U.s. Banking Crisis: Capitalism "gone Wild"?

[Naam]

OK - I have a quesition, apologies if it has been covered already.

The banking system is being part-nationalised. Nearly every government is pushing for tighter regulation and therefore de-leveraging. So, banks have leveraged up a couple of trillion to 50 (estimate). If government calls for say max 2.5x leverage then what will happen to the the remaining 45tn ? Will it disapear? Does it even exist? Who will pay ($7500 for every man woman & child in existence)?

ace what absolutely incredible and fascinating information. I would like to know more about this. Can I ask where you saw these figures ?

the figures Ace quoted are correct Midas. each and every bank worldwide is leveraged a multiple based not only on its capitalisation but also based on the deposits of its clients. but there is no way to introduce suddenly a maximum leverage by legislation. existing leverage has to be unwound in an orderly manner or we'd face a crisis which would dwarf the present one. but even if the latter (orderly unwinding) was the case, the financial system, as we know it, would cease to exist.

Thanks Naam ! No its just that I had never heard of it possibly being that high.

What an unbelievable mess ?

then i better not tell you the estimated total amount of derivatives floating around (except if you ask). i don't want to spoil your relaxing weekend

A couple of years ago the total nominal ammount of swaps and derivatives worldwide combined was around $350 trillion U.S., I believe that the number escalated to north of $600 trillion U.S. earlier this year What with all the hedge funds and investment banks going under as of late the number currrently could be back under $600 trillion U.S. I still think that even at under $600 trillion U.S. it is still over 10 times what the entire world GDP is! A very special thanks goes to the braintrust at J.P.Morgan and Company for coming up with CDS's back in the mid 90's, and of course to the U.S. President (slick willie)and key members of Congress (lets see Chris Dodd and Charlie Schumer come to mind) at the time who were in the back pocket of Wall Street and felt that no transparency, oversight or regulation was really needed!!!

1. It will be interesting to see what kind of bailout plan the E.U. and G.B. come out with next week

2. Why do these things always occur in October, it really puts a damper on my birthday!

1. lame ducks could do most probably better as the meeting in Paris yesterday proved Sarkozy is still beating up his italian wife and the now even lower hanging cheeks of our "chancellorette" Merkel would be the pride of any pit bull.

2. lucky me. i was born in november

[LaoPo]

lame ducks could do most probably better as the meeting in Paris yesterday proved Sarkozy is still beating up his italian wife and the now even lower hanging cheeks of our "chancellorette" Merkel would be the pride of any pit bull.

Probably; we shouldn't forget however that the big EU 4, France, Italy, UK and Germany are indeed lame ducks because the EU consists of 27 members and not 4 big ones. The individual problems of the 4 vary also enormously so every individual country is scared to death that the other country would consume more Bail-Out money than the other.

An idea to be a failure from the beginning.

On a sideline: Finance Minister Wouter Bos of The Netherlands filtered his idea of setting up a large ''rescue'' fund of several hundreds Billion Euro last week to a few EU insiders of which Sarkozy was one.....and guess who ran away with the idea, calling for an IMMEDIATE meeting of the big 4 ?

I wonder who's ego is bigger: Sarkozy's or Berlusconi's; the way a smiling Berlusconi slapped Sarkozy on the shoulder when he came in last during the meeting (probably had an encounter on a toilet somewhere ) was of a rare kind of Mussolini like behavior.

LaoPo

[LaoPo]

Side note but I think it was lannarebirth who mentioned this site?

http://jessescrossroadscafe.blogspot.com/

I just wanted to say I find it very informative & easy to read.

Lots of good entries.

From the same link...THIS is what happens if all credit lines close....a brilliant found picture. Can't say it better:

LaoPo

[lannarebirth]

Now Wall Street may shun $700bn bail-out

James Doran, New York

The Observer, Sunday October 5 2008

Fears are mounting that many Wall Street banks and financial firms will refuse to participate in the US government's $700bn bail-out package, leaving global markets and world economies in a perilous state for months to come.

