Leaders at wits' end as markets throw one tantum after another -- Financial Times

[mendeleev 68]

The contagion started in the USA, as the likes of Morgan Stanley (which is where our Treasury Secretary came from) creating and selling huge amounts toxic CDO's into the securities markets. The problem is now completely global and to contain it, a great deal of risk will need to be socialized. But will the gains continue to be privatized?

Leaders at wits' end as markets throw one tantrum after another

By Gillian Tett

Published: October 11 2008 03:00 | Last updated: October 11 2008 03:00

For most of the past year, senior bankers have struggled to avert a collapse of faith in modern finance. Tragically, as this month's events show, they have largely lost this fight.

Now, however, this war has entered a new, and potentially even more dangerous phase. As markets have embarked on their roller-coaster ride this week, what has triggered this panic is not just the question of whether it is safe to trust banks. Instead the great unspoken fear now is a broader one: can we really trust that governments actually have the power to stop this panic?

After all, in recent weeks, US and European leaders have showered the banking system with pledges of help. Last week, for example, the UK government unveiled a £400bn ($681bn, €506bn) plan to buttress British banks, as the world's central banks unveiled co-ordinated interest rate cuts. Before that, the US agreed a $700bn plus package.

But the only thing more striking than these zeroes is that the impact of these moves appears to be getting smaller, day by day. For each time that governments have offered new measures to placate investors, the markets have merely paused for breath - before staging another tantrum. It is a behaviour pattern that would look familiar to parents of an overexhausted toddler; no wonder so many Western financial policymakers look haunted.

Hopefully, this weekend's meeting of Group of Seven ministers will produce some policy measures that can finally stop this self-destructive pattern. If nothing else, the wild market swings seen this week have raised the political pressure for action.

But even if the Washington meeting can now quell the terror - and it remains a big if - it will not be easy truly to restore faith in the power of governments. Five years ago central bankers seemed almost omnipotent; now they seem scared. And that cannot be reversed by yet another pile of trillions.

To a large extent, this is a problem of their own making. Four decades ago it was regulated banks and markets that accounted for most credit creation and trading. However, this decade, regulators have permitted activity in the unregulated derivatives world to spiral dramatically, and so-called "shadow banks" - such as hedge funds and structured investment vehicles - have become crucial in the credit world.

One consequence of this pattern is that governments failed to see the extraordinary mountain of debt that quietly accumulated in these murky corners earlier this decade. But another consequence is that as this credit bubble now bursts, policymakers are poorly placed to predict - let alone contain - all the chain reactions being unleashed.

Take the issue of credit default swaps, the instrument used to place bets about whether a bond will default. One factor that has caused particular market panic this week is a fear that institutions will soon be forced to pay tens of billions of dollars to settle claims linked to CDS written on bankrupt companies, such as Lehman Brothers and the Icelandic banks.

Such fears could well be overblown. After all, for every loss on a CDS contract, there is a gain somewhere else, and banks should have provisioned for such payments. But the problem is that few investors know how these contracts work, how big payouts might be or which banks or funds will be hit. Worse still, regulators themselves are partly in the dark, since this is a private market. Meanwhile, alongside these CDS there are now numerous other types of contracts that are also being unwound or re-evaluated as markets fall - and which investors do not even know about.

No wonder that traditional policy tools, such as rate cuts, have hitherto failed to restore market calm. Nor should it be a surprise that the sensible measures unveiled by the UK have also had so little impact. After all, the bail-out plans unveiled last week relate to future pledges to help regulated banks, inside national borders.

What investors want to see are tangible, immediate steps now that can stop the terrible, cross-border, deleveraging domino effect - in relation to Iceland, Lehman CDS or anything else.

But the terrible truth is that it remains an open bet whether modern, national governments can actually produce these badly needed steps and, judging from market swings, it is a bet that some investors seem ever more unwilling to take.

gillian.tett@ft.com

http://www.ft.com/cms/s/0/6bb08aa2-972c-11...?nclick_check=1

Edited October 12, 2008 by novotul

[peejay 327]

Financial Times, globalized contagion incubated under Bush/McCain deregulation

Ha! Yes...I see it now...the evil twins managed to enact this foul legislation under the nose of the Democratic majority congress.

