The Sky Falls on Wall Street October 12, 2008
Posted by dogmatix76 in Subprime Crisis, Wall Street.Tags: Financial Failures, Wall Street
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The week started with hope for a U.S. plan to calm world stock markets. By Friday, investors wondered if anything could stop the slide
A bronze statue of a bull fighting with a bear is displayed at the Museum of American Finance on Oct. 7 on Wall Street in New York.
Stupefying. Dizzying. Deeply unsettling. The panic that swept the global financial markets in the past five business days, Oct. 6-10, will go down in history—either in its own right or possibly as a prelude to something worse.
The Standard & Poor’s 500-stock index suffered its biggest weekly decline since 1933, and markets from Japan to Brazil to Russia tumbled as well (BusinessWeek, 10/9/08). What exactly happened, and what does it mean? It’s worth taking a look back at the tumultuous five days to see what lessons can be drawn and perhaps get a hint of what might come next.
The Trouble with Paulson’s Bailout October 4, 2008
Posted by dogmatix76 in Subprime Crisis.Tags: Financial rescues
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The Treasury Secretary’s $700 billion initial plan fails to give financial firms the incentive to reform and risks rewarding those who made the biggest mistakes
Is this really the best way to spend $700 billion? Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are pressing Congress to enact without delay their hugely expensive plan to vacuum up devalued mortgage-backed securities and other toxic assets. If the plan isn’t passed, Bernanke warned the Senate on Sept. 23, “the economy will just not be able to recover in a normal, healthy way.”
But there’s growing concern that the plan offers a small bang for big bucks. Hard-won experience in the U.S. dating as far back as The Great Depression—and in other countries as diverse as Japan, South Korea, and Mexico—shows that the kind of approach that Paulson and Bernanke are pushing could fail to get the U.S. economy moving again. That is a scary prospect. Because if all $700 billion buys is a bunch of weak financial institutions that have enough money to survive but not thrive, there will be a wave of anger from the taxpaying public that will make today’s mounting restiveness seem mild.
Credit and blame October 4, 2008
Posted by dogmatix76 in Subprime Crisis.Tags: Financial Failures
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From The Economist print edition
A must-read on the origins of the crisis
The Bubble Game
ANOTHER week, another drama. The unveiling of the second bail-out plan for Fannie Mae and Freddie Mac on September 7th—to say nothing of the dwindling fortunes of Lehman Brothers in the succeeding days—was a reminder that the credit crunch is proving infuriatingly difficult to bring to an end.
The crunch has lasted long enough to spawn its own publishing mini-boom, as authors have raced to give their diagnoses in print. George Cooper, a strategist at JPMorgan, an investment bank, has produced by far the best so far*, skewering both academic orthodoxy and central-bank policy in the process.
The problem, says Mr Cooper, is that central banks have subscribed to one economic philosophy in an expanding economy and quite another when the economy is contracting. When things are going well, central banks leave the markets alone. But at the merest hint of crisis, central bankers have responded by cutting interest rates to stimulate their economies and prevent asset prices from falling. Tongue firmly in cheek, Mr Cooper describes this as “pre-emptive asymmetric monetary policy”.
Troubled Wachovia Seeks Out a Merger September 27, 2008
Posted by dogmatix76 in Subprime Crisis.Tags: Financial Failures, Mergers & Acquisitions, Wachovia
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By ROBIN SIDEL, DAVID ENRICH and DAN FITZPATRICK
Wachovia Corp. has entered into preliminary talks with a handful of possible buyers — the latest in a parade of banks to look for safety in the arms of a suitor amid concerns that the weak economy is pushing them deeper into peril.
The talks came as Washington Mutual Inc.’s late-Thursday failure rattled the shares of other troubled banks. Shares in Wachovia fell 27% on Friday as investors fretted about its massive mortgage portfolio.
People walk by a Wachovia branch in New York City
Wachovia is talking to potential buyers including Wells Fargo & Co., Banco Santander SA of Spain and Citigroup Inc., according to people familiar with the situation. Wachovia officials don’t believe they need to rush into a deal, and the bank isn’t feeling immediate pressure on its financial condition, people familiar with the company said.