'There is a growing feeling that banks ... might instead decide to tough it out,' said Thomas Caldwell, chairman and CEO of Caldwell Financial, a $1bn-plus fund manager.

http://www.guardian.co.uk/business/2008/oc....street.bailout

[cclub75]

I wonder who's ego is bigger: Sarkozy's or Berlusconi's; the way a smiling Berlusconi slapped Sarkozy on the shoulder when he came in last during the meeting (probably had an encounter on a toilet somewhere ) was of a rare kind of Mussolini like behavior.

LaoPo

The Europeans are pathetic... Because they are lying as much.. as the americans.

You remember the 35 billions Euros bailout for the german bank Hypo ?

Well today they have to "rescue the bailout" ! Private banks, who were supposed to bring 8 billions... walked away ! Too afraid...

Hypo lied.... They all lied... The hole is huge. Much bigger than 35 billions.

Hypo Real Estate's financing needs exceeded the bailout plan guarantee, Germany's Die Welt reported yesterday, citing unidentified people in the finance industry. It will need 20 billion euros by the end of next week and 50 billion euros by the end of the year, according to the newspaper. As much as 100 billion euros may be needed to shore up the bank's finances by the end of 2009, Die Welt said.

Berlin will have to pay. Alone... They will do it, probably. But what they will do with the next bank that will be in trouble ?

That's the core of the issue : the more they want to save every banks... the more they push some banks into the hole.

[midas]

This article ( link below )is in todays Sunday Times online about whether we could

be facing another 1930 style depression - its worth reading

This passage is food for thought :-

" White – a genial Canadian who spent time at the Bank of England as well as

more than 20 years with his own country’s central bank – joined the BIS in the

mid1990s. Almost immediately he and his colleagues began to be worried about

what was happening. Global stock markets, in particular, appeared to be too strong

in relation to underlying economic developments, and property prices were soon to follow.

White’s views were prescient but were ignored. Parker, writing his book on the Great

Crash and its consequences, questioned many senior bankers about parallels with the

1930s “but they didn’t see it at all”.

The closest parallel with that era, he thinks, has come in the past few weeks with

a “domino” series of events, including the US government’s rescue of Fannie Mae

and Freddie Mac, the failure of Lehman Brothers, the forced merger of

Mer-rill Lynch, the rescue of HBOS and nationalisation of Bradford & Bing-ley,

the bailouts of the European banks Fortis and Dexia and the struggles over

America’s $700 billion “troubled asset relief programme”.

“It is when the unthinkable becomes routine that the parallels become

strongest,” he says. “That happened in the early 1930s and it has

happened time and again in the past two to three weeks.”

http://business.timesonline.co.uk/tol/busi...icle4880829.ece

[siamamerican]

i think both of you have a valid point. it is a fact that the lion share of income tax is paid by the non-average Joe (a similar situation exists in many countries). but besides the taxes to be coughed up by those who are taxed heavily Joe Mainstreet will feel the side effects too and quite harsh because his wallet contains less green/black printed paper to buffer (for example) rising inflation.

Agree, I think what I was trying to say is that the wealthy keep the lights on in America. The poor definitely suffer the most in bad times and, IMO, over-regulating greed and risk will only hurt the poor the most.

If the rich make less money, who will support the poor. Capitalism, in all it forms, has worked so well the last 300 years because the wealthy (greedy -LOL) support the countries infrastructure and foot the welfare bills.

[siamamerican]

You are twisting my words. You cast your words as if I said that European countries do not allow senior citizens to buy new mortgages above 60 or older. As if it was by law...You know very well that I didn't say that.

I said it will be impossible for them to get mortgages but a bank will never say that it is because of age.

LaoPo

Now you are flat out not telling the truth. Below is what you wrote a few posts back. Memory slipping a little? Maybe TV should not allow older posters to participate; just as you claim Europe doen't allow them to obtain mortgages. Also, what are you saying above. As I understamd it, you are telling us that banks won't give loans to seniors and lie to them, telling them age wasn't the reason. Now isn't that noble of them.

