[Cid_Yama]

This on Automatic Earth:

Ilargi: The talk has changed to ”an emergency bank holiday”. By now, anything is possible. You'd have to be a fly on the wall in the talks between the Fed, the Treasury and the major banks, if you'd want to know. What's certain is that the Fed is fast running out of instruments.

It hardly has the funds to pump in the next $500 billion, no rate cut has had any effect beyond a few hours, Bear Stearns failed the day after the last $200 billion was made available, and perhaps most ominously, that $200 billion won't even really be there till March 27. They very simply and surely don't have that long. Bear went within 1 day. March 27 is 11 days away. You don't have to be that fly on the wall to understand that extreme, drastic and severe measures are being discussed right now. My question, which I don't pretend to have the answer to:

Will the doors open on Monday? All of them?

Chris Whalen, of the Wall Street consultancy Institutional Risk Analytics, said: “This is going to go all the way up the chain. There is a risk that all broker dealers are going to become an endangered species if the credit crisis is not sorted out. If they can’t fund themselves, they will have to shrink. All the other firms are in danger, too.”

He said that should the US Federal Reserve, the US Treasury and the Securities and Exchange Commission not devise a broad rescue plan to address the credit turmoil on Wall Street this weekend, “I would not be surprised to see an emergency bank holiday announced. That hasn’t happened since Roosevelt.”

During the Depression, 75 years ago almost to the day, Franklin Roosevelt declared a four-day bank holiday, which stemmed a frantic run on banks. Mr Whalen added that should banks such as Lehman continue to be unable to sell the billions of dollars of mortgage-backed securities held, they were doomed. He said: “Broker dealers have to be able to get rid of assets. If they are illiquid, they die.”

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One UK economist warned that the world is now close to a 1930s-like Great Depression, while New York traders said they had never experienced such fear. The Fed's emergency funding procedure was first used in the Depression and has rarely been used since.

A Goldman Sachs trader in New York said: "Everyone is in a total state of shock, aghast at what is happening. No one wants to talk, let alone deal; we're just standing by waiting. Everyone is nervous about what is going to emerge when trading starts tomorrow."

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While the failure of one major-bracket investment bank to get funding on its own is bad enough, worse is yet to come. Broker/dealers are entirely dependent on ample short term loans and trading lines to carry their securities' inventory and to clear transactions. Any hint of trouble and counterparties pull their lines and customers pull their accounts. The end comes instantly, usually no more than a few hours: Sudden Debt, to coin a phrase*..

* Yes, hours. To provide an example, during the 1987 crash my then firm (a major bracket, too) asked that customer margin calls be satisfied immediately - as in "wire or bring a check to the cashier by 2 pm or you will be sold out". Fun, eh? When survival is at stake in the Street, noblesse never oblige.

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[DantesPeak]

On the issue of emergency bank holiday - possible, but not likely Monday.

But arrangements could be made Monday for the disposal of Bear Stearns. Essentially the Fed is already backing up BS's $300 billion in financial assets and $13 trillion in derivatives, through its deal made Friday. The only thing remaining is how to get those assets officially on the books of the Fed without it looking like the US dollar itself was devalued to save BS (the Fed's assets are what back up US paper money, and by extension, all US dollars).

[Dan1195]

I cannot envision the FED doing any kind of Bank Holiday for the simple reason is that if it does this the facade that the economy is just having a bump in the road will come crashing down. The American public in general has very little understanding about the various bailout methods the FED uses and their effect on the economy or the nature of these investment vehicles that have gotten these countries into trouble. Terms like "discount window" and "credit default swap" do not mean anything to most people. But most Americans do know that the last Bank Holiday in the U.S. was during the Great Depression and would know immediately that the situation is very very bad.

[MacG]

$this->bbcode_second_pass_quote('Dan1195', 'I') cannot envision the FED doing any kind of Bank Holiday for the simple reason is that if it does this the facade that the economy is just having a bump in the road will come crashing down. The American public in general has very little understanding about the various bailout methods the FED uses and their effect on the economy or the nature of these investment vehicles that have gotten these countries into trouble. Terms like "discount window" and "credit default swap" do not mean anything to most people. But most Americans do know that the last Bank Holiday in the U.S. was during the Great Depression and would know immediately that the situation is very very bad.

[RdSnt]

Indeed, and I'm not sure a bank holiday would work this time around. Meaning that with debit cards and most transactions being through credit cards, the US economy would come to an immediate halt. The last emergency holiday was to prevent panic withdrawals of accounts used to hold money not immediately needed. Now a days bank accounts are active on a daily basis for daily needs.

[RedStateGreen]

Yeah, not that many people actually pull out cash on a given day anymore. Making that kind of announcement would crash the game for sure.

