10/07/2008

Markets
They're tanking because banks won't trade with each other. Why? Because they don't trust one another.How come? Because if banks are capitalized by Credit Default Swaps or sub prime mortgages they are actually broke. So each is afraid that the other has phony capitalization, meaning they can't really buy. And in a 20 trillion dollar economy seven hundred billion will last about five minutes. So one set of liars doesn't trust the other set. So? So the Feds step in and guarantee the trades. Eeeek, that's communism. No it isn't. Before electronic trading had volume go to the billions, each and every trade made in Chicago actually went through the Exchanges. In other words the Exchange bought and then resold so the trade was guaranteed. That's what's happening now except that the Fed is the Exchange mechanism and this will stay until things calm down. Every large trade between banks will actually be between buyer-Fed-seller and vice versa.

Beside, as I said yesterday, the chart formation is a double top and it is sure to bounce. Then what? Well, the Euro may tank so badly that it will be abandoned. Glenn Reynolds, ever wrong and like the Times refusing to retract, claims there is a European Central Bank that will act. He is full of shit. What is called the ECB has no power over national interest rates and each country does its own thing (example: last week Ireland guarateed all deposits without asking anyone). As of last night the Bundesbank interest rate was 3.19 while the ECU bank had a suggested rate of between 3.25 and 5.25 depending on...... The EU is in currency hell with no solution in sight right now.

1 comment:

Doug_S said...

Exactly why are we following the model of Japan? In Japan the govt didn;t lend directly it tolds the banks to lend to dead companies and allowed the banks to operate insolvent and allowed them to book worthless debt. In the US the treasurt is taking the place of the Japanese banks, to what effect? Prop up asset values above market clearing prices? Keep unprofitable companies in business - a company that does not make profit is consuming money not making money. It is not the building the office and the paycheck that makes us better off, it is the business paying all its expenses at true market cost (including the cost to borrow money) and then selling something for all that money plus more money - a profit, a net gain in value.