What you wrote:

"In most European countries mortgages are NOT GIVEN out anymore to citizens over 65.....even at 60 or lower in age."

OK ?

LaoPo

Is that how you admit you lied? Posting something confusing doesn't hide the fact that you fibbed. List of countries please that don't give loans to elders?

I'm still appalled with your claim that European banks lie to senior citizens. If it is common sense, as you state in earlier posts, that giving loans to seniors is scandalous, why don't the banks just tell them they are protecting seniors from themselves?

[flying]

Now Wall Street may shun $700bn bail-out

James Doran, New York

The Observer, Sunday October 5 2008

Fears are mounting that many Wall Street banks and financial firms will refuse to participate in the US government's $700bn bail-out package, leaving global markets and world economies in a perilous state for months to come.

'There is a growing feeling that banks ... might instead decide to tough it out,' said Thomas Caldwell, chairman and CEO of Caldwell Financial, a $1bn-plus fund manager.

http://www.guardian.co.uk/business/2008/oc....street.bailout

That is very interesting & if true someone was not telling the truth before

....Duh

If the Banks are capable of toughing it out it will be interesting to watch. But will it also prove the whole 700B bill was a diversion?

[LaoPo]

Is that how you admit you lied? Posting something confusing doesn't hide the fact that you fibbed. List of countries please that don't give loans to elders?

I'm still appalled with your claim that European banks lie to senior citizens. If it is common sense, as you state in earlier posts, that giving loans to seniors is scandalous, why don't the banks just tell them they are protecting seniors from themselves?

Maybe you should feed your piranhas some red meat...maybe they will bite Your sarcastic way of messaging isn't my style Sir; that's why I will ignore you.

My experience being older than you, as well as my roots teaching me style, class and dignity forbid me to bite answering to people like you.

You have -still- a lot to learn but there's alway hope as long as you work hard on your style and class. But...it's hard work.

LaoPo

[Naam]

Berlin will have to pay. Alone... They will do it, probably. But what they will do with the next bank that will be in trouble ?

my opinion is that Berlin will not pay alone Cclub. of course haggling "who pays how much" is going on but i think a solution will be found. we'll know in a few days... if not everybody involved tells us lies again.

[Naam]

Berlin will have to pay. Alone... They will do it, probably. But what they will do with the next bank that will be in trouble ?

my opinion is that Berlin will not pay alone Cclub. of course haggling "who pays how much" is going on but i think a solution will be found. we'll know in a few days... if not everybody involved tells us lies again.

an agreement on Hypo Real Estate has been reached. financial institutions 30 billion, state 20 billion = enough to survive 2008 and in time before today's markets open.

[siamamerican]

Is that how you admit you lied? Posting something confusing doesn't hide the fact that you fibbed. List of countries please that don't give loans to elders?

I'm still appalled with your claim that European banks lie to senior citizens. If it is common sense, as you state in earlier posts, that giving loans to seniors is scandalous, why don't the banks just tell them they are protecting seniors from themselves?

Maybe you should feed your piranhas some red meat...maybe they will bite Your sarcastic way of messaging isn't my style Sir; that's why I will ignore you.

My experience being older than you, as well as my roots teaching me style, class and dignity forbid me to bite answering to people like you.

You have -still- a lot to learn but there's alway hope as long as you work hard on your style and class. But...it's hard work.

LaoPo

OK, you have me figured out. Maybe I should be classy like yourself. Do you remember claiming that I don't think highly of my fellow Americans? Also, do you remember calling American banks criminal for lending to seniors? If that is class, I'll stick with being trash.

Also, don't classy people admit when they are wrong. You claim most European banks don't lend to seniors. To top it off, in lieu of admitting the false claim, you ramble on about how they offer loans to seniors with no intention of giving them a loan. Does this fit into your definition of class.

