[dohboi]

I noted this elsewhere, but did anyone else notice that British banks completely stopped loaning to each other for a while on Monday? Is such a spontaneous freeze common?

Bank-to-Bank

[MrBill]

Not only not lending to one another, but putting out sell recommendations on their bonds, which is, of course, their alternative source of funding.

$this->bbcode_second_pass_quote('', 'I')nvestors should sell the bonds of Lehman Brothers Holdings Inc. and the three other largest U.S. brokerages because investors are likely to lose confidence in the industry, according to analysts at HSBC Securities.

Analysts Van Hesser and Daphne Feng in New York cut their fundamental recommendation on Lehman to ``underweight,'' indicating investors should hold fewer of the broker's bonds than indicated by benchmark indexes. They instituted a ``trading sell'' recommendation on the bonds of Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co. and Lehman.

[efarmer]

Mr. Bill, you always seem to spoil us with carefully reasoned
and plausible answers to impossible questions.

With the present scale and depth of the financial crisis
could you give us your best guess as to if a stable
regrouping point is:

Months Away

Years Away

Decades Away

Never

That's yet another dumb question efarmer, go piss off

[LoneSnark]

$this->bbcode_second_pass_quote('', 'I') noted this elsewhere, but did anyone else notice that British banks completely stopped loaning to each other for a while on Monday? Is such a spontaneous freeze common?

[MrBill]

$this->bbcode_second_pass_quote('efarmer', 'M')r. Bill, you always seem to spoil us with carefully reasoned
and plausible answers to impossible questions.

With the present scale and depth of the financial crisis
could you give us your best guess as to if a stable
regrouping point is:

Months Away

Years Away

Decades Away

Never

That's yet another dumb question efarmer, go piss off

[efarmer]

We don't like our Mr. Bill, we love him. I had to think hard as I read
your response, in fact I thought so hard that I smelled rubber burning
and stopped to play with my yoyo and cool down twice.

So if I read you correctly Judge Dollar is sentencing us to money
jail for several years with our being eligible for parole after two
on good behavior.

If I end up sharing a cell with Greenspan I'm going to bitch slap
him every time he opens his yapper.

[MrBill]

Inflationary response:
$this->bbcode_second_pass_quote('', 'I')f the United States bails out the financial system by buying mortgage debt directly, the price just might be surging inflation and a dollar crisis.

Calls are increasing for the government, either directly or via the Federal Reserve, to cut the knot of the credit crisis at a stroke by buying up mortgages that banks and investment banks are finding difficult to finance.

[deMolay]

As a fund manager I know once mentioned: "I'm diversifying from gold... into canned goods and guns"

[dohboi]

LS wrote (in response to my asking how often banks stop lending to each other):

"Every decade or so. Why?"

Because I wanted to know--not being snarky, this time.

So basically every time there is a major recession?

I guess I just wanted to know what kind of a signal this might be. We are seeing some actions and events not seen since the great depression. Just wondered if this was another one, or something seen more frequently.

So thanks for the info, LS. Would you care to suggest any source where I might read up on this curious aspect of financial history?

[LoneSnark]

Alan Greenspan's latest book has a very good insider perspective of the 1987 credit freeze. But it is an odd feature of economics literature that while stock markets have been studied to death, there has been very little academic study of the financial shocks you are addressing. I suspect the reason is banks and other financial institutions tend not to be eager to share their internal workings with outsiders, especially during times of stress.

That said, such events have been studied from a historian perspective. My favorite book in this vein was "Manias, Panics, and Crashes: A History of Financial Crises" which covers the occurance of such events going back to Roman times.

[MrBill]

I am enjoying Michael Pettis' The Volatility Machine that deals with liquidity traps and emerging market crashes. In terms of studying the mechanics of past financial crashes going back to 1820s up until 2001 when the book was written the lessons learned applied the United States is like reading tomorrow's newspaper. Great stuff. It is like knowing the end game in advance. I can recommend it as a good read as it looks at these crashes from a corporate finance perspective and not a flawed development model one. Very refreshing analysis written by a Wall Street bond trader turned Ivy League academic. Cheers.

[dohboi]

Cool. Thanks, LS and Mr. B. More fodder for my reading list.

I wonder what the coming week has in store for us?

[MrBill]

$this->bbcode_second_pass_quote('dohboi', 'C')ool. Thanks, LS and Mr. B. More fodder for my reading list.

I wonder what the coming week has in store for us?

[patience]

MrBill,
The dollar regained a point, and short term US treasuries went NEGATIVE yield. I read that this indicates a flight to safety for big investors, those too big to simply go to cash. Theory was that ABCP is "radioactive-no one will touch it". Thoughts?

[MrBill]

Mainly a technical correction to overbought/oversold conditions in the various asset classes. I would not read too much into this. Bonds were overbought. Stocks were oversold. The US dollar was oversold relative to many other currencies. And commodities were overbought.

This correction was a chance to address those conditions as the market succumbs to a false sense of security following on the heels of the relief rally surrounding the Fed's cut and bailout of Bear Stearns. But that still does not address the underlying problem is that firms like BS were sitting on trillions of derivatives.

$this->bbcode_second_pass_quote('', 'D')iane Garnick, an investment strategist at Invesco Ltd. in New York, comments on her outlook for U.S. financial markets. She spoke in an interview.

``The crisis is not over'' even though the Federal Reserve added liquidity to the markets, because ``what we are really focused on here is the fiscal crisis, and the credit crisis.''

``The individual consumer has borrowed against next year's earnings -- and two years, and five years -- and they have spent it all this year, last year and the previous year.''

``This is not an easy solution. The Fed cannot just step in and say `ah, excess liquidity will make all of this go away.' These problems are bigger than just simply a liquidity issue.''

[drew]

Thanks, Mr. Bill, for the rosy optimism. You, as usual, made a good case for the times ahead.

As you'd say 'keeping the powder dry'

(I'll be having a look at those graphs in more detail when I get reading glasses!!)

Drew

[pedalling_faster]

$this->bbcode_second_pass_quote('MrBill', 'A')s someone noticed here, the US reporters seem to talk about three times as quickly

[Cid_Yama]

As we all know, the G7 financial authorities are fighting tooth and nail to rescue their financial systems. The bottom line of it is that they are INSOLVENT and require balance sheet repair of epic proportions. It will require a combination of MONEY printing, hocus pocus, smoke and mirrors and changing the rules -- whether it be the changing of balance sheet requirements at Fannie and Freddie, the expansion of the home loan banks, term lending facilities of one sort or another or opening the borrowing windows at the fed wider and wider in terms of eligible securities of participants (investment banks) which can access the lending.

In the last 6 weeks we have seen over 1 trillion dollars in combination of all of these things added to the pool of liquidity to underpin asset markets. Now comes the latest twist: “The return of marking to model” which was ended last November. Tedbits wrote about it at the time and it has bitten the banks and financial industry’s balance sheets HARD.

This is a picture of financial industry and banks’ balance sheets VAPORIZING before our very eyes. So what do the financial and banking authorities do? What else? Rewrite the regulatory guidance in respect to how to value them for REGULATORY reporting purposes. The SEC has issued an opinion letter informing financial and banking companies of how to deal with these thorny balance sheet and accounting compliance issues by telling them if they have a problem with the mark to market valuations then declare the prices as the result of forced liquidation and ignore them.

And how did they sidestep the horrendous losses due to be reported in the next three weeks from the 1st quarter? By backdating the interpretative notice back to January 1. Abracadabra: poof and money reappears on the balance sheets, hocus pocus of the highest order. That rule saw the light of day for a total of 45 days!!! Now it’s history.

link