[Mr. Big Dog 10,747]

...Morgan Stanley (which is where our Treasury Secretary came from)...

Paulson actually came from Goldman Sachs.

[mendeleev 68]

...Morgan Stanley (which is where our Treasury Secretary came from)...

Paulson actually came from Goldman Sachs.

Opps ... you're right! Goldman Sachs has been another huge originator of CDOs.

[peejay 327]

Confronting Congressman Barney Frank (D-MA)

by Bill O'Reilly

Posted 10/11/2008 ET

One of the things lacking in the second presidential debate this week was anger. With the economy brutalizing millions of Americans, I expected both candidates to be furious that, once again, the government failed to warn us about impending disaster.

Before the 9/11 attacks, few Americans had ever heard of al-Qaida, even though Presidents Clinton and Bush certainly knew of the growing danger the group posed. Now there's compelling evidence that the feds stonewalled the present economic chaos. So why aren't McCain and Obama livid?

It is not hard to understand why Americans who work hard, obey the law and believe in the capitalist system are sick to their stomachs when they lose investment money through no fault of their own. Corrupt Wall Street greed-heads and stupid, lazy federal overseers have combined to deliver one of the most punishing blows to regular folks in U.S. history.

Again, why aren't Obama and McCain pounding the table?

Recently, I interviewed Chairman of the House Finance Committee Barney Frank, and it was quite a shootout. According to The Wall Street Journal, Investors Business Daily and my own research, Frank presided over the collapse of Fannie Mae and Freddie Mac with a casual disdain for the American investor.

In fact, last July, Frank went on television and said this:

"Fannie and Freddie are fundamentally sound, they are not in danger of going under. They're not the best investments these days from the long-term standpoint going back. I think they are in good shape going forward."

Fewer than three months later, Fannie Mae and Freddie Mac collapsed, and even though he was in charge, Frank says he is not at fault. Instead, he blames Republicans.

Hearing that, I let Frank have it, calling him a coward for not admitting any culpability. He then called me stupid. You get the picture.

Now, I remain furious with Barney Frank. To me, he epitomizes everything that is wrong with the federal government. He was incompetent in his oversight of the federal mortgage agencies, and when they folded, causing a chain reaction of financial disasters for honest investors, he blamed other people.

Unacceptable. And every elected official in Washington should feel the same way. This is not some political theory here -- real people are getting hurt, lives are being dramatically affected. Those responsible should be held to account.

But in the land of conventional politics, anyone showing anger and passion is deemed to be "out of control." You must appear calm and cool in the face of any storm. Therefore, Obama and McCain showed little emotion about the terrible economic situation.

Sometimes cool doesn't cut it, fellas. There is a time for anger.

That time is now.

http://www.humanevents.com/article.php?pri...es&id=28970

Edited October 13, 2008 by peejay

[NickD 202]

Listening to a quick summation on the news about the credit crunch, apparent the world cannot run without credit. Never liked that idea of using my hard earned money to pay interest to the bank or to stock holders. Just once I had to go to the bank for a one month loan to handle a large order I received for extra labor, but paid that back within a month. But by hanging onto that cash for future large orders, never had to hit the banks again.

It is my philosophy that the people that really should get the money, are the ones that are working their butts off to get that product out, not some fat cats on Wall Street. In my opinion, we don't even need Wall Street, just a big pile of parasites eating away at your flesh. If they want to earn a living, should be in the plant working their cans off, and by not feeding them, could be very competitive. Least until our government brought in the Chinese, can't pay workers here a buck a day and dump our raw pollution into the streets.

You know, I really hate our government, least the donkey pits running it, or should say, running it into the ground. America was not this way even a few years ago. Should I leave? No!!! Should we get rid of these crooks? YES!!!!