The problem with you LaoPo is that you hypocritically judge others and in my world that is not a class act.

Edited October 6, 2008 by siamamerican

[philstone]

"the basic mortgage industry situation in Europe is BY FAR not so bad as in the U.S." I have a funny feeling that I will be refering back to this post a few months from now

The Europeans are very good at blaming America and keeping their head in the sand WW I, WW II come to mind. Their banks are more screw up then America however their leading are better lairs The Europeans will be betting America for help soon. Also they are ripe to a Russia take over when Obama becomes President. Europe Wake Up

Edited October 6, 2008 by philstone

[Naam]

The Europeans are very good at blaming America and keeping their head in the sand WW I, WW II come to mind. Their banks are more screw up then America however their leading are better lairs The Europeans will be betting America for help soon. Also they are ripe to a Russia take over when Obama becomes President. Europe Wake Up

:D

[Carib]

"the basic mortgage industry situation in Europe is BY FAR not so bad as in the U.S." I have a funny feeling that I will be refering back to this post a few months from now

The Europeans are very good at blaming America and keeping their head in the sand WW I, WW II come to mind. Their banks are more screw up then America however their leading are better lairs The Europeans will be betting America for help soon. Also they are ripe to a Russia take over when Obama becomes President. Europe Wake Up

You believe in the tooth fairy too ?

[siamamerican]

"the basic mortgage industry situation in Europe is BY FAR not so bad as in the U.S." I have a funny feeling that I will be refering back to this post a few months from now

The Europeans are very good at blaming America and keeping their head in the sand WW I, WW II come to mind. Their banks are more screw up then America however their leading are better lairs The Europeans will be betting America for help soon. Also they are ripe to a Russia take over when Obama becomes President. Europe Wake Up

Phil,

Defnding America doesn't go over well on this forum. Having a few too many drinks and then defending America, is going to end badly. Try posting tomorrow if the hangover doesn't kill you.

[VegasVic]

Is that how you admit you lied? Posting something confusing doesn't hide the fact that you fibbed. List of countries please that don't give loans to elders?

I'm still appalled with your claim that European banks lie to senior citizens. If it is common sense, as you state in earlier posts, that giving loans to seniors is scandalous, why don't the banks just tell them they are protecting seniors from themselves?

Maybe you should feed your piranhas some red meat...maybe they will bite Your sarcastic way of messaging isn't my style Sir; that's why I will ignore you.

My experience being older than you, as well as my roots teaching me style, class and dignity forbid me to bite answering to people like you.

You have -still- a lot to learn but there's alway hope as long as you work hard on your style and class. But...it's hard work.

LaoPo

OK, you have me figured out. Maybe I should be classy like yourself. Do you remember claiming that I don't think highly of my fellow Americans? Also, do you remember calling American banks criminal for lending to seniors? If that is class, I'll stick with being trash.

Also, don't classy people admit when they are wrong. You claim most European banks don't lend to seniors. To top it off, in lieu of admitting the false claim, you ramble on about how they offer loans to seniors with no intention of giving them a loan. Does this fit into your definition of class.

The problem with you LaoPo is that you hypocritically judge others and in my world that is not a class act.

Here here! Its nice to see someone other than myself calling out lao on his B.S. and hypocracy!!!

[harrry]

Not pointing fingers at anyone. Not lending to seniors because of age is discriminatiory and against laws in several countries. Thats why most dont give age as a reason. They have to defend their decision on other factors or there is a liability for very big damages claime for discrimination. Same thing applies for people with disabilities.

[midas]

Here here! Its nice to see someone other than myself calling out lao on his B.S. and hypocracy!!!

Vegas Vic the difference between posts LaoPo has written compared to those you and siamamercian

have contributed is LaoPo provides informative and impartial information in a polite and gentlemanly manner !

I have never seen of his posts attacking or insulting anyone else in this forum unless

he has first been provoked to do so. You Sir have even written negative and personal remarks about

people such as Mark Faber and Jimmy Rogers. Who are you to do that in a public forum

and I wonder what both of these gentleman would make of you after 5 minutes of conversation ?

