOND THE US AND IRAN WARALSO NATO AND RUSSIA WAR STARTS. NO ONE WILL CARE WHAT IS HAPPENING IN THE WORLD OF FINANCE AND MICROECONOMICS.THE RUSSIANS ARE COMING

PROBABLY.HOWEVER, THIS IS STILL A MACROECONOMIC BLOG WHERE SOMEWHAT RELATED TOPICS ARE DISCUSSED. IT DOES NOT MEAN THAT GEOPOLITICS ARE LESS IMPORTANT, BUT IF WE START EACH AND EVERY TOPIC CROSSING OUR HEADS IT WILL BE A BIG MESS. THERE ARE MUCH BETTER BLOGS WHERE THESE ISSUES CAN BE DISCUSSED WITH BRIGHTER EXPERTS IN THE FIELD THAN HERE.LET’S BURN SOME CDS!

A bomb here, an assassination there, a little war somewhere else and pretty soon the dollar as safe haven is re-established for another generation. We’ve seen it before. I wouldn’t short the dollar with as many black ops teams as Bush has around the world today.

futs are now -ve 40..come on… i wanna see it turn greencome on…shows us your stick and save for the day

@ Nouriel… My condolences on the accuracy of your predictions thus far. There must be an inner conflict that keeps you up at night, knowing that if you are vindicated on all your predictions, we’ll be looking at a pretty grim situation. …but if you’re wrong, things might not be that bad.It’s an interesting crossroad to be at, and I don’t envy you. It’s essentially: lose/lose.Option 1 – You’re right (and financial tsunami hits) LOSE on collapse.Option 2 – You’re wrong (and the markets correct) LOSE on credibility.I watched you Sunday night on CNBC and was very bothered. They gave you significantly less air time then all other guests. In addition, they didn’t even spend much time analyzing what you had to say. In my opinion, their lack of acknowledgement comes down to a couple of things…1. What you had to say was just too large for them to cope with. (I’m sure they can grasp it conceptually, but the trait of “denial” in human nature causes us to dismiss.)(Sorry, but I’m about to spew some unsolicited advice)2. Don’t go to your boss (or the public) with a problem, unless you have a few suggestions for a solution. …and by “solution” I mean a “viable solution” that can be backed up.I say this because you stated that GS and MS need to marry up with a bank ASAP. This broad statement is both too much to cope with and not necessarily viable. I say this because I don’t see there being another US bank that can afford to make that purchase. (Yes, it has to be a US Bank for reasons you already know and stated regarding foreign conflicts of interest, and other things of that nature.) I think that potentially Bank of New York / Mellon could be a suitor for 1 of these… but that is only my speculation.(BNY/Mellon has not been roiled in the same losses as the rest of Wall St for a couple of reasons. One important one being they sold/exchange their RE with JPMChase for more custody. In addition, I do not think they have the available liquidity to buy either… but deals may be potentially negotiated since BNY is where both GS and MS custody most of their assets. In other words… they’re not married… but they’ve been dating for quite some time!)OK… with that said… I’d like to move forward myself. I’d like to come to the table with some solutions. (LB, drop me a line… I’m thinking career change. I’d like to change gears and start working on a correction… and if you know someone on my side, I’d love to meet with them.)First: Perception, Confidence, Truth, etc…This is ground zero for where we are at. It’s not “sub-prime”, “CDO”, “Alt-A”, etc… These water cooler terms have become the lame duck excuse for what has gone wrong so far… (much of the general public still believes that all these problems are because a large group of poor people bought houses they couldn’t afford. They fail to realize that the rabbit hole went much deeper.) They were just part of the problem. Instead, the subprime/etc were just the “triggers”. What’s wrong from a ground zero perspective is TRANSPARANCY. Without transparency, or at least the perception of it, you have a world full of investors flying blind right now.So IMO, solution #1 is an immediate overhaul of this market, to return confidence, price discovery, etc… It takes away a great deal of the concept of the market… but a new style of market will surely emerge. …as lending/borrowing & buying/selling will always be needed. This whole overhaul can and will be accomplished with the creation of