Archive for October, 2008

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The silent bailout

Wednesday, October 15th, 2008

For many the subprime debacle and resultant credit crunch leading to the $700 billion government bailout of our credit markets began just a short while ago when The Treasury and Fed could not find a buyer for Lehman Brothers Holdings pushing it into bankruptcy and leading to the aquisition of Merrill Lynch by Bank of America. That was the beginning of a crazy week which saw the government take over Fannie Mae, Freddie Mac and insurance giant AIG. The news of Lehman and Merrill hit Monday Sept. 15 and the Treasury put out word that a bailout was in the works by that Thursday.

Everyone knows what happened from there but few seem to remember the steps taken along the way.

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Market mauled

Tuesday, October 7th, 2008

The market slide that began on Monday continued today as the Dow fell more than 500 points and the S&P reached a five-year low. Jack Broz, Chicago Board of Trade member and president of the Marlin Letter, says that yesterday “Europe got everybody spooked and that started the early weakness. Once trading got to 10,000 in the Dow, everyone got nervous and it just unraveled from there.”

Bill Adams, managing director of JKV Global, says that the whole commodity market turned over yesterday, and there was a huge flight to cash and to bonds. “This market is all over the place and until we get clear and specific direction, it’s going to be hard to manage,” he says, adding that in the current environment commodities are more important than ever. “Everything’s going to go down to the level that the consumer can pay for. As soon as we find that level, that will provide a good indication of where we’re headed from there.”

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Massive sell off

Monday, October 6th, 2008

The Dow Jones Industrial Average today closed down 369.88 points today. At one point the index was down 800 points, closing below 10,000 for the first time in four years at 9955.50.

“I don’t think anybody expected to walk into this today,” says OptionsXpress futures analyst Robert Kurzatkowsi. “Everybody knew Europe was bad and was going to feel the crunch of this financial mess. Everybody here expected them to be much more proactive about trying to ease the crisis over there.” The European Central Bank last week declined to lower interest rates, but since that initial hesitancy, Germany is trying to construct “a national financial shield,” he says and the United Kingdom has announced that it will cooperate with the United States to help ease the credit crunch.

During this time of remarkable volatility, brokerage firms and exchanges are constantly revising margin requirements.

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Focus

Wednesday, October 1st, 2008

Pay no attention to the value of housing in this crisis brought on by the collapse of the housing bubble, apparently it has become irrelevant. The credit crisis has taken an odd turn in the last couple of days. It turns out that that once the focus is on Washington, all other factors fall by the wayside.

On Monday when Congress failed to pass the $700 billion emergency bailout, the Dow dropped 777 points and the “dire consequences” were at hand. Maybe. But if people really believed things had gotten to a critical point how is it that the reason cited by some in the Republican camp for failure to support the bill was that Speaker Nancy Pelosi (D Calif.) said mean things about them. The truth is probably that the votes were never there but that someone would suggest such a thing in a crisis is a testament to how out of touch our leaders really are.

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Posted in Regulatory/actions | 1 Comment »

Congress: Just like us

Wednesday, October 1st, 2008

As the Senate gets set to vote after sundown today on the revised economic bailout, it’s been said that average Americans are confused about what the rescue plan really means. A new study that will probably come as no surprise to futures industry experts and our frequent blog commenters reveals that Congress could be just as confused about complex economic issues as the average person. According to the Center for Economic and Entrepreneurial Literacy (CEEL), 8 in 10 current members of Congress have no background in business or economics. The study says less than 15% of current members have degrees in business, economics, or finance, and more have degrees in science (7.5%) versus economics (6.7%). The CEEL has started a campaign to promote economic literacy to Congress and the general public, advertising its Web site, econ4u.org, at the D.C. subway station that serves Congress. With Washington getting more and more involved in the markets and increased regulation likely coming down the pike as a result of the current meltdown, it looks like Congress is in desperate need of this economic cram session.

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