Regarding siamamerican, he has very frequently posted completely unprovoked insults against a few people in this forum

and for what purpose? It is true I have recently made some stinging remarks back to him

but this was merely in response to insults he launched against me

when I drew attention to some of the serious problems facing America.

I also quoted some books written recently on economics and geopolitics-written

by American authors incidentally. But no doubt you would have something negative

to say about these people also because it seems you are the only worthwhile authority

regarding American affairs on this forum

These problems in your country are not my fault so there was no need for siamamerican to criticize

me for reading this material or indeed for quoting their contents or indeed to refer to me

as anti American . It is futile to suggest I stop reading anything

which paints a negative picture of America which he did last week-a quite bizarre request I would have thought?

Edited October 6, 2008 by midas

[PCA]

"the basic mortgage industry situation in Europe is BY FAR not so bad as in the U.S." I have a funny feeling that I will be refering back to this post a few months from now

The Europeans are very good at blaming America and keeping their head in the sand WW I, WW II come to mind. Their banks are more screw up then America however their leading are better lairs The Europeans will be betting America for help soon. Also they are ripe to a Russia take over when Obama becomes President. Europe Wake Up

Phil,

Defnding America doesn't go over well on this forum. Having a few too many drinks and then defending America, is going to end badly. Try posting tomorrow if the hangover doesn't kill you.

[siamamerican]

Here here! Its nice to see someone other than myself calling out lao on his B.S. and hypocracy!!!

Vegas Vic the difference between posts LaoPo has written compared to those you and siamamercian

have contributed is LaoPo provides informative and impartial information in a polite and gentlemanly manner !

I have never seen of his posts attacking or insulting anyone else in this forum unless

he has first been provoked to do so. You Sir have even written negative and personal remarks about

people such as Mark Faber and Jimmy Rogers. Who are you to do that in a public forum

and I wonder what both of these gentleman would make of you after 5 minutes of conversation ?

Regarding siamamerican, he has very frequently posted completely unprovoked insults against a few people in this forum

and for what purpose? It is true I have recently made some stinging remarks back to him

but this was merely in response to insults he launched against me

when I drew attention to some of the serious problems facing America.

I also quoted some books written recently on economics and geopolitics-written

by American authors incidentally. But no doubt you would have something negative

to say about these people also because it seems you are the only worthwhile authority

regarding American affairs on this forum

These problems in your country are not my fault so there was no need for siamamerican to criticize

me for reading this material or indeed for quoting their contents or indeed to refer to me

as anti American . It is futile to suggest I stop reading anything

which paints a negative picture of America which he did last week-a quite bizarre request I would have thought? No Midas, I think I told you to read some other books - not just anti- American books. You know, broaden that minuscule intellect.

You claim to have made some stinging remarks in regards to me. Huh, please give me example.

You are void of a sense of humor and common sense. You routinely flame Americans as a whole and still haven't got back to me letting know what perfect country you hatched from.

Your complete lack of a grasp of reality is exemplified in the statement you made above: "LaoPo provides informative and impartial information". Are you really that mentally challenged?

[midas]

You are void of a sense of humor and common sense. You routinely flame Americans as a whole and still haven't got back to me letting know what perfect country you hatched from.

Your complete lack of a grasp of reality is exemplified in the statement you made above: "LaoPo provides informative and impartial information". Are you really that mentally challenged?

siamamerican if I appear to you that I don't have a sense of humor, as the UK Prime Minister Gordon Brown said

recently " quite frankly, there is a lot to be serious about " !

But apart from that in any case I'm wetting myself laughing at your pathetic attempts with your ranting on about Midas versus the Great USA as a whole!

Anyway I'm so pleased your avatar is so easily recognisable so from now on I can just skip over your very boring and unintelligent contributions

Edited October 6, 2008 by midas

[siamamerican]

Anyway I'm so pleased your avatar is so easily recognisable so from now on I can just skip over your very boring and unintelligent contributions

OK, can you please do me the same courtesy and add an avatar to your ID. Below is my recommendation.