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WaMu Is Seized, Sold Off to J.P. Morgan, In Largest Failure in U.S. Banking History September 27, 2008
Posted by dogmatix76 in Subprime Crisis.Tags: Financial Failures, Mergers & Acquisitions, Washington Mutual
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By ROBIN SIDEL, DAVID ENRICH and DAN FITZPATRICK
In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co.
Pedestrians walk past a Washington Mutual branch in downtown Seattle.
The collapse of the Seattle thrift, which was triggered by a wave of deposit withdrawals, marks a new low point in the country’s financial crisis. But the deal, as constructed by the Federal Deposit Insurance Corp., could hold some glimmers of hope for the beleaguered banking system because it averts any hit to the bank-insurance fund.
Instead, J.P. Morgan agreed to pay $1.9 billion to the government for WaMu’s banking operations and will assume the loan portfolio of the thrift, which has $307 billion in assets. The full cost to J.P. Morgan will be much higher, because it plans to write down about $31 billion of the bad loans and raise $8 billion in new capital. All WaMu depositors will have access to their cash, but holders of more than $30 billion in debt and preferred stock will likely see little if any recovery.
Oil spikes $16 in single biggest one-day jump September 23, 2008
Posted by dogmatix76 in Financial Markets, Oil Prices.Tags: Crude, Oil Prices
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NEW YORK (Reuters) – Oil prices soared nearly 16 percent to over $120 a barrel on Monday — the biggest one-day gain on record — in a rally sparked by the expiry of the front-month futures contract and weakness in the U.S. dollar.
The gains extend oil’s climb from a low near $90 last week after the United States unveiled a sweeping rescue plan for its battered financial sector, improving the outlook for energy demand in the world’s biggest consumer nation.
U.S. crude for October delivery, which expires on Monday, settled up $16.37, or 15.7 percent, at $120.92 per barrel. The contract for delivery in November, which was much more actively traded, was up only $6.62 at $109.37.
London Brent crude settled up $6.43 at $106.04.
Goldman, Morgan Stanley to become regulated banks September 22, 2008
Posted by dogmatix76 in Subprime Crisis.Tags: Financial rescues, US Federal Reserve
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By Krishna Guha in Washington
Published: September 22 2008 03:04 | Last updated: September 22 2008 07:34
Goldman Sachs and Morgan Stanley, the last surviving big investment banks on Wall Street, have become regulated banks.
In a statement issued at 9.30pm Sunday, the Federal Reserve said it had approved their applications to become bank holding companies, subject to regulation by the Fed.
During the transition period, the Fed will make loans to both entities and to the broker-dealer subsidiary of Merrill Lynch against collateral acceptable for posting either by a bank or a securities firm.
The Fed will also lend to Goldman, Morgan and Merrill’s London-based broker dealer subsidiaries directly.
The Fed approval is subject to a five-day waiting period for potential antitrust issues.
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Bailout Timeline September 22, 2008
Posted by dogmatix76 in Subprime Crisis.Tags: Financial rescues, US Federal Reserve
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Global write-downs and credit losses September 22, 2008
Posted by dogmatix76 in Bankruptcy, Subprime Crisis.Tags: Credit Crisis, Financial Failures
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Goldman, Morgan Stanley abandon investment banking model September 22, 2008
Posted by dogmatix76 in Financial Markets, Subprime Crisis.Tags: Financial Failures, Investment Banking
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Mon Sep 22, 2008 5:31am EDT
By Kevin Drawbaugh and Mark Felsenthal
WASHINGTON (Reuters) – Goldman Sachs and Morgan Stanley sought shelter with the Federal Reserve to survive a financial storm that has destroyed their rivals, effectively killing off the Wall Street investment banking model of the past two decades.
The move is Washington’s latest effort to restore calm to chaotic markets and follows frantic talks between the Bush administration and Congress on a $700 billion bailout to prevent the crisis from pushing the economy into severe recession.
By agreeing to much tighter Fed regulation as bank holding companies, Goldman and Morgan Stanley moved to avoid the fate of rivals that either collapsed or were taken over in the worst financial crisis to sweep Wall Street since the Great Depression.
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