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US Financial Crisis: 'The World As We Know It Is Going Down' - SPIEGEL ONLINE - News - International
By Marc Pitzke in New York

...

In fact, it really does look as if the foundations of US capitalism have shattered. Since 1864, American banking has been split into commercial banks and investment banks. But now that's changing. Bear Stearns, Lehman Brothers, Merrill Lynch -- overnight, some of the biggest names on Wall Street have disappeared into thin air. Goldman Sachs and Morgan Stanley are the only giants left standing. Despite tolerable quarterly results, even they have been hurt by mysterious slumps in prices and -- at least in Morgan Stanley's case -- have prepared themselves for the end.

"Nothing will be like it was before," said James Allroy, a broker who was brooding over his chai latte at a Starbucks on Wall Street. "The world as we know it is going down."

...

But what's really happening? Experts have so far been unable to agree on any conclusions. Is this the beginning of the end? Or is it just a painful, but normal cycle correcting the excesses of recent years? Does responsibility lie with the ratings agencies, which have been overvaluing financial institutions for a long time? Or did dubious short sellers manipulate stock prices -- after all, they were suspected of having caused the last stock market crisis in July.

The only thing that is certain is that the era of the unbridled free-market economy in the US has passed -- at least for now. The near nationalization of AIG, America's largest insurance company, with an $85 billion cash infusion -- a bill footed by taxpayers -- was a staggering move. The sum is three times as high as the guarantee provided by the Federal Reserve when Bear Stearns was sold to JPMorgan Chase in March.

(All emphasis mine)

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Fri Sep 19th, 2008 at 03:02:07 PM EST
[ Parent ]
Britain and US crack down on hedge funds blamed for crisis - Business News, Business - The Independent

The Financial Services Authority (FSA) banned "short selling" of bank shares from midnight last night, after warnings that the practice helped fuel market turmoil that forced the dramatic £12.2bn takeover of HBOS by Lloyds TSB. This came as the New York Attorney announced his office had launched an investigation into illegal manipulation to profit from short selling. The move is to uncover whether speculators have spread misleading information or acted in concert to purposely drive down share prices.

Wealthy hedge fund traders, heavy users of the shorting strategy, have sparked fury after making millions from the collapse in value of UK banking stocks.



*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Sep 19th, 2008 at 04:35:59 PM EST
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Horse. Barn door.
by Bernard (bernard) on Fri Sep 19th, 2008 at 05:18:27 PM EST
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And as we know, the evil Hedge Funds™ were in charge of the US Federal Reserve Bank from 1987 to 2006.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Fri Sep 19th, 2008 at 06:50:32 PM EST
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Who do they think is going to buy the (heavily discounted) assets dumped by banks in the lap of the taxpayers? Hedge funds, that's who.

But hey, when your only policy is distraction, it's par for the course.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Sep 20th, 2008 at 06:07:42 AM EST
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Distraction, all right.

Short selling can be simulated at relatively low cost with options and futures. But the SEC and FSA have not banned options or futures on financial stocks.

Also, as the long/short hedge funds all, simultaneously adjust their portfolios to react to the new regulations you're going to see some deleveraging (which, when done by all, simultaneously is a Bad Thing™) and some large sector movements (blowing away the stability of correlation estimates).

It's all for show.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Carrie (migeru at eurotrib dot com) on Sat Sep 20th, 2008 at 09:08:34 AM EST
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Wall Street bailout could `cripple' federal budget
By Jared Allen and Jackie Kucinich, The Hill

Congressional budget writers are already starting to worry that the massive federal government bailout of Wall Street could have drastic repercussions on how the government spends money next year and beyond, regardless of the make-up of either end of Pennsylvania Avenue.

Rep. Jim Cooper (Tenn.), a senior Democrat on the House Budget Committee, as well as a former investment banker, stressed that the moves by the federal government to prop up the financial markets are positive and necessary. Still, the investments -- just because of the sheer dollar amounts involved -- could freeze Congress's ability to spend money on a host of things well into next year and beyond, he added.

"This cripples the domestic policy priorities of the next president, whoever it is, because it soaks up so much cash," said Cooper, a senior Democrat on the House Budget Committee and a former investment banker. "In the long term, it is good news because it will encourage better behavior from everyone."
Treasury Secretary Henry Paulson said Friday the measure would cost "hundreds of billions" of dollars.

"Don't assume there will be revenue next year when we do this," said Rep. John Campbell (Calif.), a Budget Committee Republican, former CPA and member of the conservative Republican Study Committee who supports the Treasury proposal.

"I mean, we are talking what I think could be a half-trillion dollars," Campbell said, adding that while it's hard to say to what exact impact the bailout will have on the budget, there will be widespread pressure to keep federal spending low.

by Magnifico on Fri Sep 19th, 2008 at 07:22:48 PM EST
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That's going to make federal funding for health care plans and social security more interesting.

Neocon win! They keep the money, and destroy public spending on essentials.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Sep 19th, 2008 at 07:32:10 PM EST
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That's the whole point. Makes it damned near impossible now.
by Magnifico on Fri Sep 19th, 2008 at 07:38:41 PM EST
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Unless it is all kept in that mysterious place, "OffBudget". A war of a few trillion, bailing out the financial system, another trillion or so.

I hope we get more than pennies on the dollar from the estates of the millionaires and billionaires who fleeced the system for the last several years. I fully presume that the bankruptcy estate manager of the US will claim back everything that they stole plus more.

Will we have to pay for their dinners and the dinners of their families while they are in their holding cells, awaiting trial? Or will they work on chain gangs. I can only imagine that if people taking pictures of them pay a dollar or so per, that this will be more monetarily remunerative than whatever service they are providing; trimming hedges on the road, etc.

I wonder if we should short some of the drug companies since all the rich won't be able to buy their 'mother's little helpers' as they do now. Geez, in that scenario, Prada, Chris-Craft, et al will be in dire straits. How will the world survive?

Never underestimate their intelligence, always underestimate their knowledge.

Frank Delaney ~ Ireland

by siegestate (siegestate or beyondwarispeace.com) on Sat Sep 20th, 2008 at 05:18:15 AM EST
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"In the long term, it is good news because it will encourage better behavior from everyone."

Better behavior? As in, "begging us for their survival, and obeying our every orders and whims because they have no other choice to survive?"

The Shock Doctrine has come home.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Sep 20th, 2008 at 06:09:57 AM EST
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