different central global authorities on each of the markets. (real time default pricing, priced into a central authority can create price discovery as well as give regulators instant access to overall counterparty risk)LB, it’s time we shop the “Debt Servicing Corp” theory/plan again… but this time on my side of the pond.Second: Hedge Funds and Private Equity “REGULATIONS”As I’ve stated for quite some time… there has been a financial war taking place. The super elite, ultra rich, hedge funds/PE world has been allowed to tear apart the US financial system. Aside from their ability to manipulate markets through shorting, futures, etc… They have stood as the founding fathers of the failed financial model. In the wake of the DotCom bust, your newfound millionaires needed to keep making money. (“give a man a million dollars, and he becomes a frustrated want-to-be billionaire”) In the return of the markets (post 9/11, Enron, WCom, etc…) 3%, 4%, 5%, 6%, 7,% gains were no longer good enough! The new money enjoyed massive financial returns from the 90s and they wanted them again. So along came the HF/PE groups (that were small at the time) promising 20% gains. …and they delivered. (on what we know is a flawed system of leverage that doesn’t allow for downside risk) With the growth of this industry, business at the Broker dealer was being lost. In addition, CEO’s of these major corporations were not being adequately compensated by comparison to these small operating HF/PE’s… so the Broker dealer was forced to change to stay in the market.So IMO, solution #2 is an immediate call for regulations on all entities within free trading market. You cannot have a “level playing field” without this!Third: Much like the way financial institutions can write down their value of debt, I believe some sort of immediate legislation can be put forth for homeowners to do the same. I’m not talking homeowner bailout! What we need is a fair market write down over inflated house values for houses that are primary residence.For example, If you bought a house for $300,000 (but that was an inflated price based on the manipulated markets that helped drive prices unreasonably high) I don’t believe you should be on the line for the manipulated portion of the value of that house. Much the way the Bank can write down the debt, so should the homeowner. So let’s say that house is only appraising at $200,000 now, I believe the new mortgage payments should be adjusted accordingly. …and the $100,000 difference should sit in a receivable status in the event that the value increase or a sale was able to produce more then the $200,000. (So caveats should be drawn is, such that if an owner got lucky and sold that house for $350,000, they would have to pay the remaining mortgage on the $200,000, and the outstanding receivable of $100,000 before seeing a profit)I believe this will stem foreclosures, or people walking away from negative equity situations. By keeping these people in houses, and giving them the chance to build equity, we can reverse a serious downtrend in the confidence of this market. At the same time, this will also decrease the houses being added to the existing glut that already exists.Fourth: Immediately lift our trade sanctions with Cuba. They are dated. Open a door of trade with their gov’t. Provide them with US automobiles to replace the 1950’s Studebakers they are currently driving. (this can help lift the US auto market a little bit),. In addition, it will remove the potential of having an “enemy” landing strip so close to the US border.OK… it’s 3am NYTime. I gotta get some sleep. BE SAFE PEOPLE! …and keep the faithMiss Americap.s. LB, you couldn’t have nailed the 23A thing better! I’ve been screaming about this all day. I’ve talked to a couple of lawyers about this so far… and they just don’t get it?? I feel like they’re taking crazy pills!p.p.s. Thank you for everything you have taught me Nouriel. I hope the Stern Business school pays you the respect you deserve! Your predictions and analysis are LEGENDARY, and will be much of the ground work for many books in the future analysis of the current wreck.I’d love to meet you sometime. How about a night out? The bloggers here would
flock to Spring and Varrick for a low key night out. This is my formal offer to set it up. Your drinks will be on me.

