my heart's not in it today

Good morning.

First things first: here's a breakdown of the Lehman Brothers CDS auction tomorrow. We should know how it went by 11am Pacific. Possibly in anticipating, banks are hoarding cash harder than ever - the TED spread, a measure of interbank lending costs, bounced off 4.13 this morning, tho' it's currently down to 4.01.

Interest rates (not just spreads) continue to worry me. Note the Fed overnight rates - they cut rates half a percent and miss to the upside by 74 basis points. I suppose that's within their newtype definition of "in range" if you're within 75, but c'mon. Much worse is that we're currently in our third straight day of selloffs in both stocks and treasuries. Christopher Grey at TheStreet says to run, not walk, from Treasuries. There're worries about capital flight, but also speculation that investors are moving to newly-insured Corporate bonds which offer higher interest rates. Either way, it means higher borrowing costs for the US government. Checking Karl at Market Ticker, I see he's worried too.

Mish Shedlock offers critical commentary on the proposed partial nationalisation of assorted US banks. Bloomberg talks about the LIBOR crisis and how it's affecting business across the world. Brad Setser suspects the US trade deficit will decline very sharply in September - unexpectedly so.

Incidentally, Congress is reportedly talking about screwing around with 401(k)s:

“With respect to the 401(k), it appears to be a plan that is not really well-devised for the changes in the market,” Rep. George Miller, D-Calif., said.

“We’ve invested $80 billion into subsidizing this activity,” he said, referring to tax breaks allowed for 401(k) contributions and savings.

With savings rates going down, “what do we have to start to think about in Congress of whether or not we want to continue and invest that $80 billion for a policy that is not generating what we … say it should?” Mr. Miller said.

And General Motors fell below $6/share for the first time since 1951. But market theorists say we're nearing the end of Wave 3 of 5 (Down) and should be entering Wave 4 (Up) in this 5-move decline, so.

overnight deteriouration

There's a huge CDS auction tomorrow (or today, depending upon when you read this - Friday). It's Lehman Brothers. Do not assume this will go well. I thought earlier it would be okay, and it still might, but things are becoming disorderly overnight; TED spread is insane, LIBOR is insane, there was a dislocation in the US treasury market today with some durations having to be withdrawn and reissued at shorter, higher-yield durations to sell. There are reports of a other government bond failures.

The Nikkei is down 10% for the second straight day, with Osaka halting trading for a while; it's resumed now but I don't know how their circuit-breaker system works so I don't know what the limitations are. Some bank stocks were reportedly getting no bids on sell attempts. The Hang Seng is down 7% but recovering a little.

Forex is insane. The Yen is undergoing another moonshot as Japanese banks are reportedly trying to isolate themselves from the US and Europe, ala the way Europe isolated itself from Iceland after Iceland imploded:

Despite all the efforts shown by G7 central banks and governments, the credit market remains in turmoil. No one is lending to one another, at least on a term basis. The talk this morning is that Japanese banks have effectively stopped such loans to US and EZ counterparties. The funding situation on the corporate side also looks dire with GM likely to be downgraded and the CP market looking to be effectively shut down aside from whatever the Fed can fund. -- Haruya Ida (Thompson/Reuters)

Much more importantly, I've been hearing reports of trade being stopped by credit unavailability; it's getting bad enough to get noticed. It's so bad that banks are not taking US Treasuries as capital for lending. Karl Denninger talks about what this means and why it affects you, personally, and how pervasive credit is for basic domestic shipping, and what that means.

Dr. Roubini says we're likely to be fucked, for lack of a better word and that the Paulson plan has clearly failed, and prescribes a list of actions that must be taken immediately to prevent a global depression. Naked Capitalism has further commentary. These are compatible with but not the same as Karl's list of necessary actions (same link as above).

Anything you might have gotten from me in a non-public forum should be considered to have understated any risks. Nothing is guaranteed but conditions have deteriourated significantly in the last several hours.

disgusting

kathrynt reports on the hideous corruption that the politicised Justice Department refused to prosecute in the Department of the Interiour, including but not limited to bribes, payoffs, sexual favours, and rape, between 2002 and 2006.

Why anyone should wonder why the economic crisis mishandling has proceeded as it has is an exercise left for the reader.