[benzoil]

Fed cuts rates on Sunday. JP Morgan buys Bear Sterns for 10% of its value just one week ago. Asian markets down 3% in first 20 minutes.

Things look great so far. Maybe they SHOULD have declared a holiday....

http://www.peakoil.com/modules.php?name ... ic&t=37760

http://www.bloomberg.com/apps/news?pid= ... refer=home

http://www.bloomberg.com/apps/news?pid= ... refer=home


Have a good time on Monday.

[cube]

$this->bbcode_second_pass_quote('DantesPeak', 'O')n the issue of emergency bank holiday - possible, but not likely Monday.

[Cid_Yama]

<i>Essentially the Fed is already backing up BS's $300 billion in financial assets and $13 trillion in derivatives</i>

Tell me where the Fed has $13 Trillion to back up anything.

There will be no bailout. Game over.

You obviously have no grasp of how big this thing is. It would be like bailing out the Titanic with a Teacup.

[Cid_Yama]

<b>JP Morgan willing to take Bear Stearns off of investors hands for $2 a share</b>

JPMorgan Chase has said it is to buy Wall Street's fifth-largest investment bank, Bear Stearns, for <b>$2.00</b> a share - a fraction of its previous value.

<b>Duh! Since it closed on Friday at $26.85, down 53% of it's value from the day before.</b>

Lets all try to hide the fact that the sky is falling!

http://news.bbc.co.uk/2/hi/business/7299938.stm

[Pretorian]

$this->bbcode_second_pass_quote('Cid_Yama', '&')lt;i>Essentially the Fed is already backing up BS's $300 billion in financial assets and $13 trillion in derivatives</i>

Tell me where the Fed has $13 Trillion to back up anything.

There will be no bailout. Game over.

You obviously have no grasp of how big this thing is. It would be like bailing out the Titanic with a Teacup.

[Cid_Yama]

<i>The Fed can take any amount of money out their pocket-- they make them. Name the number and they can have it in a minute. All it takes is a few mouse clicks.</i>

Yeah, Right! The USD does not exist in a vacuum. Do you think the rest of the world will sit by while the Fed makes the dollar worthless?!

Give me a break. This is end game and we have lost big time.

Just see if anyone is willing to take dollars or US debt after tomorrow.

What DOES happen when the US cannot borrow to finance it's debt?

[cube]

$this->bbcode_second_pass_quote('Pretorian', '.')..
The Fed can take any amount of money out their pocket-- they make them. Name the number and they can have it in a minute. All it takes is a few mouse clicks.

[Starvid]

$this->bbcode_second_pass_quote('Cid_Yama', 'J')ust see if anyone is willing to take dollars or US debt after tomorrow.

[Pretorian]

$this->bbcode_second_pass_quote('cube', '')$this->bbcode_second_pass_quote('Pretorian', '.')..
The Fed can take any amount of money out their pocket-- they make them. Name the number and they can have it in a minute. All it takes is a few mouse clicks.

[Pretorian]

$this->bbcode_second_pass_quote('Cid_Yama', '&')lt;i>The Fed can take any amount of money out their pocket-- they make them. Name the number and they can have it in a minute. All it takes is a few mouse clicks.</i>

Yeah, Right! The USD does not exist in a vacuum. Do you think the rest of the world will sit by while the Fed makes the dollar worthless?!

[DantesPeak]

$this->bbcode_second_pass_quote('Cid_Yama', '&')lt;i>The Fed can take any amount of money out their pocket-- they make them. Name the number and they can have it in a minute. All it takes is a few mouse clicks.</i>

Yeah, Right! The USD does not exist in a vacuum. Do you think the rest of the world will sit by while the Fed makes the dollar worthless?!

Give me a break. This is end game and we have lost big time.

Just see if anyone is willing to take dollars or US debt after tomorrow.

What DOES happen when the US cannot borrow to finance it's debt?

[BillPeakOil]

It sure seems like markets should react heavily to the Bear Sterns deal. If not you've gotta wonder who's pulling the strings in the market to keep that from happening!

[Cid_Yama]

Lehman Brothers down 20%, looks like they're next.

Dow is heading back lower. Other indexes have been down significantly all morning. looks like there was a lot of buying in the Dow industrials to prop that number up, because that's the number people watch.

[RdSnt]

There was a bit of a bump up to the US markets early but they are heading down again, as would be expected.
Likely because people are realizing the JPMorgan theft isn't actually solving anything. The pile of derivatives is still there.
I see this solution as making the situation much worse. That 13 trillion has now effectively been cut loose from anyones grasp.
JP is not about the claim responsibility for it, the Fed is back potential losses with loans, but that doesn't take the derivatives out of play.

So, the mess that has been created by packages mortgages has now got a whole other layer of obscurity added on.