MA youre hyperventilating!!!bad omen..bad bad omen..

an interesting comment just received from a colleaguewho saw this ‘mess’ emerging four years ago:”These are very interesting times. What surprises most is how disorganized and clueless they all are.I just could not believe that Thaine pulled off this deal for Merrill. And the way he did it, at a shark’s gala party called by the Fed to save Lehman. But it looks like the market does not believe this either, BofA fell 20% and the arbitrage gap is still huge.They are allowing deposits to be used to prop up investment banking. I don’t know what they are thinking. This is going to give rise to a run on the big ones. Starting with BofA that requested this, then moving to Citi and Chase.100K limit? Sounds like a good idea, but companies have larger accounts to pay salaries etc…Did you see the CDS spreads on Goldman and Morgan Stanley? They cannot carry on business with funding costs at those levels, they’ll have to merge with a commercial bank in a hurry.”

This maybe a stupid question but I am trying to learn as much as I can about all of this since it seems possible we are witnessing a very important part in world history.So the fed had bought paper practically worthless with 2/3 for its available funds and yesterday said it will buy more, does that effect treasury bills ? if so, how?

@GuestIt doesn’t necessarily affect Treasury Bills but it sure impacts the US Dollar. The USD is now officially backed by worthless securities instead of US Treasuries (fiat currency system).

LB, what you say is just “for now”. Things can rapidly change in the near future. Perhaps with the UK Govt taking on mortgages? Laws can be changed to prevent a revolution or public scare. Should lawlessness be just a matter of time, I’d be happier for laws to change straight away, as there’s no ethical difference if you commit a crime today or in 5days time.

Gold is a minor commodity. But its historic value has been as money. I think it may be transitioning back to its primary monetary function.

Mr. Market needs another shot… NOW! Any guess on the size of the rate cut? 0.50%, 1%, 2%, 3% (why not?).[AIG] American Int’l Group shares fall 40% in pre-open, to $2.85

Holy Irving Fisher, Batman!From the front page of today’s Wall Street Journal:”A host of potential landmines remain. Banks are increasingly hoarding cash, curbing lending at a time when the economy is slowing. They are also starting to dump assets to raise capital. A mass sale of assets by the likes of AIG and Lehman could flood the market, reducing their value and leading to additional losses for financial institutions…”Debts high -> hoard cash and sell assets to cover debt obligations -> reduced value of assets from everyone selling at once -> exacerbated balance sheets for everyone -> further cash hoarding and selling assets -> repeat to achieve uncontrolled downward spiral in worldwide financial system and global economy as a wholeSWK

Because the Fed acts in secrecy (See MA’s post above), we do not know exactly what the Fed has taken in through its discount window. However, a reasonable person can assume it’s the same level 3 assets that have been selling for $0.05 on the dollar in other venues.

One step closer to the amero, the plan is being executed to perfection. I am not a tinfoil hat kind of person, but things sure are aligning in ordered chaos.

Congratulations Mr. Roubini- you have become a celebrity! Seems like everyone wants to hear what you have to say now, better late than never.

MA:Excellent post! Thank you for taking the time to post it. I too want to thank NR and others on this blog that have helped more shape my understanding of the events unfolding in front of us.I cannot talk with anyone about this around me. They don’t have a clue and when I try to explain, their eyes glaze over and………that’s it. They really don’t want to know. They just want to know “it’ll be alright” so they can go about their business. Sad really, when you think about it.When I think of al the rules/laws that are being broken by TPTB and WS, I cannot believe we as a people just let it happen. Things are going to have to get a lot worse before they change.Good luck to all!

Hey there LB…That “reactive stance” actually bodes well for the US.From the US side, we sell foreign assets, to buy US assets, and USD at distressed levels for the purpose of recap. That in turn, drives those foreign markets down faster. Once “stable”, the US side can repurchase fgn at a deeper discount.As I stated the other day… The speed of orientation to this phenomenon by the US, and the “reactive” global markets, are the most clear display of the OODA loop theory at work. John Boyd has a great deal of my respect.Miss America

Now I may be blind but I’ve read The Federal Reserve Act multiple timesReading any regulatory statute and thinking you have the substance is like reading the cover and the index page. GOt to go read all the rules and regulations (Look in the Federal Register) – and that is a huge project and too ttedious for words unless someone is paying me my old hourly fee.

do you think the markets have factored in a rate cut of 25 basis points already

New Thread.

I agree,look at FDIC’s current quarterly report & balance sheet.