house debate in progress

Good morning.

Rep. Brad Sherman (D-CA) says members of the House of Representatives were threatened with Martial Law if they didn't vote "yes" last Monday. (Also here but I'm having trouble loading that copy.) I'd heard rumours of this before, but this is the first video I've seen of this allegation actually being made on the House floor.

The TED spread is hitting new highs at 3.85, as I type this sentence; the Fed actual (effective) rate overnight fell to 0.67%, a miss from target by 1.33%; since September 18th, the Fed has come within reasonable range of its target rate only once. Effectively, there has been a Fed rate - a big one - only it's not official. The dollar continues to rally, hanging around 80.6, which is quite a bit higher than recent times. But the LIBOR froze up entirely last night; Dr. Roubini calls this a disaster - the economy having had a heart attack - and outlines what actually needs to happen, including a post-passage complete reconstruction of the TARP plan about to be passed today. This one's worth reading.

While on the TARP; the GOP amendment I mentioned last night has failed; the House is currently in a 90-minute debate period with no amendments allowed. There will be a vote sometime after 9:30am Pacific Time/Noon Eastern; I'm hearing 10am as most likely. I just overheard Barney Frank (D-MA) say on C-SPAM that they need to pass this so people can buy more automobiles. What is wrong with this man?

Apparently the bill also repeals reserve requirements for banks. In theory, this is in substitute for capital requirements. But the capital requirement depends upon mark-to-market for legitimacy - and that's being suspended, too. What the hell does this mean?

In other news, Karl Denninger talks about Mark to Model here, and why it's too optimistic, getting back to the basic question of restoration of trust and transparency. Mish Shedlock take apart the latest unemployment report, noting that again - farcically - the "Birth/Death Model" is still adding jobs in places like Construction. Mish says they should be ashamed to print this data, and the actual rate (the U-6) is more like 11%.

eta: As everyone will know by now, the bill passed, and goes to Mr. Bush for signature; he's said he'll sign it. Welcome to the US$1.3T deficit.

well, at least they have the right customer in mind

Saw this at the Albertsons in Lake Forest Park, down the hill from my house, displayed prominently on the bookshelves by the checkout stands:


Complete Idiot's Guide

( Back cover )

It's not really the usual market for this kind of thing. I've been hearing about a lot of religious revivalism on Wall Street amoungst the traders, too.

Mr. Bush signed the bill almost immediately after passage. The equities markets peaked today right as the House started to vote on this bailout. The Dow then proceeded to fall 470.88 points from that high as the bill passed and into the rest of the afternoon to close.

I don't think that's a vote of confidence.

Oh, there we go

Oh, there we go - the other reason for the credit lockup and the money hoarding that's sending the dollar into a rally. There's a huge series of Credit Default Swap workouts coming up - a market test - and nobody knows how much any of any of these things are worth and how they're going to work out, and they total trillions and trillions of dollars and while it'll reduce in actual payout, nobody knows how far. So everyone's holding on to every dollar they can. And the CDS market is denominated almost entirely in US dollars, even tho' they're all over the globe, which is why the dollar can be in a rally.

And that hoarding will include this US$700B, by the way - just look at how much is on the table here:

The "auction season" starts tomorrow, when the International Swaps and Derivatives Association has scheduled an auction for Tembec, a Canadian forest products company. This is followed by Fannie Mae and Freddie Mac auctions on October 6. Then, Lehman is settled on October 10, and Washington Mutual is scheduled for October 23.

...

The amount of contracts outstanding that reference Fannie Mae and Freddie Mac alone is estimated to be up to $500bn. ... The CDS contract settlement could result in billions of dollars of losses for insurance companies and banks that offered credit insurance in recent months. ... Lehman's bonds have been trading between 15 and 19 cents on the dollar, meaning investors who wrote protection on a Lehman default will have to pay out between 81 and 85 cents on the dollar...

And that's why the "bailout" didn't look like it'd do a goddamn thing to free up the credit markets - because it won't. And wasn't meant to. It's for these auctions. It's why the Fed wasn't going to act for two weeks even if they'd gotten this power last Monday, because the auctions weren't happening for a couple of weeks. And it's why foreign banks and foreign assets had to be included.

I can't wait to see what they come up with next week.