[lannarebirth]

Funny that the spoiled brat of a stock market does not seem thrilled by the news of the bailout.

I guess the unemployment / loss of 159,000 jobs last month does not inspire.

http://www.forbes.com/afxnewslimited/feeds...afx5505666.html

Also the possible Fed rate change perhaps?

In any case.....

That's what happens when you get rid of the short sellers. Everyone that wants to or needs to buy it is already in. 1065-1070 is 61.8% retracement of rally from 2002. It's a no brainer buy and I expect to see the PPT defend it mightily, but if the CDS auctions don't go well next week, there will be litte they can do including surprise Fed cuts.

I should have noted those were S&P futures levels (currently about 8 points above cash) , which trade not always in line with cash market. Anyhow, this is that zone. If they can't manage to bounce it here, there is something seriously wrong with markets.

Edited October 6, 2008 by lannarebirth

[Naam]

ahemm... cough... cough... Gentlemen TEN HUTT! (for those who have never served it means ATTENTION!) we all have something to contribute and we could [perhaps] learn from each other whether the contributions are factual or plain bullshÍt. facts brought up but unkown to us might make us think. bullshÍt might amuse us. as far as i am concerned i like personal attacks because i consider them amusing and being a Klingon (at heart) i even enjoy them. but we do not learn, do not exchange information when focussing on personal attacks instead of having meaningful discussions. i suggest we turn over to a new leaf, refrain from personal attacks (pulling legs in a friendly manner should be still allowed) and start a new chapter.

agreed or yes!?

[VegasVic]

Here here! Its nice to see someone other than myself calling out lao on his B.S. and hypocracy!!!

Vegas Vic the difference between posts LaoPo has written compared to those you and siamamercian

have contributed is LaoPo provides informative and impartial information in a polite and gentlemanly manner !

I have never seen of his posts attacking or insulting anyone else in this forum unless

he has first been provoked to do so. You Sir have even written negative and personal remarks about

people such as Mark Faber and Jimmy Rogers. Who are you to do that in a public forum

and I wonder what both of these gentleman would make of you after 5 minutes of conversation ?

Regarding siamamerican, he has very frequently posted completely unprovoked insults against a few people in this forum

and for what purpose? It is true I have recently made some stinging remarks back to him

but this was merely in response to insults he launched against me

when I drew attention to some of the serious problems facing America.

I also quoted some books written recently on economics and geopolitics-written

by American authors incidentally. But no doubt you would have something negative

to say about these people also because it seems you are the only worthwhile authority

regarding American affairs on this forum

These problems in your country are not my fault so there was no need for siamamerican to criticize

me for reading this material or indeed for quoting their contents or indeed to refer to me

as anti American . It is futile to suggest I stop reading anything

which paints a negative picture of America which he did last week-a quite bizarre request I would have thought?

Midas you really crack me up Your buddy lao po is one of the most biased among the posters here on TV. He repeatedly brings obscure articles here in order to confirm his world view and often takes selected quotes from news items as well others peoples posts here out of context and reposts them here Lao has frequently leveled insults at myself and any other poster here who has a view that is in contradictory of his. Wise up there Midas, you may be a good friend of lao's but your credibility just went down a couple of notches here

[siamamerican]

ahemm... cough... cough... Gentlemen TEN HUTT! (for those who have never served it means ATTENTION!) we all have something to contribute and we could [perhaps] learn from each other whether the contributions are factual or plain bullshÍt. facts brought up but unkown to us might make us think. bullshÍt might amuse us. as far as i am concerned i like personal attacks because i consider them amusing and being a Klingon (at heart) i even enjoy them. but we do not learn, do not exchange information when focussing on personal attacks instead of having meaningful discussions. i suggest we turn over to a new leaf, refrain from personal attacks (pulling legs in a friendly manner should be still allowed) and start a new chapter.

agreed or yes!?

