Hi. Hoo boy, the past few days make me wish I could just noodle around on this blog instead of attending to my actual job. We live interesting times, and this morning's stock market open was more exciting than a Giants field goal attempt at Lambeau (sorry Williams boys-- your boys are going down!) Since this space has been in an obessive-compulsive mode over the economy and the financial markets since last July, we'll just dispense with the obvious and start digging into what's under the surface. There's are big questions about what's really going on in the banking system and the financial markets now, and we'll try to ferret out the best the internet has to offer for some answers.
The obvious: the Fed (with one absent and one dissenter) cut the Fed Funds target rate by a whopping 75 basis points this morning, an hour before the stock market opened. It was the first emergency Fed Funds cut since September 17, 2001 and the biggest one since the FFT became the fed's main policy tool back in 1990. Was it a surprise? Sort of.. there was certainly a lot of speculation they'd do it based on the mondo-world-sell-off from the day before. Did it work? Well as we all saw, the Dow plunged 464 points then reversed, made it all the way to -38 and has been holding in the -100 points or so range for much of the day. So, stick save by the Fed.. an outright crash averted for today. (And the second time the market seemed to be heading into the abyss and was "saved" by an emergency cut-- the last one was the surprise Discount rate cut August 17. By the way, that was 1,108 Dow points ago.) But lots of question about what the Fed may really be looking at as it slashes away at the FFT, especially with demand for bank credit way, way down. Trying to parse what's going on behind the scenes, Russ Winter of the Wall Street Examiner channels Jerry Maguire and wants the banks to "Show Me the Moneeeeey!" And the Financial Armageddon blog take the deflationist side of the argument, which would explain agressive rate cuts in the face low interbank demand, high commodity prices and consumer inflation. On the fundamentals front, Bank of America and Wachovia reported earnings today. Or "earnings" might be more appropriate since they were bascially zero for the fourth quarter.
Backing up a bit, Jared Bernstein and Dean Baker writing at TPMCafe take a look at where we stand. Brian Wingfield writing in Forbes, with a skeptical eye toward the Fed's move. The Economist sniffs the air and finds a whiff of Fed panic. And Randall Forsyth of Barron's welcomes us to The Great Crash of '08.
Another big risk area that we've talked about before, the bond insurers, comes up in most of the links above. It certainly seems like Friday's ratings downgrade of Ambac at least contibuted to if not triggered the global selloff yesterday. Bloomberg sums up how the sleepy, profitable business of municipal bond insurance morphed into the monster that ate the world's financial markets. Nat Worden at thestreet.com wrote about the hazard over the weekend. And in light of all that, this blast from the past from Business Week on the father of mortgage securitization is a good read. (hat tip: Enfinity at TickerForum)
Looking forward now, CalculatedRisk posted today about the "jingle mail" phenomenon (the amount you owe on your mortgage exceeds the value of your home. You mail the keys to the bank and leave.) Whether this is going to become a socially acceptable thing to do as more and more borrowers find themselves in this position is a growing worry for banks, which came up on Wachovia's conference call this morning.
How bad was Sunday night for newbie-type day-traders dabbling in electronic futures? Scroll down to the post: THE STOCK MARKET RUINED MY LIFE to watch a youg'n lose $31,000 in real time. (Caution: foul language. Seriously. Nothing but foul language.) [UPDATE: YouTube took the video down. I told you it was foul language!]
Hey kid, here's some advice, old-school style.
Well, since you can no longer see the trading guy video, here's another dose of harsh.. courtesy of Jim Kunstler.