Has the financial crisis turned the corner?

Wall Street is exuberant today, particularly in the financial sector. No doubt there will be some more fallout ahead, but would you think the panic mood has calmed?

Everything’s fine as long as Bernake can keep lowering the interest rate.

He can do that forever, right?

Seriously though, the problem is that no one knows how deep the crisis really goes, or how much bad paper is out there. But we are nowhere near the bottom.

Oh hell, I didn’t notice the rate cut.

Screw it, Bernanke’s just digging a deeper hole.

My entirely naive analogy for the stock market is–since so much of it is based on perception of value affecting actual value–an acid trip. Sooner or later, the bad part of the trip kicks in and everyone loses their shit unless someone with experience and a cool head talks everyone out of it. And even then, people can still lose their shit and end up, uh, losing their shit.

Sometimes I wish I could invest my 401(k) in Magic: The Gathering cards, instead.

It hasn’t turned the corner because no one even knows where the corner is.

How about we just trust that one of the leading scholars of financial system crises and what they do to an economy and how important it is to prevent them – a certain Ben Bernanke – might just know what’s he doing.

Well the rate is down to 2 1/4.

Hey this is the perfect time for a first time home owner to get in on an ARM with a balloon!

You do realize that Bernanke knowing what he’s doing doesn’t preclude him just not having enough room to work with, right?


You’ve been snarked!

As pointed out above - no one knows where the corner is.

I’d like to point out that the market being up 420 isn’t a sign of anything other than panicky investors who have absolutely no idea what’s happening. I don’t think the market is at all rational right now.

He’s definatly shooting with both barrels now that they’ve (the Fed) opened up liquidity to IB’s (and doing that a week ago would have probably saved BSC), but how much ammo do they have, and how low are they willing to shoot? Are they willing to kneecap the dollar to do this?

Getting away from bad analogies, Bernake’s papers on this (I don’t have a link, sorry) are pretty approachable from a college-level-econ perspective, but I can’t tell if he’s fighting the last war now. My gut feeling is that this isn’t just a liquidity problem, it’s a solvency problem; I.E. it’s not just what you’ve got in your cash account, it’s a what’s on the books and how much is it really worth problem. It’s in no one’s interest to have the CDS portfolio that BSC held to be actually valued. Helping JPM buy BSC and keep them out of bankrupcy (and they probably weren’t going into it, not with bonuses being despensed at the beginning of the month) kept the mark-to-market for a lot of CDS from happening, but I think you’re seeing the lower limit of the Fed’s reaction here. Thornburg (ultra prime jumbo mortgage lender) can fail, but big CDS counterparties like BSC are going to be matched up (with corporations like JPM) and bought, with help from the Fed. Valuing that stuff in a weekend probably isn’t possible (and wasn’t possible by JPM), and with a warranty from the Fed and that you’re buying the counterparty to your risk…

Is that going to be enough? Hell if I know. What I think is that the Fed has probably set the lower bound. Are they going to have the ammo to help the upper bound?

Heh, nice one Sly.


So the basic investor’s creed is: Buy low, sell high. The stock market is low. Thus, one should be buying. If it goes lower, then one should be buying more.

Paul Volker was on Charlie Rose tonight and he didn’t seem particularly worried. Maybe he doesn’t know all the details, but most of the “sky is falling” folks I’ve heard have been saying that for years and predicting a new depression was right around the corner. Maybe this time they’re right, but I’d rather wait and see how things develop myself.

Then again, I have nothing directly at stake.

As my good friend Cleve recently asked on his fine blog, what’s the interest rate cut after 0.1?

The sheer amount of incompetence and mendacity among managers of major banks that has come to light during this crisis is just staggering. Right now it’s not possible to assume anything about the true extent of bad loans. Bernanke just crosses his fingers and hopes the crisis will be over before he runs out of interest rates to cut. Whether that will happen is anyone’s guess.

So you don’t buy or sell any products at market prices, you don’t have any cash accounts, you don’t need any credit, and you don’t work for any company that might need credit or investment capital? How’s the bartering going among subsistence farmers these days? :)

I said “directly” and I meant it. When you are not working and have minimal income and assets, you look at these things differently. :-)

My real concern is more about family and friends.

The Primary Dealer Credit Facility the Fed introduced Sunday night was really important. It makes another failure like Bear’s pretty much impossible. There’s still going to be a recession, but systemic risk has greatly decreased.


So the basic investor’s creed is: Buy low, sell high. The stock market is low. Thus, one should be buying. If it goes lower, then one should be buying more.

Yep. I’ll never understand why the rats flee the ship at the first sign of trouble. Don’t you want cheap stock? Would you prefer to keep buying high forever? Makes no sense.