Agreed, It's fun to let the inner child out at times. I'll stop dishing the crap for a little while.

[lannarebirth]

NY Times

October 7, 2008

Fed Considers Plan to Buy Companies’ Unsecured Debt

By EDMUND L. ANDREWS and MICHAEL M. GRYNBAUM

WASHINGTON — As pressure built in the credit markets and stocks spiraled lower around the world on Monday, the Federal Reserve was considering a radical new plan to jump-start the engine of the financial system.

Under a proposal being discussed with the Treasury Department, the Fed could buy vast amounts of the unsecured short-term debt that companies rely on to finance their day-to-day activities, according to officials familiar with the discussions. If this were to happen, the central bank would come closer than ever to lending directly to businesses.

While the move would put more taxpayer dollars at risk, it underscores the growing sense of urgency felt by policy makers in a climate where lending has virtually dried up.

The plan was being formulated amid cascading losses in global stock markets, as the banking crisis spread across Europe and investors feared dire consequences for the world economy. The Dow Jones industrial average fell as much as 800 points before a late recovery, finishing down 369.88, below 10,000 points for the first time since 2004.

Even before bankers on Wall Street reached their desks, European stocks were plunging. The Russian stock market dropped 19.1 percent, the biggest decline since the fall of the Soviet Union. Major indexes in London and Frankfurt lost more than 7 percent; stocks in Paris fell by 9 percent. Stocks in Latin America and other emerging economies took their worst collective tumble in a decade.

Volatility reached the highest level in two decades, and oil prices fell below $90 for the first time since February.

The contagion showed no signs of stopping when Asian markets opened Tuesday morning as the Nikkei index of Japanese stocks fell 3 percent and the Hang Seng index of stocks in Hong Kong fell 5 percent.

“There is a growing recognition that not only has the credit crunch refused to be contained, it continues to spread,” said Ed Yardeni, an investment strategist. “It’s gone truly global.”

Investors are worried about what the evaporation of credit will do to an already-weakened global economy.

In the United States, consumers appear to be significantly curbing spending; last month, employers cut more jobs than any month in five years. The $6 decline in oil prices, which settled at $87.81 a barrel, stemmed in part from fears that demand will slacken in the face of a deteriorating economy.

The Fed plan is intended to renew the flow of credit on which the economy depends. Under its plan, the central bank would buy unsecured commercial paper, essentially short-term i.o.u.’s issued by banks, businesses and municipalities.

The market for that kind of debt has all but shut down in the last week, with many major corporations unable to borrow for longer than a day at a time, as banks become more fearful of giving out cash. The volume of such debt totaled about $1.6 trillion as of Oct. 1, down 11 percent from three weeks earlier.

These credit fears persisted over the weekend despite the $700 billion bailout package that Congress approved last week.

The cost of borrowing from banks and corporations remained high on Monday, increased in part by a series of high-profile bank bailouts in Europe, where governments scrambled to save several major lenders from collapse.

The United States government appears to be pressing ahead with other radical efforts to shore up the financial system, even wading into corners of the markets where it has rarely interfered.

Buying commercial paper could open the Fed to difficult conflicts of interest, because it would be juggling the goals of protecting its investment portfolio with its traditional goals of promoting stable prices and low unemployment.

“The Federal Reserve really would become the buyer of last resort, trying to jump-start the commercial paper market by taking on credit risk,” said Vincent Reinhart, a former top Fed official who worked under Alan Greenspan, a former Fed chairman, and Ben S. Bernanke, the chairman now.

The Federal Reserve has already stretched its resources to the limit by providing hundreds of billions of dollars in short-term loans to banks, Wall Street firms and money market funds.

On Monday, the Fed announced that it would once again redouble one of its key emergency lending programs, increasing the size of its Term Auction Facility to $600 billion, from $300 billion. On top of that, the central bank plans to provide an additional $300 billion to banks to meet their end-of-the-year cash needs.

