Emergency NY Fed meeting, and other news

[solarbird]

Emergency NY Fed meeting earlier today (6pmish Eastern) officially about Lehman Brothers, extensive rumours that it had a lot to do with WaMu also. There are bids - reportedly - but they're contingent on big Treasury backing - reportedly - but Secretary Paulson has told Lehman that we're not saving your sorry ass, reportedly. (Last link courtesy hubbit.) Lehman is spending lots of money on campaign contributions now, hoping to change that outcome. Bets on that will not be taken. There are also rumours of an emergency rate cut. Bets on that will also not be taken, but for different reasons.

Somebody asked for a lot of money from the Fed on Thursday - US263B - and did not get it. I can think of several candidates.

Washington Mutual, incidentally, insisted today that it is "well-capitalised." Regular readers will know where that kind of statement has led recently. Bloomberg was reporting they're considering selling accounts and bank branches to try to stay afloat, but that story has been revised not to include that detail. Interesting. Here's a partial of the old version of the story, which used to read:

WaMu May Be Forced to Sell Deposits to Stay Afloat
By Elizabeth Hester and Linda Shen, Bloomberg News
Friday, September 12, 2008

Sept. 12 (Bloomberg) -- Washington Mutual Inc., facing up to $19 billion in bad home loans and slammed by a 34 percent drop in its stock this week, may sell parts of a nationwide 2,300-branch network to raise capital.

The TED spread, a measurement of what banks charge each other to borrow, is jumping up again today, too. Canadian interbank loans are not so badly affected.

Selling in the stock market combined with selling in the bond market combined with a 1.3% drop in the dollar hints of capital flight, complete with the now monthly rumours that China will be cutting its share of reserves purchases in dollars. CNBC Europe, which is somewhat more reality-based than the US version, goes there, with today's story, "Bailouts will push US into Depression". The analyst they're quoting is bearish on the US dollar: "'Definitely, it (the dollar) is not a safe place to be invested in, as real inflation is closer to 10 or 11 percent than the actual inflation numbers given by the U.S. government,' Hennecke said on 'Worldwide Exchange.'" Mish notes that the unwind of the carry trade has been helping the dollar, but that didn't help much today. Paul Krugman is not what you'd call a top-drawer source, but he does point at a figure and go, 'oh wow, look.' (Last courtesy llachglin.)

The Times of London says We're all capitalists now? Not any longer, slamming the bailout mania in the US, noting with astonishment:

Viewed from across the Atlantic, where nationalisations of relatively unimportant industries such as steel, shipbuilding or coal provoked years of parliamentary opposition and legal argument, it seems astonishing that the US Government could simply announce itself as the owner of these giant companies, wiping out overnight some $20 billion of shareholder wealth. But what is even more significant is that nobody in American politics or business objected to this anti-capitalist coup.

Oh, remember that housing market? Bankruptcies soar yet again. I guess we're out of that little "eye" of the hurricane. And back to an old favourite, people are starting to notice that these subprime-bailout programmes are being smashed by bad second mortgages.

China, btw, has dropped demand for oil significantly, and the manufacturing boom is slowing. Hence $102/barrel. China also used money to get Costa Rica to drop recognition of Taiwan. Neat.

Comments

[silussa.livejournal.com]

If Lehman goes belly up, which seems a likely prospect, who follows? That's the $64 question, after all....the dominoes.

[solarbird]

Fannie Mae and Freddie Mac didn't upset the CDO market too badly. Some people are speculating that Lehman Brothers going under would.

[llachglin.livejournal.com]

It was previously the $64,000 question, but that was in pre-deflation dollars.

[silussa.livejournal.com]

And I think the "D" word is pretty appropriate. Whether the government props Lehman Brothers up or lets it go under, a depression is the result of when people stop spending money. A loss of confidence would certainly do that.

It could be argued that we're already there (although I'm in Florida, so the view isn't to great here anyway), and that Lehman and WaMu will just add the punctuation and capitalization.

[(Anonymous)]

"Well capitalized" is a legal term. It means that the a bank meats the Prompt Corrective Action regulation definition of "well-capitalized." It does not in any way reflect the level of capital in the bank compared to the amount of actual risk a bank is taking. (12 USC sec.1831o)

It mainly means that a bank's leverage ratio is at or above 5%, though it also includes some risk rated ratios as well.

[rosepurr.livejournal.com]

Sorry, anonymous comment was me. :/

[solarbird]

Sure, but every time a major institution announces something like that lately, it's like a two-minute-warning death announcement.

[rosepurr.livejournal.com]

Oh, I know. The point I was making was that institutions say that like it means something, and it means absolutely nothing.

The PCA law did some good things, but making banks think that the minimum PCA capital requirements were "good enough" was NOT one of them.