To pay for its burgeoning responsibilities, the Fed has no choice but to keep printing more money. To prevent that flood of new money from reducing the central bank’s overnight interest rate to zero, the Fed also announced on Monday that it would start paying interest on the excess reserves that banks keep on deposit at the Fed.

Paying interest on reserves allows the central bank to set a floor on interest rates and retain at least some control over monetary policy.

In its announcement on Monday, the Fed said it would pay an interest rate of 1.25 percent —three-quarters of a point below its target of 2 percent for the overnight Federal funds rate.

But the possibility of propping up the vast market for commercial paper could represent an undertaking even broader than the Treasury Department’s plan to buy as much as $700 billion in mortgage-backed securities.

In statements on Monday morning, the Federal Reserve and the Treasury said they were “consulting with market participants on ways to provide additional support for term unsecured funding markets.”

By referring to “unsecured funding markets,” policy makers signaled that they wanted to intervene directly in the credit markets. Officials said on Monday evening that they wanted to finish a plan as quickly as possible, perhaps as early as Tuesday.

But the effort is fraught with legal complexities. Though the Federal Reserve has sweeping power to create money and lend it out, experts said it was normally prohibited from buying assets that could lose money.

One way around that legal limitation would be to provide money to a separate legal entity that would do the buying and investing on the Fed’s behalf. That would be similar to Maiden Lane Funding L.L.C., a special-purpose entity that officials created last spring to hold $29 billion in hard-to-sell securities from Bear Stearns.

But so far, the myriad efforts by government regulators to shore up confidence have seemed to yield little relief among investors, some of whom believed the actions have taken on a haphazard air.

“People are slowly but surely coming to the realization that playing ‘Whack-a-Mole’ with each of these issues as they arise, on an ad hoc basis, doesn’t get the job done,” said Max Bublitz, chief strategist at SCM Advisors, an investment firm in San Francisco...

The sharp slide on Monday came despite assurances from President Bush that it would “take a while to restore confidence to the financial system.”

“We don’t want to rush into this situation and have the program not be effective.”

[LaoPo]

It wasn't too difficult to see the crisis spreading from the financials into the regular economy. But, I have been wondering what the Government/FED would do in the case serious if Giants like GM, Ford or others would come on the brink of collapse....

Well, the answer seems to be like the NYT article in your previous message, LR....it's UNHEARD of:

Biggest Fed step ever, buy debt from companies

Posted Oct 7th 2008 3:55AM by Douglas McIntyre

In a move that shows the extent of the Fed's concern about the economy beyond the financial sector, the agency may start to buy debt from American companies.

According to The New York Times, "Under a proposal being discussed with the Treasury Department, the Fed could buy vast amounts of the unsecured short-term debt that companies rely on to finance their day-to-day activities." The central bank may buy commercial paper from corporations and municipalities.

The program would push the Fed's intervention too far. In entering the industrial, service, and municipal markets it would violate the spirit of its charter to control economic activity by controlling interest rates and lending money to financial companies which are under some level of regulation which comes directly from the agency.

The broader commercial paper purchases would, in essence, make the agency a local bank for financing such a broad range of business entities that they would no longer have to stand on their own. While it may help many corporations secure short term cash, the Fed has other tools to do that.

The first action which could help the short-term lending markets would be for the Fed to cut interest rates to zero. Banks would have much less risk taking on loans. The Fed could also insist that its short-term lending plan designed to help banks and brokerages come with requirements that some of that money be put into the system in the form of commercial loans.

The new Fed program would go too far by putting its hands into far-flung corners of the economy.

http://www.bloggingstocks.com/2008/10/07/b...ompanies/print/

If this would become factual what will Europe say ?

In fact we would be going into a situation I wrote about earlier.....(a) Government(s) in the world owning hundreds/thousands of Banks and (large) companies and the future is heading towards the situation that everybody works for the Government.

Fiction or Reality ?

LaoPo